So if you are a director of a Latvian company but you live in another country where you are a tax resident, you may wonder if you should pay taxes on directorship income in Latvia.
Article 16 of Double Tax Treaty (DTT) provides that director's fees and similar payments derived by a resident of the one state in his capacity as a member of the board of a company of the other state (i.e. Latvia) may be taxed in this other state (i.e. Latvia).
Latvian national rules provide that directors fees (remuneration) paid by a Latvian company to a non-resident director are subject to personal income tax-PIT (tax rate 23%). DDT in most cases provides the same rules allocating taxing rights to the country where the company is registered. Since the company is established in Latvia, the director's remuneration is taxed in Latvia. Even if a director has visited Latvia once.
According to PIT Law, if an employee of a company established abroad performs the duties of a board member of a company established in Latvia and receives remuneration not from a Latvian company, but from a company established abroad (where he is an employee), it should be noted that PIT has to be paid in Latvia anyway. Moreover taxable remuneration includes the benefits given by the Latvian company (i.e. hotel, transportation costs). If the remuneration is paid by a company established abroad, it is important to establish that the person performs the duties of a director of the Latvian company, and the remuneration received is directly related to these duties. Usually the remuneration is being compensated by the Latvian company.

It should be noted that the non-resident director performing its duties abroad might indicate the formation of a permanent establishment risk. For example in Latvia, a foreign merchant is considered to have a permanent establishment in Latvia if a foreign merchant uses a natural person in Latvia, and if the said person has been granted and it regularly (more than once during the taxation period) exercises the authority to conclude the contracts on behalf of a foreign merchant. This should be seen in the context of the power of the director to act on behalf of the company.

Other things to consider – non-resident employee
However, if there is an employment agreement between Latvian company where a non-resident employee holds the position of, for example, commercial director (not to be confused with a management board member in this context), according to OECD commentary the Article 16 of DDT is not applicable. Then the provisions contained in Article 15 of the DTT should be examined. Article 15 provides the general principle where the wages or similar remuneration shall be taxed. Basically it states that employment income should be taxed in a country where the employee is resident unless the employment is exercised in other State (i.e. Latvia). If the employment is exercised in Latvia, then employment income may be taxed in Latvia. However, the exception applies if the following conditions are simultaneously met:

§ The employee is present in Latvia for a period not exceeding in the aggregate 183 days in any 12-month period commencing or ending in the fiscal year concerned and
§ The remuneration is paid by, or on behalf of, an employer who is not a resident of Latvia and
§ The remuneration is not borne by a permanent establishment or a fixed base which the employer has in Latvia.

In addition according to PIT law if the natural person performing the work in Latvia is considered as a “hired personnel", the exception provided in Article 15 of DDT does not apply.
Hired personnel within the meaning of PIT law is - the secondment of the personnel by the “personnel lessor" that is not a resident of Latvia or permanent establishment in Latvia, in exchange for remuneration, so that this personnel might perform activities in connection with the economic or professional activities of the personnel lessee in Latvia or abroad if at least one of the following features apply:
1) the lessee of the personnel is responsible for the joint management and supervision of the work or the work results;
2) the lessee of the personnel determines the number and qualification of the personnel;
3) the integration of the personnel in lessee enterprise - meaning the existence of work or resting place, the duty to observe the enterprise internal rules;
4) remuneration is calculated depending on the working hours of the hired personnel, the work performed or other relations between the remuneration of the lessor of the personnel and the work remuneration of personnel;
5) the lessee of the personnel provides the personnel with the largest part of assets, work equipment, and materials.
In case the features of “hired personnel" are identified, the lessee of personnel shall calculate the tax on the income of hired personnel on the basis of the information submitted by the lessor of the personnel. If a lessor of the personnel cannot submit the information, the total payment of the lessee of the personnel to the lessor of the personnel shall be considered as the income equaled to the income of the hired personnel.

Source: written by Forcetax team.