I have noted a lot of interest recently in Latvia’s new residency program, that offers high net worth non-EU citizens the chance to obtain permanent residency within the European Union (Schengen Area) on a fast-track, hassle free system, in return for making a deposit in a Latvian bank of either 300,000 euro or 400,000 dollars.
The Parliament of the Republic of Latvia passed amendments to the Law on Immigration providing “additional possibilities of obtaining a residence permit in the Republic of Latvia.” These amendments entered into force on July 1st last year.
Latvia’s new residency program is already facing political tests, as a former mayor of Moscow, known for his vociferous criticism of the Latvian government, has recently applied for residency under the program. It has also been criticized by other EU countries Ki Residences, using the argument that it could allow criminal mafia types easy access to the European Union.
How, though, does Latvia’s residency option compare to the Malta residency program, officially known as the Residents Scheme Regulations, 2004 that we have written about in the past?
First, both countries are within the Schengen area, meaning that their residents can move freely around most of Western Europe. However, Latvia’s in the frozen north, while Malta’s in the warm Mediterranean. I’ve been in both and neither is ideal… Latvia’s freezing winters are just that… long and cold. If you like cold, I find Andorra’s climate much better, and in Andorra you at least have good skiing. Andorra is not technically in the Schengen area, but for all practical purposes it is, so we might prepare a separate article on Andorra residency another time. Malta, on the other hand, is Europe’s most densely populated country and can be dry and dusty. It doesn’t have a lot of beaches, but has a certain southern European charm.
What about tax? Both countries, in principle, tax residents on their worldwide income.
In Latvia, the income tax is 25% while corporation tax is 15%. There is a special tax incentive in Latvia for employees of foreign shipping companies doing business there.
In Malta, those who apply under the Residents Scheme Regulations, 2004 (the Maltese retiree program) and satisfy the few conditions stipulated will be provided with a certificate issued by the Commissioner of Inland Revenue (Malta). This certificate has a dual purpose: First, it acts as a Malta permanent residence permit issued in terms of Article 7 of the Immigration Act. Secondly, it confers on the individual a special Maltese tax status which entitles him/her to these considerable income tax benefits.
Residents with this status must pay a flat rate of 15% on their local Maltese income (including capital gains) and on his foreign income remitted to Malta. There is a minimum tax of 4,192. Foreign source income not remitted to Malta – in other words, your entire worldwide income whether it be earned, unearned, capital gains or whatever – is not taxable at all.
It gets better. Persons in possession of this type of Malta residence certificate can also claim double taxation relief in respect of tax paid outside Malta on any income remitted to Malta which is subject to tax in Malta. This tax benefit is increasingly useful given the very wide network of double taxation treaties that Malta has now concluded.
What about running a local business? Here, there is a major difference between the two programs. In Malta, residents under this scheme are simply not allowed to run a business. They are expected to be retired persons, though of course there is no prohibition on running a business outside Malta. A Maltese resident could certainly run an offshore business through a tax-transparent Nevis LLC for example, and bank the proceeds offshore legally completely free of Maltese tax.
In Latvia, on the other hand, entrepreneurs who want to invest in local businesses are encouraged with open arms. In this case, no bank deposit is necessary, simply an investment in a local business that may be as little as 36,000 euro. The business is expected, however, to pay a minimum of 28,000 euro per year in tax.
Overall, Latvia might be a good option for those who have business in northern Europe. For example, if you do business in Russia, then Latvia could be an excellent base. However, if like most of our readers you are more interested in running an internet business or just managing your investment portfolio, with the use of basic corporate structuring, we believe your tax bill and quality of life both point towards the Maltese residence option.