Transfer Pricing in Latvia: Thresholds, Deadlines, Penalties

A Latvian company whose controlled transactions with foreign related parties exceed EUR 250,000 in a financial year must prepare a transfer pricing local file and — under the rules applying from financial years beginning in 2025 — submit a controlled transactions report to VID within 12 months after the year end. Cross EUR 20 million and a master file is required as well. Miss these obligations and VID can fine the company up to 1% of the controlled transaction value, capped at EUR 100,000.

The framework changed with amendments to the law "On Taxes and Duties" (Par nodokļiem un nodevām, Section 15.2) in force from 1 January 2026 and applying to reporting years beginning in 2025. Mandatory annual filing of the local file (previously triggered at EUR 5 million) is gone. In its place: a standardised controlled transactions report filed through EDS, a EUR 90,000 materiality threshold, and full documentation submitted only when VID requests it.

Quick Summary

Latvian transfer pricing rules require companies whose controlled transactions with foreign related parties exceed EUR 250,000 per year to prepare a local file and submit a controlled transactions report to VID through EDS within 12 months after the financial year end. A master file is required above EUR 20 million. Transaction types up to EUR 90,000 per year may be excluded. Local and master files are submitted only upon VID request, within 30 days. Related-party status starts at 20% participation. Penalties for missing or deficient documentation reach 1% of the transaction value, capped at EUR 100,000. The regime applies from financial years beginning in 2025.

Who Counts as a Related Party

Latvian law casts the net wider than many foreign groups expect. Under Section 1(18) of the law "On Taxes and Duties", parties are related when one holds more than 50% of capital or voting rights or otherwise has decisive influence — but also when one company holds between 20% and 50% of another, even without a voting majority. The definition also covers companies under common control and, for individuals, spouses and relatives up to the third degree of kinship.

Controlled transactions that trigger documentation duties are, broadly, dealings with:

• Foreign related companies — a Latvian SIA and its foreign parent or sister companies
• Related individuals — for example, a shareholder lending money to the company
• Entities in low-tax jurisdictions on Latvia's blacklist, whether related or not

Typical controlled transactions in a small subsidiary: management and service fees, goods for resale, IP licence fees, loans and cash pooling, guarantees.

Documentation Tiers and EUR Thresholds

The regime has three tiers, each with its own threshold and deadline, measured against the total value of controlled transactions in the reporting year.

Requirement	Threshold (controlled transactions per year)	Deadline
Controlled transactions report	above EUR 250,000	Submit via EDS within 12 months after year end
Local file	above EUR 250,000	Prepare within 12 months; submit within 30 days upon VID request
Master file	above EUR 20 million	Prepare within 12 months; submit within 30 days upon VID request
Materiality exemption	up to EUR 90,000 per transaction type	May be excluded from the documentation

The controlled transactions report is the new element: a structured EDS form disclosing, per transaction type, direction and amount, counterparty, pricing method, comparables source, and profit level indicator. VID uses it to select audit targets, so its numbers must reconcile with your accounts and local file.

The local file follows the OECD format: functional analysis, transaction descriptions, method selection, and economic analysis proving arm's-length pricing. The master file describes the group as a whole and is normally prepared by the parent — a Latvian subsidiary rarely crosses EUR 20 million alone. The materiality threshold rose from EUR 20,000 to EUR 90,000 per transaction type.

Deadlines: What Changed from 2026

The single hard deadline is now 12 months after the financial year end. For a calendar-year company, the first controlled transactions report — covering 2025 — must reach VID via the Electronic Declaration System (EDS) by 31 December 2026. The local file must be ready by the same date but is submitted only within 30 days of a VID request.

For reporting years up to 2024 the old rules still matter in audits: annual filing of the local file when controlled transactions exceeded EUR 5 million, and of the master file above EUR 15 million. VID may review transfer pricing five years back under Section 23 of the law, so retain documentation for at least five years. If methodology and circumstances have not materially changed, the local file needs a full refresh only every three years, with the tested party's financials updated annually.

Arm's-Length Methods and When You Need a Benchmarking Study

Latvia accepts the five OECD methods, with no fixed hierarchy — the most appropriate method wins. They are: comparable uncontrolled price (CUP), resale price, cost plus, transactional net margin (TNMM), and profit split. In practice, TNMM dominates for routine distributors and service subsidiaries because reliable internal CUPs rarely exist.

A benchmarking study — a database search for comparable independent companies — is needed whenever your method relies on external comparables. For a typical subsidiary earning a cost-plus margin on group services, that means yes. A group's regional benchmarking set is generally acceptable if relevant to the Latvian market and documented. Management fees, loans and IP licensing between a Latvian holding company and its subsidiaries are the flows VID scrutinises first.

Penalties: What Non-Compliance Costs

The statutory penalty for missing, late, or substantially deficient documentation is up to 1% of the controlled transaction value, capped at EUR 100,000. VID's guidelines grade severity: minor breaches start around 0.05% of the transaction value (capped at EUR 15,000), while significant violations — no documentation at all, or documentation ignoring the mandatory content — run at 0.5–1% up to the cap.

The documentation penalty is only the entry fee. If VID concludes your prices were not arm's length, the adjustment is treated as a deemed profit distribution taxed under the 20/80 CIT model, plus late-payment interest of 0.05% per day and a fine of 20–30% of the additional tax. A cross-border adjustment also creates double taxation until resolved under the relevant double tax treaty. Good documentation flips the burden of proof in your favour.

Practical Checklist for a Small Subsidiary of a Foreign Group

Step 1: Map your related parties. Apply the 20% participation test to every counterparty — parent, sister companies, shareholder-individuals.

Step 2: Total your controlled transactions. Sum all flows with foreign related parties: services, goods, loans, royalties, guarantees. For withholding tax on these flows, see non-resident taxation.

Step 3: Apply the thresholds. Above EUR 250,000 in total: controlled transactions report plus local file. Types up to EUR 90,000 may be excluded.

Step 4: Get intercompany agreements in order — every recurring flow needs a written agreement matching reality.

Step 5: Request the group transfer pricing policy and master file from the parent — even below EUR 20 million, the group policy anchors your local file.

Step 6: Commission or update the benchmarking study for your main transaction types, on the three-year cycle.

Step 7: Prepare the local file and submit the controlled transactions report in EDS within 12 months of year end; retain everything for five years.

FAQ

Do we need documentation if transactions with our parent are below EUR 250,000?

You have no obligation to prepare a local file or submit the controlled transactions report, but the arm's-length principle applies to every related-party transaction regardless of size. VID can question pricing during a CIT review and treat any overcharge as a deemed profit distribution. Keep signed intercompany agreements, invoices, and a short internal calculation showing how the price was set.

When exactly is a benchmarking study required?

Whenever your documentation obligation is triggered and your method relies on external comparables — which covers most service, distribution, and manufacturing subsidiaries using cost plus or TNMM. A study is not required if a reliable internal comparable exists, for example the same goods sold to independent customers on similar terms. From 2026, a study remains valid for three years if circumstances do not change materially, with comparables' financial data updated annually.

Do intra-group loans count towards the EUR 250,000 threshold?

Yes. Loans, cash pooling, and guarantees are controlled transactions, and both the financing amounts and the interest must be at arm's length. Interest-free shareholder loans are a classic audit finding: VID imputes a market interest rate and taxes the difference. Documentation for financing should cover the borrower's credit standing and reference market rates; loans near the threshold deserve professional review rather than assumption.

What happens if VID adjusts our transfer prices?

The adjustment increases the taxable base and is taxed as a deemed profit distribution under the 20/80 CIT model, with late-payment interest and a fine on the additional tax. The group then faces double taxation, because the counterparty country has already taxed the same profit; relief requires a corresponding adjustment or a mutual agreement procedure under the applicable treaty. VID can look back five years, so one mispriced recurring flow can compound into substantial exposure.

Get Your Transfer Pricing File in Order Before VID Asks

SIA "CORVUS ACCOUNTING & TAX" prepares controlled transactions reports, local files, and benchmarking coordination for Latvian subsidiaries of foreign groups — as a Russell Bedford International member we align the Latvian file with your group's global documentation.

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