Port authorities in Latvia will be required to pay corporate income tax (CIT), according to the amendments to the CIT Law approved by the government on Tuesday.
The current CIT Law stipulates that CIT payers include state and municipal budget-funded institutions if their income from economic activities is not included in the respective state or municipal budget. At present, seven small port authorities operate as indirect public administration institutions — Engure, Jūrmala, Mērsrags, Salacgrīva, Skulte, Pāvilosta and Roja.
However, the law does not impose a CIT obligation on derived public law entities. These include Latvia’s three current port authorities — the Freeport of Riga Authority, the Liepāja Special Economic Zone (SEZ) Authority and the Freeport of Ventspils Authority — which are established as derived public persons and are currently exempt from CIT, the Ministry of Finance (MoF) explains.
Regarding Latvian ports, the European Commission (EC) is conducting an inquiry and has previously noted that port authorities engage in economic activity and, for the purposes of competition law, are considered undertakings insofar as their activities are economic in nature. Therefore,
regardless of their legal status, port authorities must be CIT payers,
the MoF stresses.
Considering the EC’s ongoing communication in the case “Taxation of Ports in Latvia” concerning CIT application to port authorities, the Ministry of Transport informed the EC on the 7th of January, 2025 that Latvia intends to amend national regulations, including the CIT Law, to ensure compliance with EU requirements and EC recommendations on the taxation of port authorities.
The MoF notes that this solution was proposed to the EC to avoid the launch of a formal investigation procedure against Latvia.
Should such a procedure be initiated, it could result in a negative decision for Latvia, concluding that a different CIT regime for ports constitutes a selective economic advantage and therefore qualifies as unlawful state aid incompatible with the EU internal market.
In such a scenario,
Latvia could be required to recover unlawful and incompatible state aid with interest from all port authorities
— meaning the Freeport of Riga Authority, the Liepāja SEZ Authority and the Freeport of Ventspils Authority could face retroactive CIT assessments for the past ten years, the MoF warns.
While for the period since 2018 the CIT base would arise only if port authorities incurred expenses unrelated to their economic activity, for the period up to and including 2017, CIT would have to be calculated on all profits earned. If Latvia follows the EC’s recommendations and introduces the necessary changes, the EC is expected to close the case, the MoF notes.
Accordingly, the CIT Law will be amended to state that port authorities are CIT payers. This will also apply to the Liepāja SEZ Authority, which performs port authority functions and is subject to the Port Law requirements.
Since
the CIT base arises at the moment of profit distribution rather than when profit is earned,
from the 1st of January, 2026 port authorities will, similarly to commercial companies, be required to include in their taxable base the portion of profit distributed, including amounts allocated to expenses not related to economic activity.
However, unlike commercial companies — which are established to generate profit and pay dividends to shareholders — port authorities operate to develop port territories in which businesses operate, directing all income towards fulfilling port functions and activities, the MoF emphasises. Payments required by port and SEZ regulation and expenses necessary for the performance of these functions will be considered economic activity expenses for CIT purposes.
At the same time, port authorities could face a taxable base, for example, if they purchase or use a representative vehicle, or make donations exceeding CIT thresholds. As in other sectors where the state requires certain activities by law — such as airport or railway operations — expenses incurred in performing statutory port and SEZ functions do not constitute a taxable base.
Thus, the MoF stresses, port authorities will be subject to a tax regime equivalent to that of other economic operators, considering that revenue earned from economic activity is reinvested in maintaining port operations — without which such activity could not exist.
If a port authority has no taxable base, it must submit a CIT return to the State Revenue Service by the 20th day of the month following the reporting period, relating to the last month of the tax year.
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