How Selling Stocks Can Optimize Company Finances

If your company portfolio includes stocks that you have held for at least 36 months, you have access to an effective tool for optimizing your tax burden. Latvian tax regulations provide a specific opportunity for companies engaged in long-term stock investments.

How does the 36-month principle work?

This mechanism is based on the condition for long-term investment. If a company disposes of (sells) shares of direct participation where the holding period prior to the sale has been at least three years, the profit gained from this transaction acquires a special status.

Reducing the tax base: The company can use this profit gained from the stock sale to reduce the taxable base for Corporate Income Tax (CIT) at the moment dividends are paid out.

Direct impact on dividends: Simply put, you can use a successful stock sale transaction as a tool to reduce the tax that would otherwise be payable on the distribution of corporate profits to shareholders.

Important note on the total tax burden

When planning such a transaction, it is crucial to view the situation holistically. Although this mechanism offers significant advantages at the CIT level, it changes the tax application conditions for dividend payments.

By utilizing this CIT relief, an individual (natural person) may become liable to pay Personal Income Tax (PIT) on the dividends received. Therefore, before making a decision, be sure to perform a total calculation of both taxes—CIT and PIT—to ensure that the chosen strategy is the most financially advantageous for your specific company.

Why is this useful?

This approach is valuable for companies that are purposefully building their investment portfolios. It not only rewards patience and long-term vision by investing in stocks for at least three years, but also provides a concrete financial benefit, allowing for more effective distribution of company resources and rewards to shareholders.