Latvian transfer pricing (tax year 2026)

Source-cited draft: not reviewed by an accountant, not for filing.

Latvia taxes company profit only when it is distributed, or treated as distributed. A transfer pricing adjustment is one of the "deemed distributions" (nosacīti sadalītā peļņa) in the Corporate Income Tax Law (Uzņēmumu ienākuma nodokļa likums, the CIT Law). The documentation duties sit in a different act, the Law on Taxes and Fees (likums "Par nodokļiem un nodevām"), article 15.2. That article was rewritten by the amending laws of 3 April 2025 and 6 November 2025, in force from 1 January 2026. The new rules apply to controlled transactions from the reporting year that starts during calendar year 2025 (transitional provision 249). The methods are in Cabinet Regulation No. 677 of 14 November 2017. The tax authority is the State Revenue Service (Valsts ieņēmumu dienests, VID).

Related skills: lv-corporate-income-tax (the 20% rate, the 0.8 divisor, the other deemed distributions, the monthly return), latvia-income-tax (individuals), latvia-tax-optimization (planning). This skill does not repeat those rules.

Who this applies to

The tax charge. CIT Law article 4(2)(2)(e) applies to every CIT payer that is a resident company or a non-resident's permanent establishment (article 2(1)(1) and (2)). It taxes the income the payer would have received, or the costs it would not have incurred, if its dealings with a related person had been on terms that independent persons would agree and at market price (value). The methods are set by the Cabinet. The text makes no exception for a related person that is also a Latvian resident. A transaction with a person located, set up or established in a low-tax or no-tax country or territory counts as a transaction with a related person for this purpose, whether or not they are related (CIT Law, article 4(10)). The Cabinet sets the list of those countries and territories.

Related persons. The CIT Law uses the definition in the Law on Taxes and Fees (Regulation No. 677, para. 3). Under article 1(18) of that law, two or more persons are related if at least one of these applies:

• they are a parent and a subsidiary company or cooperative (a);
• one company holds 20% to 50% of the other and has no majority of votes (b). This test does not apply to the deemed distribution in CIT Law article 4(2)(2)(e), except where the transaction is with a related foreign company;
• the same person, with relatives up to the third degree, spouse, or in-laws up to the second degree, owns more than 50% of the capital of each company, or has decisive influence (a majority of votes) in each (c);
• more than 50% of each company is owned or controlled by the same persons, no more than 10 of them (d);
• more than 50% of each company is owned or controlled by a company in which an individual (with the same family circle) owns more than 50% (e);
• the same person or persons hold a majority of votes on the boards of the companies (f);
• there is any agreement beyond the contract, including an undisclosed one, for extra consideration, or other concerted action to reduce tax (g);
• an individual (with the same family circle) owns directly or indirectly more than 50% of a company, or has decisive influence over it by contract or otherwise (h).

Companies linked only through shares held directly by the state or a municipality are not related persons (article 1(18), opening words).

Documentation scope (Law on Taxes and Fees, article 15.2(2)). A resident CIT payer, or a non-resident's permanent establishment, justifies its prices in a local file, or in a master file and a local file, for transactions with:

1. a related foreign company (a related legal person or arrangement resident outside Latvia, article 1(29³));
2. individuals who are related persons under article 1(18);
3. any company or person in a low-tax or no-tax country or territory, related or not;
4. a related Latvian resident, only where the transaction is economically linked, in the same supply chain, with that person's dealings with a related foreign company or a low-tax person.

Group 4 does not count towards the group 1 to 3 thresholds. It needs a local file only where the group 4 transactions exceed EUR 250,000 in the reporting year and VID asks for one (article 15.2(7)). Purely domestic transactions outside the supply-chain rule carry no article 15.2 documentation duty, but the CIT charge in article 4(2)(2)(e) still applies to them.

Controlled transaction means a transaction between two related persons under article 1(18), or with a person in groups 1 to 4 above (article 1(29¹)).

Rates, bands and thresholds

Item	Rate or amount	Year	Source
CIT rate on a deemed distribution	20% of the taxable base	2026	CIT Law, art. 3(1): https://likumi.lv/ta/id/292700-uznemumu-ienakuma-nodokla-likums
Taxable base divisor	Value of the object divided by 0.8 (so tax is 25% of the price difference)	2026	CIT Law, art. 4(9); Regulation No. 677, para. 6
Related persons, ownership or control test	More than 50% of capital, or a majority of votes (tests c, d, e, h)	2026	Law on Taxes and Fees, art. 1(18): https://likumi.lv/ta/id/33946-par-nodokliem-un-nodevam
Related persons, minority holding test	20% to 50% with no majority of votes; counts for the CIT price adjustment only in a transaction with a related foreign company	2026	Law on Taxes and Fees, art. 1(18)(b)
Controlled transactions report (kontrolēto darījumu pārskats), filing threshold	Controlled transactions with groups 1 to 3 above EUR 250,000 in the reporting year	Reporting years starting in 2025 onward	Law on Taxes and Fees, art. 15.2(3); transitional provision 249
Local file (vietējā dokumentācija) threshold	Controlled transactions with groups 1 to 3 above EUR 250,000 in the reporting year	Reporting years starting in 2025 onward	Law on Taxes and Fees, art. 15.2(4)(2)
Master file (globālā dokumentācija) threshold	Controlled transactions with groups 1 to 3 above EUR 20,000,000 in the reporting year	Reporting years starting in 2025 onward	Law on Taxes and Fees, art. 15.2(4)(1)
Transactions that may be left out of the files as not material	A transaction with a total value of EUR 90,000 or less in the reporting year	2026	Law on Taxes and Fees, art. 15.2(11)
Penalty for late or materially deficient documentation	Up to 1% of the controlled transactions that had to be documented, at most EUR 100,000	2026	Law on Taxes and Fees, art. 15.2(14)
Low value-adding services, simplified mark-up	5% on the costs attributed to the recipient	2026	Regulation No. 677, paras. 18.1 and 18.8: https://likumi.lv/ta/id/295416
Advance pricing agreement, minimum transaction value	Above EUR 1,430,000 a year with the related foreign company	2026	Law on Taxes and Fees, art. 16.1(1) and (1¹)
Country-by-country report, excluded group	Consolidated group revenue of EUR 750,000,000 or less in the fiscal year before the reporting year	2026	Cabinet Regulation No. 397 of 4 July 2017, para. 2.3: https://likumi.lv/ta/id/292196-noteikumi-par-starptautiskas-uznemumu-grupas-parskatu-par-katru-valsti
Penalty for a late or non-compliant country-by-country report	Up to 1% of annual turnover, at most EUR 3,200	2026	Law on Taxes and Fees, art. 32.5(2)
Late payment interest (nokavējuma nauda)	0.05% of the unpaid tax for each day late	2026	Law on Taxes and Fees, art. 29(2)
Penalty on tax understated, found in an audit	20% of the understated tax if the shortfall is up to 15% of the tax due; 30% if it is more	2026	Law on Taxes and Fees, art. 32(4) and (5)
Audit and correction window for transfer pricing	5 years after the payment deadline (3 years for other matters)	2026	Law on Taxes and Fees, arts. 16(1)(6) and 23(1) and (5)
Thresholds before the 2026 rewrite (reporting years starting before 2025)	Local file prepared above EUR 250,000; local file filed above EUR 5,000,000; master file filed above EUR 15,000,000, or above EUR 5,000,000 where net turnover exceeded EUR 50,000,000	Up to 2024	Law on Taxes and Fees, art. 15.2(3) and (4), version in force up to 31 December 2025

The taxable base

1. Find the controlled transactions. List every transaction with a related person (the tests above) and every transaction with a person in a low-tax or no-tax territory. Include domestic related persons for the CIT charge.
2. Price each one at market value. Regulation No. 677 lists five methods: comparable uncontrolled price (para. 13), resale price (para. 14), cost plus (para. 15), transactional net margin (para. 16) and profit split (paras. 17 to 17.6). The method is chosen from the economic substance found in the functional analysis, the reliable data available and the degree of comparability (para. 8). Methods may be combined (para. 18). The OECD Transfer Pricing Guidelines may be used as a supporting source where they do not conflict with Latvian law (para. 19).
3. Compute the object. The object is the difference between the price charged and the market value: income the company would have received, or costs it would not have incurred (CIT Law, art. 4(2)(2)(e); Regulation No. 677, para. 7). Only a difference that moves profit out of the Latvian company is a deemed distribution. The law contains no downward adjustment for a price that favours the Latvian company.
4. Gross up and tax. Divide the object by 0.8 and apply 20% (CIT Law, arts. 3(1) and 4(9)). The effective rate on the price difference is 25%.
5. Timing. The object goes into the taxable base of the last taxation period (month or quarter) of the reporting year (CIT Law, art. 4(5)).
6. Low value-adding services, simplified route. A payer may instead price support services (accounting and audit, HR, IT support outside the group's core business, in-house legal, communications, general administration) at cost plus 5% (Regulation No. 677, paras. 18.1 to 18.9). The services must be supportive, outside the group's main business, use no unique and valuable intangibles and carry no significant risk (para. 18.2). Research and development, manufacturing, purchasing of production inputs, sales and marketing, financial services, extraction, insurance and senior management are excluded (para. 18.3). The route is closed if the same services are sold to independent parties (para. 18.5). Conditions: the payer keeps simplified documentation, the group applies the method consistently, and the services give the recipient a real benefit and do not duplicate its own functions or serve only the shareholder (para. 18.6). Costs are pooled, direct charges separated, the pool allocated by a consistent key (para. 18.7), and the 5% mark-up added to both direct and allocated costs (para. 18.8). Pass-through costs are listed in the pool but get no mark-up and are left out of the value (para. 18.7.1). A charge above that value is a cost the company would not have incurred, so the excess is the taxable object.
7. Loans to related persons. A loan to a related person can be a deemed distribution in its own right under CIT Law article 11, separately from interest pricing. See lv-corporate-income-tax.

Deadlines and filing

Duty	When	Source
Controlled transactions report, filed in structured form in VID's electronic declaration system (EDS)	Within 12 months after the end of the reporting year	Law on Taxes and Fees, art. 15.2(3) and (13)(4)
Local file and master file, prepared	Within 12 months after the end of the reporting year	Art. 15.2(4)
Local file and master file, produced when VID asks	Within 30 days of the request	Art. 15.2(4)
Documentation plus other information requested to check adjustment risk or to propose an APA	Within 90 days of the request	Art. 15.2(6)
Local file for domestic supply-chain transactions (group 4) above EUR 250,000, when VID asks	Within 90 days of the request	Art. 15.2(7)
Simplified documentation (low value-adding services), prepared, and produced when VID asks	Prepared within 12 months after year end; produced within one month of the request	Art. 15.2(12)
Translation of a file written in English, when VID asks	Within one month of the request	Art. 15.2(13)(3)
Annual update	The functional and economic analysis is reviewed every year. Where nothing material changed, a local file may be refreshed every three years, but the financial data of the tested party and comparables are updated every year	Art. 15.2(5)
CIT on the deemed distribution	Return for the last taxation period of the reporting year by the 20th of the following month; tax paid into the single tax account by the 23rd	CIT Law, arts. 4(5), 17(1) and (7)
Country-by-country report notification (who is the reporting entity)	By the last day of the reporting fiscal year	Regulation No. 397, paras. 16 and 17
Country-by-country report by a Latvian ultimate parent	Within 12 months after the last day of the reporting fiscal year	Regulation No. 397, para. 9

Files may be in Latvian or English (art. 15.2(13)(3)) and must be electronic and text-searchable (art. 15.2(13)(2)). A file filed through EDS needs no signature (art. 15.2(13¹)). The master file covers the group structure, business, intangibles, intra-group financing, and financial and tax positions (art. 15.2(8)). The local file covers the taxpayer and its group, each material controlled transaction or category, and financial information (art. 15.2(9)). The controlled transactions report gives, for each transaction: type, direction, total and counterparty; the method; the comparable data source, tested party, market price, the price indicator chosen and the result (art. 15.2(9¹)).

Worked dates. For a calendar reporting year 2025, the new rules already apply: the controlled transactions report is due by 31 December 2026. For calendar 2026 it is due by 31 December 2027.

Penalties and interest

• Documentation penalty. Up to 1% of the controlled transactions that had to be documented, as shown in the year's income or expenses, capped at EUR 100,000. It applies if the documentation deadline is missed, or if several required parts are missing so that VID cannot tell whether the price is at market value (Law on Taxes and Fees, art. 15.2(14)). "Up to" means VID sets the amount within that range.
• Estimated assessment. If the article 15.2 documents are not filed on time, or materially breach the requirements, VID may set the tax by estimate during an audit or tax control (art. 23(6), point 13).
• Tax adjustment. The extra CIT, late payment interest of 0.05% a day from the payment deadline (art. 29(2)), and the audit penalty of 20% or 30% of the understated tax (art. 32(4) and (5)). The penalty is halved if the breach is not a repeat one, the taxpayer met its filing and payment deadlines and it cooperated with VID under art. 32.2 (art. 32(7)).
• Correcting first. A taxpayer may correct its return and pay the tax and late interest with no penalty before a tax control decision is issued (art. 33.2(1)). After receiving notice of an audit, but before the audit starts, a correction carries a 5% penalty on the understated tax (art. 33.2(2)).
• Country-by-country report. Up to 1% of annual turnover, at most EUR 3,200 (art. 32.5(2)).

Cross-border points

• Related foreign company. This is the main documentation trigger. A Latvian resident with foreign related parties above EUR 250,000 a year files the controlled transactions report and keeps a local file.
• Low-tax territories. Any transaction with a person in a listed low-tax or no-tax territory is treated as related for the CIT charge (CIT Law, art. 4(10)) and counts for documentation (art. 15.2(2)(3)). Separately, CIT Law article 5(6) withholds 20% CIT on payments to such persons, except payments for goods and for listed EU or EEA securities bought at market price. See lv-corporate-income-tax.
• Permanent establishments. A non-resident's Latvian PE is in scope (art. 15.2(2)). Regulation No. 677, paras. 21 to 25, sets how a PE keeps separate accounts and what counts as profit withdrawn.
• Exit. Transfer of an asset to a foreign PE, or by a Latvian PE to its head office abroad, where Latvia loses the right to tax it, is a separate deemed distribution at market value (CIT Law, art. 4(2)(2)(i) and (j), (8²) and (13¹)).
• APAs. A taxpayer dealing with a related foreign company may ask VID for an advance pricing agreement where the transaction is worth more than EUR 1,430,000 a year (Law on Taxes and Fees, art. 16.1(1)). VID may also propose one, including for earlier years still open (art. 16.1(1¹)). While the taxpayer follows the agreement and nothing material changes, VID cannot adjust that price in an audit (art. 16.1(2)). The Cabinet sets the procedure and the fee, which may not exceed the average cost of concluding an agreement (art. 16.1(3)).
• Double taxation. Latvia gives no corresponding downward adjustment in the CIT Law. Relief for a foreign adjustment, or for a Latvian adjustment in the other country, goes through the treaty mutual agreement procedure or the EU arbitration rules. Joint audits with other states are provided for (art. 1(25)).
• Country-by-country report. A Latvian ultimate parent of a group with consolidated revenue above EUR 750m in the prior fiscal year files within 12 months of year end. Every Latvian group entity notifies VID by the last day of the fiscal year whether it is the parent, the surrogate parent or the filing entity, or which entity files and where (Regulation No. 397, paras. 9, 16 and 17).

Worked examples

Example 1: goods sold to the foreign parent below market price, reporting year 2026

SIA Baltic Parts, a Latvian company, sells components to its German parent for EUR 900,000 in 2026. It has no other controlled transactions. Its own benchmarking study (a client figure, not an official rate) puts the market value of those sales at EUR 1,000,000.

The parent is a related foreign company (art. 1(18)(a)). The price difference of EUR 100,000 is income Baltic Parts would have received, so it is a deemed distribution (CIT Law, art. 4(2)(2)(e)). It goes into the December 2026 return, due by 20 January 2027, with payment by 23 January 2027. Taxable base: 100,000 / 0.8 = EUR 125,000. CIT at 20%: EUR 25,000.

The controlled transactions total EUR 900,000, above EUR 250,000 and below EUR 20,000,000. So Baltic Parts files the controlled transactions report and prepares a local file by 31 December 2027, and keeps no master file. If it files late, the penalty can reach 1% of 900,000 = EUR 9,000, well under the EUR 100,000 cap.

name: SIA Baltic Parts, underpriced sales to parent, 2026
inputs:
  price_charged: 900000
  market_value: 1000000
  divisor: 0.8
  cit_rate_pct: 20
  report_threshold: 250000
  master_file_threshold: 20000000
  penalty_rate_pct: 1
  penalty_cap: 100000
steps:
  - price_difference: max(0, market_value - price_charged)
  - taxable_base: price_difference / divisor
  - cit: taxable_base * cit_rate_pct / 100
  - effective_rate_pct: cit / price_difference * 100
  - excess_over_report_threshold: max(0, price_charged - report_threshold)
  - excess_over_master_file_threshold: max(0, price_charged - master_file_threshold)
  - max_documentation_penalty: min(price_charged * penalty_rate_pct / 100, penalty_cap)
expected:
  price_difference: 100000
  taxable_base: 125000
  cit: 25000
  effective_rate_pct: 25
  excess_over_report_threshold: 650000
  excess_over_master_file_threshold: 0
  max_documentation_penalty: 9000

Example 2: IT support charged above the simplified cost plus 5%, and a low-tax supplier, reporting year 2026

SIA Riga Logistics receives IT support from its Estonian sister company and pays EUR 180,000 for 2026. The services meet the low value-adding criteria (Regulation No. 677, para. 18.2) and the group uses the simplified route for all recipients. The Estonian company's cost pool for these services, allocated to Riga Logistics by number of users, is EUR 160,000. Riga Logistics also pays EUR 40,000 to an unrelated consultant registered in a listed low-tax territory. It buys office services for EUR 300,000 from a Latvian sister company, outside any supply chain with a foreign related party.

Simplified market value: 160,000 x 1.05 = EUR 168,000 (para. 18.8). The charge exceeds it by EUR 12,000, a cost Riga Logistics would not have incurred, so that is the object. Base: 12,000 / 0.8 = EUR 15,000; CIT EUR 3,000.

For the threshold, only groups 1 to 3 count: the Estonian sister (related foreign company) EUR 180,000 plus the low-tax consultant EUR 40,000 = EUR 220,000. The domestic EUR 300,000 does not count (art. 15.2(3)). EUR 220,000 is below EUR 250,000, so there is no controlled transactions report and no local file. Riga Logistics still keeps the simplified documentation by 31 December 2027, as a condition of the 5% route (para. 18.6.1), and produces it within a month if VID asks. If the low-tax payment had been EUR 80,000, the total of EUR 260,000 would be over the threshold. The consultant payment, at EUR 90,000 or less, could still be treated as not material and left out of the local file (art. 15.2(11)). Payments for services to a low-tax person also carry 20% withholding under CIT Law article 5(6); see lv-corporate-income-tax.

name: SIA Riga Logistics, low value-adding services and threshold test, 2026
inputs:
  it_fee_charged: 180000
  allocated_cost_pool: 160000
  markup_pct: 5
  low_tax_payment: 40000
  domestic_related: 300000
  divisor: 0.8
  cit_rate_pct: 20
  report_threshold: 250000
  alt_low_tax_payment: 80000
steps:
  - simplified_market_value: allocated_cost_pool * (1 + markup_pct / 100)
  - excess_charge: max(0, it_fee_charged - simplified_market_value)
  - taxable_base: excess_charge / divisor
  - cit: taxable_base * cit_rate_pct / 100
  - threshold_total: it_fee_charged + low_tax_payment
  - excess_over_threshold: max(0, threshold_total - report_threshold)
  - headroom_below_threshold: report_threshold - threshold_total
  - alt_threshold_total: it_fee_charged + alt_low_tax_payment
  - alt_excess_over_threshold: max(0, alt_threshold_total - report_threshold)
expected:
  simplified_market_value: 168000
  excess_charge: 12000
  taxable_base: 15000
  cit: 3000
  threshold_total: 220000
  excess_over_threshold: 0
  headroom_below_threshold: 30000
  alt_threshold_total: 260000
  alt_excess_over_threshold: 10000

Ask the client first

1. Who owns the company, directly and indirectly, including family members up to the third degree, and who sits on the board? This decides who is related.
2. What did the company buy from, sell to, lend to or borrow from each related person in the year, in euro, split by foreign related companies, related individuals and domestic related companies?
3. Does it deal with anyone, related or not, in a listed low-tax or no-tax territory?
4. Is any domestic related-party transaction part of a supply chain that ends with a foreign related company or a low-tax person?
5. What is the group's consolidated revenue for the prior fiscal year, and where is the ultimate parent resident? This decides the country-by-country report and the notification.
6. Is there an existing benchmarking study, an APA, or a group charge for support services, and how is it calculated?

Sources

Source	URL	Read on
Law on Taxes and Fees (likums "Par nodokļiem un nodevām"), consolidated version in force from 1 January 2026: arts. 1(18), 1(29) to 1(29³), 15(9), 15.2, 16(1)(6), 16.1, 23, 29, 32, 32.5, 33.2, transitional provision 249	https://likumi.lv/ta/id/33946-par-nodokliem-un-nodevam	2026-10-23 (read from the Internet Archive copy of 18 September 2026; likumi.lv refused direct connections)
Law on Taxes and Fees, art. 15.2 as in force up to 31 December 2025 (the pre-2026 thresholds)	https://likumi.lv/ta/id/33946-par-nodokliem-un-nodevam	2026-10-24 (Internet Archive copy of 7 September 2025)
Corporate Income Tax Law (Uzņēmumu ienākuma nodokļa likums), version in force from 1 January 2026: arts. 2, 3, 4, 5(6), 11, 17	https://likumi.lv/ta/id/292700-uznemumu-ienakuma-nodokla-likums	2026-10-23 (Internet Archive copy of 4 October 2026)
Cabinet Regulation No. 677 of 14 November 2017, CIT Law application rules, version from 25 February 2021: paras. 3, 6 to 19	https://likumi.lv/ta/id/295416	2026-10-23 (Internet Archive copy of 11 May 2026)
Cabinet Regulation No. 397 of 4 July 2017 on the country-by-country report, version from 7 February 2020: paras. 2.3, 9, 16, 17	https://likumi.lv/ta/id/292196-noteikumi-par-starptautiskas-uznemumu-grupas-parskatu-par-katru-valsti	2026-10-23 (Internet Archive copy of 12 August 2024)

Not yet confirmed: the current Cabinet regulation on the APA procedure and its fee (the 2013 Regulation No. 16 fee of EUR 7,114 ended in 2018 and its successor was not read); the Cabinet regulation setting the detailed content of the master and local files and the simplified documentation; whether Regulation No. 397 was amended after August 2024; the Cabinet list of low-tax and no-tax territories for 2026; VID guidance on how loans and cash pools are measured for the EUR 250,000 threshold; and VID's practice on adjustments in purely domestic related-party transactions. vid.gov.lv and fm.gov.lv refused connections on 2026-10-23, so no VID guidance was read.

Contributed by Michael Cutajar.