This content is from: Local Insights

Tax incentives for production companies

Recently amendments to Latvia's tax laws have been passed regarding corporate income tax.

The amendments to the law On Corporate Income Tax entered into force on January 1 2006. The previous tax holiday allowance, equal to 40% of the total investment for companies engaged in large-scale investment (exceeding €14.2 million within three years) is repealed. Instead, a new tax rebate has been introduced for new technological equipment.

Technological equipment for production is defined as "a working machinery carrying out certain successive technological operations, resulting in change of characteristics of product, increasing the value of the working object," as well as auxiliaries for these machineries. Such equipment may comprise machinery, textile production units, and production lines.

The acquisition value of assets will be increased, multiplying it by the following ratios before calculating depreciation: for fixed assets, starting in 2006, a ratio of 1:5 will be applied, in 2007 - 1:4, in 2008 - 1:3, in 2009 - 1:2 and in 2010 - 1:1. So the depreciation will be higher, but payable tax less.

For example, if the value of fixed assets is Lats20,000 ($34,492), then at the usual depreciation rate of 40% a year, depreciation is Lats8000, but applying the ratio, depreciation is Lats12,000.

If a fixed asset will be alienated during the five years from acquisition then previous depreciation will be added to taxable income within the current year. It is planned that this rebate will be in force until 2010.

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