Latvia signing the agreement protocol with China for the prevention of double taxation.

           On August 24, 2011 the Minister of Finance of the Republic of Latvia and Commissioner of China State Administration of Taxation signed the Agreement Protocol amending the Agreement of June 7, 1996, what was signed between the Government of the People’s Republic of China and the Government of the Republic of Latvia for the prevention of double taxation and tax evasion with respect to taxes on Income and Capital.

The Minister of Finance of the Republic of Latvia has indicated, that the aim of the amendments of the Agreement is to promote business in Latvia and China, as well as to ease the actions of Latvian investors in China and vice versa.

In the Agreement shall be expanded the meaning of term “international traffic”, extending it also to international railway transport. Practically it means that Latvian company, carrying out international railway transport, the profit of the Latvian company`s branch in China, shall not be imposed with the Enterprise Income Tax. Such norm is not incorporated in the Agreements between China and other EU Member states.

From 10% to 7% is reduced the maximum tax rate, what is adjusted to Author`s royalty in the country of origin. The 7% rate for China is established in the Tax Agreement with Romania – for other EU Member states the rate is higher.

Also Rules of exchange of information are expanded under the year 2005 Model Convention of Economic Cooperation and Development Organization. The amendments intend, that significantly is widened the obligation of Parties to provide the information for the purposes of taxation, especially of information of credit institutions.

The new edition provides that receiving a request for information, the Contracting State can not longer rely on the restrictions of the National laws and regulations regarding the availability of credit institution information, to refuse to give information regarding certain taxpayers, as well as the Contracting State can not rely on the fact that the requested information is not the necessary information for the Country which requests for it for the purposes of imposement of taxes.

In the Contracting State the tax shall not be imposed on interest payments for the other Contracting State`s Government insured loans, as well as the Contract shall be updated to include the new China procedures for avoidance of double taxation.

The Parliament of the Republic of Latvia shall have to decide on the Draft law. It is planned that both parties shall fulfill the national procedures, that the Protocol could enter into force on January 1, 2013.

Valters Gencs

Tax Attorney & Founding Partner

Gencs Valters Law Firm, Riga

Email: valters.gencs@gencs.eu Tel: +371 67 24 00 90