Amendments to the Law “On Personal Income Tax” of the Republic of Latvia are in force since January 1, 2010, determining taxation of individuals’ income from capital gains.
Income from capital is subject to 10% tax and income from capital gains is subject to 15% tax.In accordance with the Law “On Personal Income Tax” of the Republic of Latvia, capital assets are: stocks, capital shares, investment certificates of investment funds, debt instruments and financial instruments referred to in the Financial Instrument Market Law.
15% tax is applicable to the following income from capital (financial instruments) gains:
- Stocks and capital shares;
- Stock market funds;
- Investment certificates of investment funds;
- Debt instruments (of corporate issuers and local government issuers from countries that are not European Union Member State or a European Economic Area State);
- Money market instruments;
- Currency exchange market (FOREX);
- Precious metals market (BULLION);
- Contracts for differences (CFD);
- Derivative financial instruments (derivatives): futures and futures options;
- The other financial instuments referred to in the Financial Instrument Market Law.
10% tax is applicable to the following income from capital (financial instruments):
- Interest income from debt instruments (with the exception of interest income from bonds of Latvia or another European Union Member State or a European Economic Area State and local governments);
- Income from individual management of financial instruments portfolio.
Latvian customers (residents), individuals: income from the alienation of financial instruments (with the exception of income from the alienation of debt securities of a European Union Member State or a European Economic Area State and local governments), as income from capital gains, is subject to personal income tax (hereinafter – PIT) of 15%.
Foreign customers (non-residents), individuals: income from the alienation of financial instruments present in the public circulation and from the alienation of debt securities of Latvia or another European Union Member State or a European Economic Area State and local governments, is not a subject to PIT.
Application of tax to Latvian customers
Capital gains are defined as the difference between the alienation (e.g. sale) value and the purchase costs of the capital asset (stocks or debt securities). The purchase cost of the capital asset includes the brokerage fee for the asset purchase and the custody service fee (the fee for the financial instruments holding), as well as the other costs related to the asset purchase, specified by the law.The day when a private person (a taxpayer) receives money (“value date”) shall be considered as the date of earning an income.
Tax declaration for Latvian customers
Cabinet of Ministers Rule Nr. 990 “On Filling of the Declaration of Personal Income from Capital Gains, and Declaration Form” determines the declaration form and the procedure of its filling. The Law “On Personal Income Tax” and the said rules prescribe that a taxpayer who received income from capital gains shall submit to the State Revenue Service:
- until the 15th date of the month following the month of obtaining the income - a declaration on income from capital, if the monthly income from the alienation of capital assets exceeds 711.44 EUR;
- quartetly, until the 15th date of the month following the quarter of obtaining the income - a declaration on income from capital obtained during the quarter, if the monthly income from capital gains and other incomes from transactions in assets are from 142.30 EUR to 711.44 EUR;
- until 15 January of the year following the taxation year - a declaration on the income from capital obtained during the taxation year, if the monthly income from capital gains and other incomes from transactions in assets do not exceed 142.29 EUR.
Taxation for Latvian customers
The calculated tax amount shall be paid into the budget within 15 days after submission of the declaration.
Income from capital which is not capital gains shall be formed by dividends, income equivalent to dividends, interest income (with the exception of interest income from debt obligations of Latvia or another EU Member State or a EEA State and local governments);
Latvian customers (residents), individuals: income from capital which is not capital gains is subject to PIT of 10%.
The tax on dividends income from shares in public float shall be withheld and paid into the state budget by the holder of the financial instruments account (Renesource Capital) which performs settlement with the payer (the recipient of dividends).
In the other cases the tax on income from capital which is not capital gains (dividends, coupon payments etc.) shall be calculated, withheld and paid into the state budget by the party that pays the income or the financial instrument issuer.
In cases where dividends, coupon payments or any other income from capital which is not capital gains are paid in a foreign country and it’s impossible to ensure withholding of tax from such income, the recipient of income should take care of payment of tax on his/her own.
In accordance with the law, when calculating 10% tax on income from capital, brokerage fees and custody service fees related to obtaining such income are not taken into consideration. Renesource Capital provides the information about withholding of tax in financial instruments account statement.
Under the current Russian withholding tax rules, Russian custodians, Russian issuers of securities, or other entities making payments, are responsible for calculating and withholding tax on payments of dividends and other types of income ("Russian Income") regarding securities and other financial instruments (including derivatives) issued by Russian entities (“Russian securities” or "Russian financial instruments").
Such Russian Income payable to companies that are not tax residents in Russia is subject to 15% (for dividends) and 20% (for most of other types of income) withholding tax on the gross amount, respectively, unless such income is exempt from taxation or reduced under the Tax Code of the Russian Federation (the "Tax Code") or/and under an applicable tax treaty to which Russia is a party ("Tax Treaty"). Russian Income payable to individuals that are not tax residents in Russia is subject to 15% (for dividends) and 30% (for most of other types of income) withholding tax on the gross amount.
Generally, to be eligible for the benefits under a Tax Treaty a foreign recipient of Russian Income should confirm (i) its tax residency in the relevant foreign jurisdiction ("Tax Treaty Jurisdiction") and (ii) the “actual right” to such income (a status of "the actual recipient of the income" as it is termed in Russian legislation).
Historically Russian tax authorities have tended to take the view that actual right to income means legal entitlement to receive income, with documentary evidence of such entitlement, but no definition has been provided in the Tax Code before 2016.
In addition, the Tax Code states that if Russian Income is paid to a foreign entity resident in a Tax Treaty Jurisdiction who does not have the actual right to such income, but the Russian withholding agent knows who the actual recipient of income is, then, if such actual recipient of income is a foreign entity residing in a Tax Treaty Jurisdiction, the Russian withholding agent is supposed to apply withholding tax pursuant to the provisions of the relevant Tax Treaty.
As of 2015, the Tax Code provides the right for Russian income payers to request foreign recipients of Russian Income for a confirmation of the actual right to income. While, unlike the tax residency confirmation, the Tax Code does not provide any specific requirement in respect of such confirmation, the tax authorities currently interpret the Tax Code as if provision of such confirmation of the actual right to income is mandatory. Therefore in practice the confirmations of the actual right to income need to be provided in a similar way as tax residency confirmation. In the absence of such confirmation, Russian custodian, issuer or other paying entity, will be required to make a withholding on account of Russian withholding tax on Russian Income.
Due to the involvement of the chain of intermediaries into providing services to Client, AS IBS Renesource Capital cannot guarantee that Tax Treaties will be applied in due, suitable and timely manner and/or that AS IBS Renesource Capital and/or Intermediaries, including Russian Custodians involved in the chain intermediators will be able to manage and ensure the fulfilment of Tax Code requirements in respect of confirmation of actual recipient of the income, so the withholding rate 30% withholding tax on the gross amount could apply.
Income Payment due from AS IBS Renesource Capital to the Client is limited to an amount equivalent to such Russian Income as AS IBS Renesource Capital receives from the source (intermediary). Such income may be distributed on pro rata basis between other clients of AS IBS Renesource Capital suitable for the receiving of such income. New Russian tax legislation and procedures suggests that most types of Russian Income received by AS IBS Renesource Capital and/or its intermediaries to be reduced by the deduction of withholding tax applicable under Russian law, and therefore the Income Payment payable by AS IBS Renesource Capital to Client will reflect this reduction. Nor AS IBS Renesource Capital nor its intermediaries and/or Russian custodians guarantees the rate of such reduction.
A Russian withholding tax agent (a Russian custodian, issuer or other paying entity) (i) is not required to make withholdings on account of Russian withholding tax from Russian Income paid to AS IBS Renesource Capital or (ii) is permitted to apply a reduced withholding tax rate under an applicable Tax Treaty to such Russian Income, provided that (in both cases) it has received the eligible and acceptable by AS IBS Renesource Capital’s intermediary confirmation in respect Client and/or underlying clients of the Client. Receiving by AS IBS Renesource Capital of such confirmation from the Client does not guarantee the avoidance of the withholding rate 30%.
It is important that Client provide AS IBS Renesource Capital with the information and tax documentation in a timely manner and keep us updated on any material changes to our particular circumstances (or the circumstances of Client that may affect the calculation and withholding of the applicable taxes by the relevant Russian withholding tax agents.
For the due execution of requirements of the Russian legislation Client shall provide:
a. Confirmation of tax residency in a Tax Treaty Jurisdiction ("Tax Residency Certificate"), and
b. Confirmation of the actual right to income ("Actual Recipient of Income Confirmation", and together with the Tax Residency Certificate, the "Confirmations").
Relevant documents shall contain the Apostille and to have the translation on Russian in accordance with requirements of laws of Russian Federation.
Please be aware that:
(a) submitting of Confirmations mentioned above will not automatically result in any Tax Treaty benefits or Tax relief, but rather will assist a Russian withholding tax agent with proving a possibility of the application of the relevant Tax Treaty benefits;
(b) no Russian custodian, Russian issuer, nor any other paying entity, is obliged to apply any reduced or zero withholding tax rate, and neither AS IBS Renesource Capital nor any financial institution assumes any liability to Client for non-application of any Tax Treaty benefits.
(c) It is therefore always possible that, despite the Confirmations provided by Client, AS IBS Renesource Capital may receive net Russian Income after relevant deductions on account of Russian withholding tax and therefore the amount of Income Payments will be a reduced amount accordingly.
Please be advised, that when you are performing any transactions with securities, you must to evaluate before mentioned tax risks, and when submitting an order for transaction with Russian securities you are accepting all risks as it is mentioned in this acknowledgment.
Tax Residency Certificate Requirements
Please note that a Tax Residency Certificate should fulfil the following requirements as otherwise it may result in rejection by the local custodian, issuer or other paying entity acting as a Russian withholding tax agent:
A. Tax Residency Certificate shall be the original or, at least, a copy certified by a notary;
B. It shall be accompanied by an Apostil Certificate or legalized;
C. The text of the Tax Residency Certificate shall in major aspects state the following:
a. name of the taxpayer that is a tax resident;
b. year with respect to which the Tax Residency Certificate is issued;
c. mention the Tax Treaty for the purposes of application of which the Tax Residency Certificate is issued;
d. name and signature of the person who is authorised to sign the Tax Residency Certificate on behalf of the authorised foreign body in the Tax Treaty Jurisdiction which is authorised to provide a Tax Residency Certificate;
e. Non-application of limitation of benefits provisions if applicable under the relevant Tax Treaty
D. The apostilled/legalized Tax Residency Certificate shall be translated into Russian and the Russian translation shall be confirmed by the Russian Consulate or a notary in Russia .
For the residents of the Russian Federation. Instead of Tax Residence Certificate please provide a Tax registration certificate issued by the Russian authorities. This shall be a copy certified by a notary.
We strongly recommend that if expect any Income payments to be paid on Russian bonds that were issued before 01/01/2012, you provide us with the original copy of Tax Residence Certificate as it might be required by the bond issuer (acting as tax agent for these payments).
Information on the procedures for income tax withholding from the US and Canadian companies from dividends and interest payments
Renesource Capital informs that Renesource Capital depositary COR Clearing LLC that provides the depository services and corporate event services (dividend, coupon payments, etc) for financial instruments issued in the US and Canada, does not support issues relating to the taxes, such as the withholding tax calculation procedure, the completion and submission of the tax form (1042-S) to the US State revenue Service, for its customers - banks and financial institutions that do not have the status of Qualified Intermediary (QI) and which act in the status of non Qualified Intermediary (NQI), Renesource Capital for the time being has status of Non Qualified Intermediary (NQI).
Capital gains withholding rate of 30% is applied to income derived from dividends and interest payments from US or Canadian issuers.
We ask you to take into account that before the opening of trading account and commencement of trading with the US and Canadian financial instruments, you will be asked to complete and submit the form W-8BEN for natural persons and W-8BEN-E for legal entities http://www.irs.gov/pub/irs-pdf/fw8bene.pdfAt the same time, we inform that Renesource Capital does not perform the tax agency functions and does not provide tax advice or recommendations in relation to tax matters. The above-mentioned communication is for informational purposes only.
What is the tax form 1042-S?
Tax Form 1042-S is an income declaration form for US non-residents (personal and corporate). Tax form 1042-S is filled with the information about interest income (from bonds, bank deposits, etc.), dividend income (US and foreign issuers paid dividends, etc.) and other income (from capital gains, royalties, etc.) received. Additional information about the statement of revenue and the declared income tax forms can be found in the form http://www.irs.gov/pub/irs-pdf/f1042s.pdf