AEOI

Dear clients,

Hereby, we kindly inform you that regulations on automatic exchange of tax information (AEOI) have been introduced Latvia. Regulations provide responsibility to identify the country of tax residence of the clients of financial institutions, including those of the Banks.

Which countries have agreed on automatic exchange of tax information?

Currently, approximately 105 countries, including all EU Member States, have acceded to the system of AEOI and stated the year of first exchange of tax information.

What does automatic exchange of tax information mean?

In accordance with the requirements of AEOI the Banks are obliged to perform the analysis of natural and legal persons’ accounts and report to the State Revenue Service of the Republic of Latvia (SRS) which will distribute this information to tax authorities of the jurisdictions in question.

What are the account categories in terms of AEOI?

For the purposes of analysis of accounts and determining the deadlines for reporting, the following account types are in use in terms of AEOI:

  • pre-existing and new
  • legal and natural person account
  • high value1 and lower2 value (with regard to pre-existing accounts of natural persons only).

How Bank is going to determinate the tax residence of the Client?

In order to determine the tax residence of the Client the Banks, depending on the type of the account, use:

  • Client’s own confirmation - the bank’s questionnaires filled out by the Client,
  • Documents issued by Government bodies and certifying the tax residence of the Client - the Client is obliged to submit these documents upon the request of the Bank,
  • Evidence of connection to a specific jurisdiction (address, phone number, residence of the authorised persons)
  • The information obtained during the clients’ examination during the account opening process and further cooperation.

When does the reporting start?

The first reports on the accounts (in regard to accounts of natural persons of the participating jurisdictions the aggregate balances of which as of 31 December 2015 reached 1 million US dollars) have been submitted in 2017. Thereafter, starting from the year 2018, the reports on all the Clients of the participating jurisdictions shall be filed yearly by 31st of July for the preceding calendar year. The account balance shall be determined as of 31st of December of each year, but in case the client has closed the account during the accounting period - as of the last day preceding the closure of the account (accounts).

What kind of information is filed in the reports?

The reports to be filed to SRS shall contain the following information:

  • Name of the client,
  • Date and place of birth,
  • Address,
  • The tax jurisdiction
  • The taxpayer’s identification number,
  • Account number,
  • Account balance as of the end of the accounting period,
  • Other information on the income and transactions as provided by the legislative acts.

Legislative regulation and other sources of information

In Latvia, AEOI is regulated by the Cabinet Regulation Nr.20 “Procedures by which a Financial Institution Implements the Due Diligence Procedures for Financial Accounts and Provides Financial Accounts Information to the State Revenue Service” and the Law on Taxes and Duties.

Detailed information is available at the official website on AEOI.

How to submit the necessary information to the Bank?

For the purposes to fulfil the AEOI requirements the Bank has prepared questionnaires and asks you to provide the information requested therein, including:

  • Country of tax residence, taxpayer’s identification number and address in the indicated country of tax residence (for clients - natural and legal persons, as well as for beneficiaries of clients - legal persons),
  • Type of client - active or passive (for clients - legal persons).

The filled out questionnaires may be sent via internet bank or submitted to the Bank in person, or handed over via authorised representatives of the Bank.

The questionnaires to be filed within one (1) month from the moment of receipt.

What are the consequences of the Client’s failure to provide the information requested by the Bank?

SRS shall be reported separately on the Clients who have failed to provide the Bank with the requested information, and their accounts shall be marked as undocumented.

In accordance with internal regulation the Bank has the right to refrain from further cooperation with existing Clients or to refuse to open accounts for new Clients in case they do not provide the information in order to fulfil the requirements of AEOI.

1High value account - account with the account balance of 1 million US dollars and more on the date of determining the category of account.
2Lower value account - account with the account balance up to 1 million US dollars on the date of determining the category of account.


Terms in use for the classification of clients pursuant to AEOI

Active nonfinancial organization means any nonfinancial organization (viz entity, that is not a financial institution) that meets any of the following criteria:

1) less than 50 % of the nonfinancial entity’s gross income for the preceding calendar year or other appropriate reporting period is passive income and less than 50 % of the assets held by the nonfinancial entity during the preceding calendar year or other appropriate reporting period are assets that produce or are held for the production of passive income;
2) the stock of the nonfinancial entity is regularly traded on an established securities market or the nonfinancial entity is a related entity of an entity the stock of which is regularly traded on an established securities market;
3) the nonfinancial entity is a Governmental Entity, an International Organization, a Central Bank, or an Entity wholly owned by one or more of the foregoing;
4) substantially all of the activities of the nonfinancial entity consist of holding (in whole or in part) the outstanding stock of, or providing financing and services to, one or more subsidiaries that engage in trades or businesses other than the business of a Financial Institution, except that an entity does not qualify for this status if the entity functions (or holds itself out) as an investment fund, such as a private equity fund, venture capital fund, leveraged buyout fund, or any investment vehicle whose purpose is to acquire or fund companies and then hold interests in those companies as capital assets for investment purposes;
5) the nonfinancial entity is not yet operating a business and has no prior operating history, but is investing capital into assets with the intent to operate a business other than that of a Financial Institution, provided that the nonfinancial entity does not qualify for this exception after the date that is 24 months after the date of the initial organization of the nonfinancial entity;
6) the nonfinancial entity was not a Financial Institution in the past five years, and is in the process of liquidating its assets or is reorganizing with the intent to continue or recommence operations in a business other than that of a Financial Institution;
7) the nonfinancial entity primarily engages in financing and hedging transactions with, or for, related entities that are not Financial Institutions, and does not provide financing or hedging services to any entity that is not a related entity, provided that the group of any such Related Entities is primarily engaged in a business other than that of a Financial Institution;
8)the nonfinancial entity meets all of the following requirements:

  • in its jurisdiction of residency it is established and operated exclusively for religious, charitable, scientific, artistic, cultural, athletic, or educational purposes; or it is a professional organization, business league, chamber of commerce, labor organization, agricultural or horticultural organization, civic league or an organization operated exclusively for the promotion of social welfare;
  • it is exempt from income tax in its jurisdiction of residency;
  • it has no shareholders or members who have a proprietary or beneficial interest in its income or assets;
  • the applicable laws of the nonfinancial entity’s jurisdiction of residency or its formation documents do not permit any income or assets of the nonfinancial entity to be distributed to, or applied for the benefit of, a private person or non-charitable entity other than pursuant to the conduct of the nonfinancial entity's charitable activities, or as payment of reasonable compensation for services rendered, or as payment representing the fair market value of property which the nonfinancial entity has purchased;
  • the applicable laws of the nonfinancial entity's jurisdiction of residency or formation documents require that, upon the nonfinancial entity's liquidation or dissolution, all of its assets be distributed to a Governmental Entity or other non-profit organization, or escheat to the government of the nonfinancial entity's jurisdiction of residency or any political subdivision thereof.

Passive income — a portion of gross income of a passive nonfinancial organization that generally consists of:

1) dividends;
2) interest and income equivalent to interest;
3) rents and royalties, other than rents and royalties derived in the active conduct of a business conducted, at least in part, by the organization;
4) annuities;
5) income from the sale or exchange of Financial Assets that gives rise to the passive income described in point 1 to 4 above (excluding those derived in the course of professional broker-dealer activities);
6) income from transactions (including futures, forwards, options, and similar transactions) in any Financial Assets excluding those derived in the course of professional broker-dealer activities);
7) the excess of foreign currency gains over foreign currency losses excluding those derived in the course of professional broker-dealer activities);
8) net income from swaps (excluding those derived in the course of a professional broker-dealer activity);
9)amounts received under Cash Value Insurance Contracts;
10) income economically equivalent to income described in point 1 to 9.

Passive nonfinancial organization means any:

1) nonfinancial entity that is not an Active nonfinancial entity;
2) a specified Investment Entity.

Specified Investment Entity — an Investment entity, the income of which is primarily attributable to investing, reinvesting, or trading in Financial Assets, if this entity is managed by another entity that is a Depository Institution, a Custodial Institution, a Specified Insurance Company, or an Investment Entity described in point 1 of the definition of the term “Investment Entity”.

Financial Institution means a Custodial Institution, a Depository Institution, an Investment Entity, or a Specified Insurance Company.

Custodial Institution means any entity that holds, as a substantial portion of its business, Financial Assets for the account of others.

Depository Institution means any entity that accepts deposits in the ordinary course of a banking business, activities of a credit union, payment services provider, e-money issuer or similar business.

Investment Entity means any entity:

1) which primarily conducts as a business one or more of the following activities or operations for or on behalf of a customer:
a) trading in money market instruments (e.g. cheques, bills, certificates of deposit, derivatives); foreign exchange; exchange, interest rate and index instruments; transferable securities; or commodity futures trading;
b) individual and collective investment portfolio management;
or
c) otherwise investing, administering, or managing Financial Assets or money on behalf of other persons;
or the income of which is primarily attributable to investing, reinvesting, or trading in Financial Assets, if the entity is managed by another entity that is a Depository Institution, a Custodial Institution, a Specified Insurance Company, or an Investment Entity described in point 1 of this definition.

An entity is not considered to be an Investment Entity, if it is an active nonfinancial entity, which satisfies criteria set forth in point 4 to 7 of the definition of the term “Active nonfinancial organization”.

Financial Asset includes a security (for example, a share of stock in a corporation; partnership or beneficial ownership interest in a widely held or publicly traded partnership or trust; note, bond, debenture, or other evidence of indebtedness), partnership interest, commodity, swap (for example, interest rate swaps, currency swaps, basis swaps, interest rate caps, interest rate floors, commodity swaps, equity swaps, equity index swaps, and similar agreements), Insurance Contract or Annuity Contract, or any interest (including a futures or forward contract or option) in a security, partnership interest, commodity, swap, Insurance Contract, or Annuity Contract. The term ‘Financial Asset’ does not include a non-debt, direct interest in real property.

Specified Insurance Company means any entity that is an insurance company (or the holding company of an insurance company) which issues, or is obligated to make payments with respect to, a Cash Value Insurance Contract or an Annuity Contract.

Governmental Entity means the government of a jurisdiction, any political subdivision of a jurisdiction (which, for the avoidance of doubt, includes a state, province, county, or municipality), or any wholly owned agency or instrumentality of a jurisdiction or of any one or more of the foregoing.

International Organization means any organization, which satisfies the following criteria:

1) it is comprised primarily of states or their governments;
2) it has in effect a headquarters or substantially similar agreement with any jurisdiction, and
3) the income of it does not inure to the benefit of private persons.

As an international organization to be considered any institution established by the international organization and any agency wholly owned by the international organization.