A holding company lets you centralise ownership of multiple businesses, optimise tax flows between subsidiaries, and protect group assets. In 2026, Latvia's 0% CIT on reinvested profits makes it one of the most attractive EU jurisdictions for holding structures.
This guide covers everything: why Latvia, how it works in practice, comparison with other jurisdictions, setup procedure, and the mistakes to avoid.
Why Latvia for a holding company?
Six factors make Latvia a top-tier holding jurisdiction in Europe.
0% tax on reinvested profits
Since 2018, Latvia has applied a deferred taxation model. Profits (including dividends received from subsidiaries) that remain in the holding are not taxed. The 20% CIT only applies when profits are distributed to the ultimate shareholder. For a holding that accumulates and reinvests, the effective tax rate is 0%.
EU Parent-Subsidiary Directive
Directive 2011/96/EU eliminates withholding tax on dividends paid between a subsidiary and its parent company within the EU, provided the holding owns at least 10% of the subsidiary's capital for 12 months or more. In practice: a French, German or Spanish subsidiary pays dividends to the Latvian holding with zero withholding tax.
Interest and Royalties Directive
Directive 2003/49/EC also allows interest and royalty flows between associated EU companies without withholding tax. For groups that centralise intellectual property or intra-group loans at the holding level, this is a significant advantage.
Network of 60+ tax treaties
Latvia has signed double taxation agreements with more than 60 countries, covering virtually all European trade partners and a large portion of Asia and North America. These treaties reduce or eliminate withholding taxes on dividends, interest and royalties from non-EU countries.
No CFC rules at the holding level
Latvia does not tax profits earned by foreign subsidiaries. There are no "controlled foreign company" (CFC) rules that would tax passive subsidiary income at the holding level. However, be aware that your country of personal residence may have its own CFC rules.
EU/OECD credibility and low costs
Latvia is a member of the EU, the eurozone, and the OECD. It is not on any blacklist. Annual maintenance costs for a holding (accounting, filings) range from EUR 1,200 to EUR 2,400. There are no minimum activity requirements for a pure holding.
Latvia vs other popular holding jurisdictions
The table below compares Latvia to the four other most commonly used holding jurisdictions in Europe.
| Factor | Latvia | Netherlands | Luxembourg | Cyprus | Ireland |
|---|---|---|---|---|---|
| CIT on received dividends | 0% (reinvested) | 0% (participation exemption) | 0% (participation exemption) | 0% (participation exemption) | 0% (participation exemption) |
| CIT on distributed dividends | 20% | 0% (but 15% Dutch dividend WHT) | 0% (but 15% WHT) | 0% | 25% WHT |
| Annual costs | EUR 1,500-3,000 | EUR 5,000-15,000 | EUR 10,000-25,000 | EUR 3,000-8,000 | EUR 3,000-8,000 |
| Substance requirements | Standard | Increasing (anti-conduit rules) | High (ATAD) | Standard | Standard |
| Reputation | Clean | Under scrutiny (Starbucks/Shell cases) | Under scrutiny (LuxLeaks) | Improving | Clean |
| Capital gains on share sales | 0% (reinvested) | 0% (participation) | 0% (participation) | 0% | 33% |
Latvia's main advantage: maintenance costs 3 to 8 times lower than the Netherlands or Luxembourg, with equivalent tax treatment for a holding that reinvests its profits.
How a Latvian holding structure works in practice
Scenario 1: Entrepreneur with a SaaS business
An entrepreneur sets up a Latvian SIA as a holding. This holding owns the operating company (another SIA in Latvia or a company in another EU country).
- The operating company generates profits and pays dividends to the holding.
- Dividends received by the holding: 0% CIT (Parent-Subsidiary Directive + Latvian deferred CIT).
- Profits reinvested from the holding into new projects: 0% CIT.
- The 20% CIT only applies when the entrepreneur takes personal dividends.
Result: as long as profits flow between group companies and are reinvested, the total tax is 0%. The entrepreneur only pays tax on what they personally consume.
Scenario 2: Multi-country group
A Latvian holding owns subsidiaries in France, Germany and Spain. Each subsidiary pays dividends to the Latvian holding.
- Incoming dividends: 0% WHT (Parent-Subsidiary Directive).
- Accumulation in the Latvian holding: 0% CIT.
- Reinvestment in a new subsidiary or acquisition: 0% CIT.
- Annual savings vs a Netherlands holding: EUR 3,000-12,000 in compliance costs alone.
This scenario is particularly relevant for SMEs that do not need the "prestige" of an Amsterdam or Luxembourg address, but want a legal, efficient and affordable structure.
Setting up a holding SIA in Latvia
The procedure for setting up a holding SIA is identical to a regular SIA. Here are the steps:
- Registration with the Commercial Register: 3 business days, cost approximately EUR 300.
- Share capital: the legal minimum is EUR 1, but EUR 2,800 or more is recommended for credibility with banks and partners.
- Business bank account: opening an account at a Latvian bank.
- Substance: registered address in Latvia, local director or power of attorney, annual accounts.
- No employee requirement if the SIA is a pure holding.
- Annual obligations: annual accounts and CIT return (even if the amount is EUR 0).
The total setup cost is typically between EUR 500 and EUR 1,500 (registration fees + professional support). Annual maintenance (accounting + filings) costs EUR 1,200 to EUR 2,400 for a holding with no operating activity.
EU directives that make this structure work
Parent-Subsidiary Directive (2011/96/EU)
This is the cornerstone of any European holding structure. It eliminates withholding tax on dividends paid between an EU subsidiary and its parent company in another member state. Conditions: at least 10% ownership held for at least 12 months.
Interest and Royalties Directive (2003/49/EC)
Allows interest and royalty flows between associated EU companies without withholding tax. Condition: at least 25% direct ownership.
Merger Directive (90/434/EEC)
Enables tax-neutral cross-border restructurings (mergers, demergers, asset transfers). Useful when initially setting up the holding structure or during later reorganisations.
ATAD (Anti-Tax Avoidance Directive)
Latvia is fully ATAD-compliant. The anti-abuse rules (interest limitation, CFC rules, general anti-abuse provisions) are transposed into Latvian law. This means the structure is legally robust and will not be challenged by tax authorities in other member states.
When Latvia is NOT the best choice for a holding
Latvia is not the universal answer. Here are situations where another jurisdiction may be more suitable:
- Immediate distribution of 100% of profits: if you plan to distribute all profits to the shareholder every year, the 20% CIT applies on each distribution. In that case, Cyprus (0% WHT on distributed dividends) may be more attractive.
- Subsidiaries exclusively in non-EU countries without a tax treaty: if all your subsidiaries are in countries without a tax treaty with Latvia, the Parent-Subsidiary Directive benefits do not apply. Check Latvia's treaty network before deciding.
- Need for jurisdictional "prestige": some venture capital funds and institutional investors prefer a holding in Delaware, the Netherlands, or Luxembourg. If your goal is fundraising from these investors, perception matters.
- Large multinationals subject to Pillar Two: groups with consolidated revenue above EUR 750 million are subject to the 15% global minimum tax. Latvia's 0% on reinvested profits remains advantageous as deferred taxation, but the benefit is reduced.
Common mistakes with holding structures
Here are the most frequent pitfalls we see with entrepreneurs structuring a holding:
- Insufficient substance: a PO box is not enough. The holding must have a real address, an identifiable director, and strategic decisions must be made from Latvia. Without this, the tax authorities in the shareholder's country of residence may reclassify the holding as a shell company.
- Ignoring home country CFC rules: France, Germany, and most EU countries have controlled foreign company (CFC) rules. If you remain tax resident in your home country, these rules may apply to your Latvian holding. Analysis is essential before setup.
- No documentation of economic purpose: the holding must have a demonstrable economic rationale (centralised management, asset protection, investment facilitation). A purely tax-driven structure without economic substance is vulnerable to general anti-abuse clauses.
- Confusing participation exemption with deferred taxation: the Dutch model (participation exemption) permanently exempts dividends received from qualifying participations. The Latvian model defers taxation until distribution. The result is the same for a holding that reinvests, but different if you distribute.
- Not planning the exit: selling the holding's shares vs liquidating have different tax consequences. Capital gains on the sale of Latvian SIA shares are at 0% if reinvested, but 20% if distributed. Plan the exit from day one.
Frequently asked questions
What is the best EU country for a holding company?
Latvia is one of the best EU jurisdictions for a holding company in 2026. The 0% CIT on reinvested profits, compliance with the Parent-Subsidiary Directive, 60+ tax treaties, and maintenance costs of EUR 1,500-3,000 per year make it a highly competitive alternative to the Netherlands or Luxembourg, which cost EUR 5,000-25,000 per year in compliance fees.
How much does it cost to set up a holding company in Latvia?
Setting up a holding SIA in Latvia costs approximately EUR 300 in registration fees and takes 3 business days. The minimum share capital is EUR 1, but EUR 2,800 or more is recommended for credibility. Annual maintenance costs (accounting, filings) range from EUR 1,200 to EUR 2,400.
Are dividends received by a Latvian holding company tax-free?
Yes. Dividends received by a Latvian holding from its EU subsidiaries are exempt from withholding tax under the Parent-Subsidiary Directive (minimum 10% ownership held for 12 months). These dividends are not taxed in Latvia as long as they remain in the holding (0% CIT on reinvested profits). The 20% CIT only applies when profits are distributed to the ultimate shareholder.
Does Latvia have a participation exemption?
No. Latvia does not have a participation exemption in the traditional sense (Dutch model). The mechanism is different: Latvia applies a deferred CIT. Profits, including received dividends and capital gains on share disposals, are only taxed when distributed. The practical result is similar for a holding that reinvests: 0% tax on accumulated income.
Can a non-EU resident create a holding company in Latvia?
Yes. There are no nationality restrictions for setting up a SIA in Latvia. A resident of any country can be a shareholder and director. However, the Parent-Subsidiary Directive benefits (0% WHT on dividends between EU companies) only apply to intra-EU flows. For non-EU subsidiaries, check whether Latvia has a bilateral tax treaty with the relevant country.
What is the difference between a Latvian and Dutch holding company?
The main difference is the tax mechanism. The Netherlands applies a participation exemption: dividends received and capital gains on qualifying participations are exempt from CIT, but operating profits are taxed at 25.8%. Latvia applies a deferred CIT: all profits (operating, dividends, capital gains) are at 0% as long as they are not distributed. Annual costs also differ significantly: EUR 1,500-3,000 in Latvia vs EUR 5,000-15,000 in the Netherlands.