Loans Between a Latvian Company and Its Shareholders: Tax and Accounting Risks

Your company has money. You own the company. So can you simply borrow money from it and pay it back later?

Not always without tax consequences.

Moving money between a company and its shareholders may seem straightforward, but in Latvia the tax treatment can differ significantly depending on who is lending to whom, how long the loan remains outstanding and how the transaction is documented.

Most importantly, there is a significant difference between a shareholder lending money to the company and the company lending money to its shareholder.

Shareholder → Company

It is common for shareholders to finance their company personally, especially during the early stages of a business or temporary cash-flow shortages.

Latvia's Corporate Income Tax Law specifically excludes loans from a shareholder to the company from the rules that treat certain related-party loans as conditional profit distributions.

However, the transaction should still be properly documented. A loan agreement should clearly establish the amount, repayment terms, interest conditions and obligations of both parties.

Company → Shareholder

The opposite direction requires more attention.

Under Latvian Corporate Income Tax rules, a loan issued by a company to a related party may be treated as a conditional distribution of profit and become subject to corporate income tax (CIT) unless one of the statutory exceptions applies.

In other words:

Writing "loan" in the payment description does not automatically make the transaction tax neutral.

However, not every shareholder loan triggers CIT. Latvian law provides several exceptions, including loans issued for a period not exceeding 12 months, as well as other exceptions depending on the company's circumstances and source of financing.

This is why every loan should be assessed individually.

What if the shareholder is an individual?

If the borrower is a private individual, personal income tax rules may also become relevant.

Under Latvian legislation, a loan or part of a loan may in certain circumstances be treated as taxable income if it remains unpaid six months after the repayment date specified in the agreement, but no later than 66 months after the loan was issued, unless an applicable exception applies.

So an informal approach of "I'll borrow it now and pay it back sometime later" can eventually create a tax issue.

A written agreement, clear repayment terms and correct accounting treatment are therefore particularly important.

What about interest-free loans?

Another common assumption is:

"It's my company, so can't the loan simply be interest-free?"

Not necessarily without further consideration.

Transactions between a company and its shareholders may be related-party transactions, meaning that arm's-length and transfer-pricing considerations can become relevant. Latvian personal income tax legislation also contains specific rules concerning reduced interest payments on certain loans to individuals.

Therefore, interest-free does not automatically mean consequence-free.

Private expenses paid by the company can create the same problem

Not every shareholder loan starts with a formal loan agreement.

Imagine a shareholder pays for a private expense using the company card.

The accountant records the amount as receivable from the shareholder, who plans to repay it later.

Then another private expense appears. And another.

Eventually, the company has a growing balance receivable from its shareholder.

Calling it a "shareholder current account" does not remove the underlying question: what does this balance actually represent, and how should it be treated for tax purposes?

Regularly reviewing these balances can prevent a relatively small accounting issue from becoming a larger year-end tax problem.

Before transferring money, ask these questions

Before money moves between a Latvian company and its shareholder, consider:

• Who is lending to whom?
• When will the money be repaid?
• Does a CIT exception apply?
• Should interest be charged?
• Is there a proper loan agreement?
• Does the accounting treatment reflect what actually happened?

If the shareholder is an individual, potential personal income tax implications should also be considered.

A loan is more than a payment description

There is nothing unusual about shareholders financing their companies or companies providing financing to related parties.

The important point is that company money and the shareholder's personal money are separate.

For Latvian tax purposes, the direction, duration, terms and repayment of the loan can materially change its treatment.

Before transferring money between yourself and your company, make sure you understand how the transaction will be treated for tax purposes - not just what you plan to write in the payment description.

How Oceans can help

Shareholder transactions are much easier to structure correctly before the money moves than to correct retrospectively.

Oceans can help review shareholder loans, assess their accounting and tax treatment, and identify potential CIT, PIT and related-party risks.

Already have an outstanding shareholder balance or planning a new loan? Contact Oceans to review it before it becomes a tax issue.

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Last updated September 22, 2026

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