Der Spiegel: Latvia is EU's newest tax haven

16.07.2013, 08:54

German magazine Der Spiegel writes that Latvia could become the European Union's "newest tax haven and further destabilize the European economy".

"Latvia will become the euro area's newest member in January 2014, the same time that new tax laws will go into effect allowing the country to compete with the likes of Cyprus and Malta. This could further destabilize the European economy," reports the newspaper.

The author of the article has visited Rietumu Banka's head office, which, according to his observations, "is not in Riga's best neighborhood". "The streets are dusty and graffiti on one building reads: "If Jesus comes back, we will kill him again." The city's biggest soccer stadium – which opens onto a meadow on one side – is right next door."

Rietumu Banka's Senior Vice President and Board Chairman Ilya Suharenko points out in an interview with Der Spiegel that Latvia's accession to the eurozone and new tax laws will put Latvia "on a level with Ireland, Malta and Cyprus".

"It is a seal of quality for Latvia as a financial marketplace," says Suharenko. "The euro is coming and capital will follow."

"Instead of eliminating established tax havens, we have added a new one to the euro zone," says Sven Giegold, a financial expert with the Green Party in the European Parliament.

According to Der Spiegel, Latvia's corporate tax rate is just 15%, far lower than the EU average of 23.5%. Within the euro zone, only Ireland and Cyprus, each at 12.5%, have lower rates.

However, the latest data from the EU's statistical office Eurostat indicate that the lowest corporate tax rate is in Bulgaria and Cyprus – 10%, followed by Ireland – 12.5%. Latvia and Lithuania have the third lowest corporate tax rate – 15%.

Der Spiegel also points out that holding companies – firms that hold stock of other companies – enjoy further benefits in Latvia. Since the beginning of 2013, their foreign profits earned via dividends and stock sales have been tax free. Transferring such profits out of country is also not taxed. Furthermore, as of 2014 Latvian holding companies will no longer have to pay taxes on interest and licensing fees they pay to foreign companies.

"Such structures allow foreigners to not only park their money in Latvia, but also use it as a bridgehead to transfer money at low cost from Europe to tax havens such as the Cayman Islands. Indeed, Latvian law will impose even fewer limitations and lower fees for such transfers than exist in such countries as Malta, Ireland, Cyprus and the Netherlands," writes Der Spiegel.

"There have been instances, however, in which Latvia has gone beyond merely offering a variety of legal possibilities to avoid taxes. Formally, Latvia has improved its laws relating to money laundering. But several loopholes still remain, according to an analysis performed by Moneyval, the Council of Europe body focused on combating money laundering and terrorism financing. The report noted that adherence to regulations is not strictly monitored in all cases," adds the newspaper.

Der Spiegel also draws attention to Latvian-Russian relations.

"Connections between Latvia and Russia have always run deep. Every second person in Riga has Russian origins and seven flights a day connect the city with the Russian capital. Even outside Riga, most people understand the Russian language and mentality," warns the newspaper.