Latvia T2S: Tax impact on service offering
Effective
2 December 2019
Clearstream Banking S.A.1 (CBL) will deposit and settle Latvian securities that are T2S eligible with Clearstream Banking AG2 (CBF) in order to enable future OneClearstream service upgrades (the “Migration Date”). As indicated in Announcement C19022, CBF will activate direct access to the Baltics (Nasdaq CSD) to enable eligibility of Nasdaq CSD issued securities for settlement in T2S.
Clearstream Banking3 will access NASDAQ CSD for settlement in T2S via CBF as follows:
Country | CSD | Type of link | Eligible securities |
Baltics (Estonia, Latvia, Lithuania) | Nasdaq CSD | Direct link to Clearstream Banking AG, Frankfurt for holding Nasdaq CSD eligible securities | Commercial papers (money market); Government bonds; Municipal bonds; Corporate bonds; Equities; Nasdaq-eligible investment funds |
This is part of our ongoing efforts to harmonise our services allowing customers to benefit from advantages across multiple areas of our business.
Applicable withholding tax rates
The standard rates of withholding tax applicable on income paid on Latvian securities are as follows:
Government bonds
- Non-resident legal entities - 0% (20% for entities resident in tax-haven countries);
- Latvian legal entities - 0% (interest is included in the taxable corporate income subject to a 15% corporate income tax);
- Non- resident individuals - 0% (20% for residents of tax-haven countries);
- Latvian individuals - 0%.
Corporate bonds
- Non-resident legal entities - 0% (20% for entities resident in tax-haven countries);
- Latvian legal entities - 0% (interest is included in the taxable corporate income subject to a 15% corporate income tax);
- Non-resident individuals - 0% if it constitutes interest from publicly traded financial instruments, if not 20% or 20% if it constitutes interest from a First North corporate bond, although this may not be applied by all issuers (in any case 20% for residents of tax-haven countries);
- Latvian individuals - 20%.
Equities
- Non-resident legal entities - 0% (20% for entities resident in tax-haven countries);
- Latvian legal entities - 0%;
- Non-resident individuals - 10% from dividend from profits earned prior 31 December 2017 paid in 2019 or no withholding tax from dividend from profits earned after 31 December 2017, 20% from dividend from profits earned prior 31 December 2017 paid in 2020 and afterwards (20% for residents of tax-haven countries);
- Latvian individuals - 10%from dividend from profits earned prior 31 December 2017 paid in 2019 or no withholding tax from dividend from profits earned after 31 December 2017, 20% from dividend from profits earned prior 31 December 2017 paid in 2020 and afterwards.
Impact on customers
Currently, Latvian tax legislation does not clarify whether the tax rate must be applied based on the list of the final beneficial owners of the securities or on the nominee holder status and residency.
Clearstream Banking being the nominee for Latvian securities, income may be paid, by default, gross based on its status and residency. Despite such possibility, customers must disclose all beneficial owners that are not eligible for tax exemption in order to comply with the Latvian standard withholding tax rates.
To ensure the accurate application of tax exemption at source, customers must ensure that all securities are held by final beneficial owners eligible for tax exemption according to the above list.
If the securities are held by taxable beneficial owners, customers must, before each impacted income event at the latest two business before respective payment date by 10:00 CET, provide Clearstream Banking with a Breakdown of Taxable Holdings via SWIFT, Xact Web Portal or CreationOnline message, and must indicate:
- Account number;
- The ISIN code;
- Data identifying the final beneficial owners:
- Full name;
- Personal identification code (natural persons) or registration number (legal persons);
- Date of birth (required only for natural persons, non-residents of Latvia);
- Country of residence;
- Address in the residence country (street, street number, place, postal code);
- Legal status - individual or legal entity;
- Holding of each beneficial owner.
Furthermore, the identity of all beneficial owners may be requested by the Latvian Tax Authorities after the payment date. Consequently, Clearstream Banking reserves the right to revert to customers for any additional information or corrective action upon request from the Latvian issuer or the local depository. Customers shall hold Clearstream Banking harmless for any loss, cost, expense, liability or damage that Clearstream Banking could face in case of any tax adjustment Clearstream Banking would need to perform on their account, no matter when this adjustment would take place.
Capital gains tax
There is no capital gains tax withheld on Latvian securities.
Further information
For further information, please contact the Clearstream Banking Tax Help Desk or Clearstream Banking Client Services or your Relationship Officer.
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1. Clearstream Banking S.A. (CBL) registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248.
2. Clearstream Banking AG (CBF), registered office at Mergenthalerallee 61, 65760 Eschborn, Germany, registered with the Commercial Register of the District Court in Frankfurt am Main, Germany, under number HRB 7500.
3. Clearstream Banking refers collectively to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248, and Clearstream Banking AG, registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500.