Latvia, Estonia Sign Double Tax Treaty

Tax-News.com, Brussels

12 February 2002

Latvian Foreign Minister Indulis Berzins and Estonian Foreign Minister Kristiina Ojuland in Riga yesterday signed a new tax convention between the two Baltic states. After signing, the convention still has to be ratified by parliaments of both countries but it will be applied as of 1 January 2002. The document is the first international convention signed by the new Estonian foreign minister.

The convention between the Latvian and Estonian governments on prevention of dual taxation and tax evasion will replace the previous convention that was suspended by Latvia in respect of corporate entities as of last June in the wake of introduction of a new corporate income tax in Estonia in 2000. The introduction of the new tax in Estonia changed the situation significantly because, under the new law, Estonian-registered companies were not paying corporate income tax for the profit raised during each tax year but did so only if they were paying dividends. The tax is 35.14 per cent of the distributed profit. But as long as the company did not distribute its profit, no taxes were levied on its profit at all.

Ratification of the new convention will grant both states broader rights to levy taxes on firms of the other country operating on its territory, as the convention will allow taxes to be withheld at the point of payment of corporate revenues also for dividends, interest and royalties.

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