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Frequently asked questions

What is Beneficial owner (BO)?

For purposes of the Law on the Prevention of Money Laundering and Terrorism Financing, ‘beneficial owner’ means, in case of corporate entities, any natural person who owns or controls the customer, or in whose name, favour and interests a business relationship is established or an occasional transaction is performed, and who is at least:

  • with regard to legal entities – a natural person who owns, in the form of direct or indirect shareholding, more than 25 percent of the capital shares or voting stock of the legal entity or who directly or indirectly controls it,
  • with regard to legal arrangements – a natural person who owns or in whose interests a legal arrangement has been established or operates, or who directly or indirectly exercises control over it, including who is the founder, proxy or supervisor (manager) of such legal arrangement,

In case of funds or trusts or similar legal arrangements or units, a beneficial owner is a founder, proxy, supervisor (manager), appointed beneficial owners, if not appointed, a group of persons in whose interests the legal arrangement has been established or operates, any other natural person who is actually exercising control over a trust, by means of ownership or otherwise.

 

What is Politically Exposed Person (PEP)?

The definition of a politically exposed person and a person closely associated with a politically exposed person may be found in Paragraph 18 of Section 1 of the Law on the Prevention of Money Laundering and Terrorism Financing of the Republic of Latvia:

1)   politically exposed person – a person who in the Republic of Latvia, other Member State or third country holds or has held a prominent public office, including a higher official of the public authority, a head of the State administrative unit (local government), the Head of the Government, the Minister (the Deputy Minister or the Deputy of the Deputy Minister if there is such an office in the relevant country), the State Secretary or other official of high level in the government or State administrative unit (local government), a Member of Parliament or a member of similar legislation entity, a member of the management entity (board) of the political party, a Judge of the Constitutional Court, a Judge of the Supreme Court or of the court of other level (a member of the court authority), a council or board member of the Supreme Audit Institution, a council or board member of the Central Bank, an ambassador, a chargé d'affaires, a high-ranking officer of the armed forces, a council or board member of a State capital company, a head (a director, a deputy director) and a board member of an international organisation, or a person who holds equal position in such organisation.

2)   family member of a politically exposed person – a person who, for a politically exposed person, is:

  • a spouse or a person equivalent to a spouse. A person shall be considered a person equivalent to a spouse only if he or she is given such a status pursuant to the legislation of the relevant state,
  • a child or a child of a spouse or a person equivalent to a spouse of a politically exposed person, his or her spouse or a person equivalent to a spouse,
  • a parent, grandparent or grandchildren,
  • brother or sister.

3)   person closely associated with a politically exposed person – a natural person regarding whom it is known that he or she has business or other close relations with any politically exposed person or he or she is a stockholder or shareholder in the same commercial company with any politically exposed person, and also a natural person who is the only owner of a legal entity regarding whom it is known that it has been actually established in the favour of a politically exposed person.

 

What is tax residency country?

Tax residency country is the country in which a legal entity is subject to taxation on the basis of certain characteristics of the determination of tax residency, such as place of registration, management location, place of business, etc. in accordance with the requirements of the applicable national laws and regulations. More information: www.bib.eu/en/oecd-crs

 

What are the types for Legal Arrangement Status?

Indicators of Active Non-financial Entity

Pursuant to the provisions of  Section 86 of Chapter XII of the Latvian law ‘On Taxes and Duties’, any non-financial entity  (with or without the status of a legal person) shall be deemed an active non-financial entity if it meets at least one of the following criteria:

1) less than 50 percent of the revenue of the non-financial  entity  in the previous calendar year or within another corresponding reporting period is passive revenue and less than 50 percent of the assets of the non-financial entity  held in the previous calendar year or within another corresponding reporting period are assets held to form the passive revenue referred to above.  The following revenue shall be deemed passive revenue:

  • dividends,
  • interest payments and equivalent payments,
  • rent, lease payments and royalty payments (except where obtained in the course of the customer's main business),
  • annuities , revenue obtained from disposals of financial assets which generate  the passive revenue already listed above (except for the revenue obtained in the course of the broker's (dealer's) main business),
  • revenue from transactions in financial instruments (except for the revenue obtained in the course of the broker's (dealer's) main business),
  • revenue from foreign currency exchange (except for the revenue obtained in the course of the broker's (dealer's) main business),
  • result of swap transactions  (except for the revenue obtained in the course of the broker's (dealer's) main business ),
  • amounts obtained from cash value insurance contracts ,
  • other revenue which is comparable in terms of its economic substance to the types of revenue listed above;

2) the shares of a non-financial entity are regularly traded on an established securities market, or the non-financial entity is an entity related to the entity the shares of which are traded on an established  securities market;

3) the non-financial legal entity is a governmental entity, international organisation, central bank, or a legal entity that belongs to one of the abovementioned structures;

4) substantially all of the activities of the non-financial 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 a non-financial 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 non-financial 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 non-financial entity does not qualify for this exception after the date that is 24 months after the date of the initial organisation of the non-financial entity;

6) the  non-financial entity has not been a financial institution during the last five years and is in the process of liquidation or reorganisation of the assets of the  entity with an intent to continue  or resume an economic activity other than the economic activity of a financial institution;

7) the  non-financial entity is mainly involved in financing and hedging activities with or for the related (associated)  entities other than financial institutions, and does not provide financing or hedging services to an entity which is not a related (associated)    entity, provided that the group of such related (associated) entities  is mainly involved in an economic activity other than the economic activity of a financial institution;

8) the non-financial entity meets all of the following requirements if:

  • it has been established and operates only for purposes related to religion, charity, science, arts, culture, sports or education, or it has been established and operates in its own country or in another country of residence and is a professional organization, business union, chamber of commerce, labour organization, agricultural or horticultural organization, civil union or an organization operating only for  the promotion of the overall welfare of the society;
  • it is exempt from income tax in the CRS country or in another country of its residence for tax purposes;
  • it does not have any shareholders or members with ownership or beneficial interests in relation to its income or assets;
  • according to the applicable law of the its  registration  (which is CRS country)  or another country of its tax residence  or the country of the   formation documents of the non-financial entity , the revenue or assets of the non-financial entity may not be (1)  distributed or used for the benefit of a natural person or an entity other than a charitable institution where such a division or use is not related to the charitable activities carried out by the non-financial entity, or may not (2) be used by making an appropriate compensatory payment for the services received or a payment in the amount of the fair market value of the property acquired by the non-financial entity,
  • according to the applicable law of its registration country (which is  the CRS country) or another country of its tax residence  or the country of  the formation documents of the non-financial entity  in case of liquidation or reorganization of the non-financial entity  all the assets of the non-financial entity  are transferred to a government institution or to another non-profit organisation.

According to the provisions of Section 87 of Chapter XII of the Latvian Law ‘On Taxes and Duties’, a non-financial entity (with or without the status of a legal entity/person) which does not correspond to the description of an active non-financial entity shall be deemed to be a passive non-financial entity.

 

Passive non-financial entity*:

  • a non-financial legal entity(with or without the status of a legal person) which does not correspond to the description of an active non-financial entity;
  • specified investment entity.
* pursuant to Section 87 of the Law ‘On Taxes and Duties’

 

Governmental Entity* — a body governed by public law of the Republic of Latvia or another state, including a territorial formation of the state (for example, local governments of different levels, federal formations, rural territory or pagasts, city, municipality, state, province, district) or an agency or institution established (founded) by an administrative territorial formation of the Republic of Latvia or another state.

* pursuant to Section 78 of the Law ‘On Taxes and Duties’

 

International organisation* — an organisation, which meets all following criteria:

  • countries or their governments are members of such organisation;
  • it has the effective agreement on location of the headquarters abroad;
  • private persons do not benefit from income of such organisation.

An institution or agency wholly owned by an international organisation shall also be deemed an international organisation.

* pursuant to Section 78 of the Law ‘On Taxes and Duties’

 

Financial institution* is a custodial institution, depository institution, investment institution, specified insurance company.

*pursuant to Section 70 of the Law ‘On Taxes and Duties’

 

 

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