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According to the Law “On Enterprise Income tax”, when legal entities donate to a budget institution, as well as associations, foundations or religious organizations registered in the Republic of Latvia that have been granted Public Benefit Status according to the Public Benefit Organizations Law, the entities have the right to receive an income tax reduction. For legal entities, the income tax is decreased by 85 % from the amount of the donation. However, total reductions may not exceed 20% of the total amount of tax.
Property or financial funds that the payer transfers to a budget institution or a public benefit organization (which has been granted such status in accordance with the Public Benefit Organizations Law) on the basis of a contract without charge to achieve the purposes specified in its Articles of Association, constitution or by-laws, shall be treated as a donation within the meaning of this Section, providing it is not deemed a reciprocal duty by the recipient to perform activities in a form of consideration.
A tax rebate in conformity with Paragraph one of this Section shall not be applied if the purpose of the donation, which is specified for the recipient of the donation, includes a direct or indirect indication to a specific recipient of the donated funds, which is an undertaking or a related party associated with the contributor, or an employee or family member of the donator.
To receive a tax rebate, a legal entity has to
- fill in the annual tax declaration, indicating the amount of the donation;
- submit the declaration to the State Revenue Service in accordance with the Law;
- keep a copy of the Ministry of Finances decision on granting Public Benefit Status to the corresponding association or foundation and documents that approve the amount of the donated sum (cash income order or bank payment order) for 5 taxation years.
According to the Law “On Personal Income tax”, when a private person donate to associations, foundations or religious organizations registered in the Republic of Latvia that have been granted Public Benefit Status according to the Public Benefit Organizations Law, the annual taxable income amount is reduced by the amount of the donation before imposing income tax. However, these reductions may not exceed 20% of the annual taxable income.