1. Would a corporate legal entity in your jurisdiction be entitled to make a corporate income tax deduction in respect of donations made in favour of a public benefit organisation based in the EU outside of your jurisdiction (“EU PBO”)? Are there restrictions/conditions for such tax deductibility (e.g. maximum cap per annum for the deductibility of the donations, etc)?
  2.  Would an individual in your jurisdiction be entitled to make an income tax deduction in respect of donations made in favour of an EU PBO? Are there restrictions/conditions for such tax deductibility (e.g. maximum cap per annum for the deductibility of the donations, etc)?
  3.  Would an EU PBO be entitled to the same treatment as a national non-profit organisation (charity) in your jurisdiction based on the EU law principle of equal treatment of EU entities? Is an EU PBO obliged to pay gift tax in your jurisdiction if it receives a donation from a donor who is resident in that country?
  4.  Would it make sense to channel the donations from your jurisdiction to a third country-based charitable foundation (in e.g. the US or Ukraine) rather than to an EU PBO?

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Latvia
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According to corporate income tax (CIT) law, a Latvian corporate legal entity which has donated to a PBO is entitled to choose one of the following relief possibilities in the reporting year:

  • not to include the donated amount in the base taxable with CIT in the taxation period, but not more than 5% of the profits from the previous reporting year after calculated taxes
  • not to include the donated amount in the base taxable with CIT in the taxation period, but not more than 2% of the total gross work remuneration calculated for employees in the previous reporting year from which State social insurance contributions have been made
  • to reduce the CIT calculated on the dividends calculated for the reporting year in the taxation period by 85% of the donated amount, but not exceeding 30% of the calculated amount of CIT on the calculated dividends.

The restriction referred shall be applicable to the total amount of donations made in the reporting year.

This is applicable to donations to a non-governmental organisation (NGO) registered in another EU member state or a state of the EEA with which Latvia has entered into a convention for the avoidance of double taxation and the prevention of fiscal evasion, if such convention has come into force, and this NGO operates in the status equivalent to the conditions of a PBO in Latvia in accordance with laws and regulations of the relevant EU member state or an EEA state. As the Netherlands and Latvia have such a convention, the only question is if an EU PBO operates in the status equivalent to the conditions of a PBO in Latvia.

There are recent amendments in the Law on the Support of Civilians of Ukraine (in force as of 7 April 2023) which provide that a taxpayer that has donated property or financial resources to a PBO, granted such status in accordance with the Law on Public Benefit Organisations, or to a budget institution which is directed to Ukraine to provide assistance to the victims, has the right to choose not to include the donated amount in the taxable base of CIT, regardless of the limits provided by the CIT law, if the following conditions are met at the same time:

  • the purpose of the donation indicated to the recipient of the donation contains a direct reference to the specific direction of the donated funds to Ukraine, and
  • according to the information available in the database of tax (fee) debtors administered by the State Revenue Service, the donor has no tax (fee) debts, the total amount of which exceeds EUR 150.

2. Would an individual in your jurisdiction be entitled to make an income tax deduction in respect of donations made in favour of an EU PBO? Are there restrictions/conditions for such tax deductibility (e.g. maximum cap per annum for the deductibility of the donations, etc)?

According to the law on personal income tax, donation expenses to a PBO registered in a member state of the EU or an EEA state are deducted from the annual taxable income of individuals. Donation expenses (together with other tax-deductible expenses) may not altogether exceed 50% of the amount of taxable income of the payer for the taxation year, but no more than EUR 600.

A taxpayer who donates to an NGO registered in a member state of the EU or an EEA state has to submit to the State Revenue Service documents, concurrently with the return, which certify that:

  • the recipient of the donation is resident in any of the member states of the EU or an EEA state
  • the recipient of the donation has a status comparable to a PBO in the country of residence
  • the recipient of the donation is operating in the field of public benefit which provides significant benefit for the public or any part thereof, especially if it is directed towards: charity, protection of human rights and individual rights, development of civic society, promotion of education, science, culture and health and disease prevention, supporting of sports, environmental protection, provision of aid in case of disasters and emergency situations, raising of social welfare of the public, especially for groups of persons in need and socially low-protected persons
  • at least 75% of the amount donated by the payer has been used for public benefit purposes.

3. Would an EU PBO be entitled to the same treatment as a national non-profit organisation (charity) in your jurisdiction based on the EU law principle of equal treatment of EU entities? Is an EU PBO obliged to pay gift tax in your jurisdiction if it receives a donation from a donor who is resident in that country?

Basically, the tax treatment of donations in Latvian CIT law and the law on personal income tax is aligned and based on the EU law principle of equal treatment of EU entities.

Regarding recent amendments in the Law on the Support of Civilians of Ukraine (in force as of 7 April 2023), we see that technically there is no reference in law to the equal treatment of EU entities; however we are sure that generally this principle should also be applied to donations made in accordance with the Law on the Support of Civilians of Ukraine. For legal certainty, this can be confirmed by the ruling from the Latvian Ministry of finance.

There is no gift taxation in Latvia.

4. Would it make sense to channel the donations from your jurisdiction to a third country-based charitable foundation (in e.g. the US or Ukraine) rather than to an EU PBO?

Latvia does not have any tax reliefs for donations to US- or Ukraine-registered charities, therefore any EU or EEA PBO would be preferable assuming that there is certain economic substance for this organisation in the respective country (to avoid the risk that the tax authorities could treat the organisation as artificial or created for tax benefit goals only).