Latvia has the second most competitive tax system among the member states of the Organisation for Economic Co-operation and Development (OECD), trailing only Estonia, according to the latest International Tax Competitiveness Index published by the U.S. think tank Tax Foundation.
Latvia has ranked second in the index for the eighth year in a row.
The report highlights several strengths of Latvia’s tax system, including its corporate income tax (CIT) model, under which only distributed profits are taxed while reinvested profits are exempt. It also praises Latvia’s territorial tax system, which exempts foreign dividends and capital gains from tax and does not levy withholding tax on outbound interest payments, dividends, or royalties.
Another advantage noted is Latvia’s wide value-added tax (VAT) base, which covers roughly two-thirds of final consumption.
However, Tax Foundation experts also point to weaknesses. These include Latvia’s relatively small number of tax treaties – 63 in total – which is low compared to other OECD countries. They also note that Latvia has one of the strictest thin capitalisation rules in the OECD and that its VAT registration threshold is significantly higher than the OECD average.
For the 12th consecutive year,
Estonia has been ranked as the OECD country with the most competitive tax system.
New Zealand ranks third, followed by Switzerland, while Lithuania remains in fifth place this year. Next in the ranking are Luxembourg, Australia, Israel, Hungary, and the Czech Republic.
The United States ranks 15th, Germany 20th, Finland 24th, the United Kingdom 32nd, and Poland 35th. The bottom two of the 38 OECD countries are Italy and France.
Looking at specific tax categories, Latvia ranks: 1st for corporate taxation, 7th for personal income taxation, 20th for consumption tax competitiveness, 7th for property taxes, 6th for international tax rules.
Estonia ranks 2nd for both corporate and personal income taxation, 22nd for consumption taxes, 1st for property taxes, and 7th for international tax rules.
Lithuania ranks 3rd for corporate tax, 9th for personal income tax, 25th for consumption taxes, 10th for property taxes, and 15th for international tax rules.
Latvia joined the OECD in 2016. Estonia became a member in 2010, and Lithuania joined in 2018.
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