Unprecedented timber prices are raising questions about the cadastral values of forest properties and tax policy. At present, the gap between the cadastral and market value of forest land is enormous; consequently, when selling forests and felling rights, private forest owners are increasingly asking questions about capital gains tax.

What exactly is this 'beast' – CGT, and why might it push forest owners into the 'grey' tax zone?

In Latvia, the law 'On Personal Income Tax' stipulates that income from the sale of real estate is subject to personal income tax (PIT) as income from capital gains. Put simply, capital gains tax (CGT) is a form of income tax, and its rate is 20%. CGT is calculated based on the difference formed by subtracting the acquisition and investment value of the property from the sale price.