Letter of the Ministry of Finance #03-08-05/7017 from March, 7, 2013 explains the procedures for Russian companies functioning as tax agents in regards to profit tax on loan interest paid to a Latvian bank.
The Ministry reminds that the existing Double Taxation Treaty between Russia and Latvia in relation to profits tax and capital tax was enacted December 20, 2010.
According to Article 11 of the Agreement, interest originating in one country and paid to a resident of the other may be subject to tax in the resident's country.
However, this interest also may be taxed in the country of origin. The tax must not exceed following criteria:
- 5% from the total interest on any loan(s) provided by a bank or another financial institution of one signatory country to a bank or another financial institution of the other signatory country;
- 10% from the total interest in all other cases.
Thus, profit received by the Latvian bank as an interest on a loan granted to a Russian company is taxable in accordance with Article 11 of the Double Taxation Agreement, and the tax due in Russia must be calculated and withheld by the Russian company paying the interest.