LatviaTax Obligations Detailed

In Latvia, employers face several tax obligations related to their employees, including payroll taxes, social security contributions, and income tax withholding.

Employer Payroll Taxes

• Personal Income Tax (PIT): Two PIT rates apply for 2025.
  • 25.5% on annual income up to EUR 105,300.
  • 33% on annual income exceeding EUR 105,300. Note: the 33% rate isn't used in payroll calculations, but assessed during annual tax filing. For monthly payroll, 25.5% is applied to all income, even above the EUR 105,300 threshold, and adjustments are made during the annual filing. An additional 3% tax applies to the portion of income exceeding EUR 200,000 annually.
• Social Security Contributions: Employers contribute 23.59% of the employee's gross salary up to the annual cap of EUR 105,300.
• Solidarity Tax: A 25% solidarity tax applies to income exceeding EUR 105,300 annually. This tax is not directly withheld by the employer during payroll but is reconciled during the employee's annual tax return. The employer applies the 25.5% PIT rate to income exceeding EUR 105,300, and the employee addresses the difference through the solidarity tax during annual filing. However, if an employee has a foreign A1 certificate and does not pay Latvian NSIC, the employer applies the 33% PIT rate to income exceeding EUR 8,775 monthly.

Employee Payroll Taxes

• Personal Income Tax (PIT): Employees are subject to the same PIT rates as mentioned above (25.5% up to EUR 105,300 and 33% above).
• Social Security Contributions: Employees contribute 10.5% of their gross salary up to the annual cap of EUR 105,300.

Reporting and Compliance

• Tax Year: The tax year in Latvia aligns with the calendar year (January 1st to December 31st).
• Payroll Cycle: Payroll is typically processed (semi-)monthly.
• Tax Filing: Employers must file monthly tax reports by the 17th of the following month. Additionally, an annual report of total payments to each employee is due by February 1st of the following year. If employment terminates before the year's end, the report is due by the 15th of the following month.
• Tax Returns: Employees must file annual income tax returns, due between March 1st and June 1st. If annual income exceeds EUR 78,100, the deadline extends to July 1st.

Minimum Wage and Allowances

• As of 2025, the minimum monthly wage in Latvia is EUR 740.
• A fixed non-taxable minimum of EUR 510 per month applies to employees' income. A higher non-taxable minimum of EUR 1,000 per month applies specifically to pensioners. Dependents can reduce taxable income by EUR 250 per dependent monthly. Certain expenses like contributions to private pension funds (up to EUR 4,000 annually) and eligible education/healthcare expenses (up to EUR 600 annually) are also deductible.

It's important to remember that this information is current as of today, February 5, 2025, and may be subject to change due to legislative updates or future adjustments. Always consult with a tax professional for the most current and accurate details for specific circumstances.

In Latvia, employee tax deductions encompass several areas, including social security contributions, personal income tax, and specific deductible expenses.

Social Security Contributions

• State Social Insurance Contributions (SSIC): These contributions are mandatory for all employees and cover areas such as healthcare, pensions, and unemployment benefits. As of 2025, the employee's contribution rate is 10.50% of their gross salary. A minimum SSIC object equivalent to the minimum wage (EUR 740 for 2025) applies.

Personal Income Tax (PIT)

• Progressive Tax Rates: Latvia's PIT system uses progressive tax rates. As of 2025, the following rates apply:
  • 20% on annual income up to EUR 20,004.
  • 23% on annual income between EUR 20,005 and EUR 78,100.
  • 31% (inclusive of solidarity tax) on annual income exceeding EUR 78,100.
  • An additional 3% surcharge applies to the portion of income exceeding EUR 200,000 annually.
• Non-Taxable Minimum: A fixed non-taxable minimum of EUR 510 per month (EUR 6,120 annually) is applied to all employees, irrespective of their gross income. This amount is deducted from the taxable income before calculating PIT. For pensioners, the non-taxable minimum is EUR 1,000 per month (EUR 12,000 annually)
• Tax Return Deadline: The annual income tax return is due by June 1st of the following year.

Deductible Expenses

Certain expenses can be deducted from an employee's taxable income, reducing their overall tax burden:

• Education and Medical Expenses: Expenses related to education and medical services, including dental services, are deductible up to EUR 600 per year for each family member.
• Private Pension and Endowment Insurance Contributions: Contributions to private pension funds and endowment insurance (with a maturity of at least ten years) are deductible up to 10% of annual taxable income, capped at EUR 4,000 annually.
• Donations: Donations to public benefit organizations and political parties are deductible up to 50% of the individual's annual taxable income, capped at EUR 600 per year per family member.

Additional Information

• Employers' Responsibilities: Employers are responsible for withholding PIT and SSIC from employees' salaries and remitting these amounts to the relevant authorities monthly. They are also responsible for providing employees with the necessary information on tax deductions and allowances. Employers must submit the annual income tax return and payroll tax reports by the due date.
• Non-Residents: Taxation rules may differ slightly for non-residents. Generally, non-residents are taxed only on Latvian-source income.

This information pertains specifically to the 2025 tax year in Latvia and is current as of February 5, 2025. Tax laws and regulations can change, so it's essential to stay updated on any revisions. Consulting with a tax advisor can provide personalized guidance based on individual circumstances.

In Latvia, Value Added Tax (VAT), known locally as Pievienotās vērtības nodoklis (PVN), is levied on most goods and services.

VAT Rates

• Standard Rate: 21% (Applies to most goods and services not covered by reduced or zero rates)
• Reduced Rate 1: 12% (Applies to items such as certain food products, medicines, books, newspapers, periodicals in printed format, accommodation services, domestic passenger transport, and certain heating products.)
• Reduced Rate 2: 5% (Applies to certain basic foodstuffs, including fruits and vegetables)
• Zero Rate: 0% (Applies to specific goods and services including intra-community and international passenger transport, exports of goods, and intra-community supplies of goods.)

VAT Registration

• Threshold: €50,000 (If your annual turnover exceeds this amount, you must register for VAT.)
• Non-Residents: No threshold (Non-resident businesses providing taxable goods or services in Latvia must register, regardless of turnover.)
• Distance Selling: €10,000 (If you sell goods to Latvian consumers online and your sales exceed this threshold, you must register.)
• Intra-community Acquisitions: €10,000 (Businesses exceeding this threshold in acquisitions must register)
• Voluntary Registration: Possible before reaching the threshold.

VAT Filing and Payment

• Frequency:

  • Monthly: If you make intra-community supplies.
  • Quarterly: If your annual sales are between €14,228.72 and €50,000 and you don't make intra-community supplies. You may apply for quarterly filing.
  • Bi-annually: If your annual sales are below €14,228.72 and you don't make intra-community supplies.

• Deadline: 23rd of the month following the reporting period.

• Method: Electronically via the Electronic Declaration System (EDS).

Other Reporting Requirements

• European Sales Listing (ESL): Monthly, due the 20th of the following month, no threshold
• Intrastat: Monthly, due the 10th of the following month. Thresholds are: dispatches: €200,000 and arrivals: €350,000
• Recapitulative Statements: Required with each VAT return for transactions exceeding €1,430.
• Annual VAT Return: In specific circumstances like adjustments for financial services.

VAT Exemptions

Certain goods and services are exempt from VAT, including:

• Education
• Financial services
• Healthcare and social welfare
• Public postal services
• Letting of immovable property
• Betting and gambling

VAT Recovery for Foreign Businesses

Foreign businesses may recover VAT paid in Latvia but non-EU businesses require reciprocity agreements. Fiscal representation is not required in Latvia.

Proposed Amendments for 2025

• Cross-border VAT Exemptions for SMEs Small and medium enterprises (SMEs) engaging in intra-European Union supplies of goods or services could benefit from cross-border VAT exemptions for annual transactions up to €100,000.

This information is current as of February 5, 2025, and is subject to change. Always consult with a tax professional for specific advice regarding your situation.

Latvia offers several tax incentives designed to stimulate economic activity and investment. These incentives primarily focus on corporate income tax (CIT) benefits and personal income tax (PIT) relief, along with certain incentives related to specific zones and activities.

Corporate Income Tax (CIT) Incentives

• Reinvested Profit: A 0% CIT rate applies to reinvested profits, encouraging businesses to reinvest earnings for growth and development. Distributed profits (dividends) are taxed at a 20% CIT rate.
• Free Ports and Special Economic Zones (SEZs): Companies operating within designated free ports (Ventspils, Riga) and SEZs (Rezekne, Latgale, Liepaja) can benefit from substantial CIT relief. These zones offer up to 80% relief on CIT applied to dividends and similar profit distributions. Additionally, real estate tax benefits and reductions in withholding tax on dividends, management fees, and intellectual property fees may also be available.
• Donations: CIT can be reduced through donations to eligible public benefit organizations, fostering social responsibility alongside business growth.

Personal Income Tax (PIT)

• Progressive Rates: Latvia employs a progressive PIT system. As of 2025, a 25.5% rate applies to annual income up to EUR 105,300, while income exceeding this threshold is taxed at 33%. An additional 3% PIT surcharge applies to the portion of total annual income exceeding EUR 200,000.
• Fixed Personal Allowance: A fixed personal allowance (FPA) of EUR 510 per month (EUR 1,000 for pensioners) is available, providing a basic level of tax-free income. Working pensioners have the option to divide their allowance between pension and employment income.
• Deductions: Various deductions can reduce taxable income, including social security contributions, education and medical expenses (up to EUR 600 per family member), and contributions to private pension funds (up to EUR 4,000 annually).
• Capital Gains: Capital gains are generally taxed at a flat rate of 25.5%. However, dividends from Latvian or EU/EEA companies, and income from the sale of personal property held for over 12 months, may be exempt.
• Other Exemptions: Further exemptions exist for specific income types such as agricultural income (up to EUR 2,845 annually), lottery winnings, inheritances (excluding royalties), alimony payments, and gifts from individuals (up to EUR 1,425 per year, or unlimited from relatives).

General Tax Information

• Tax Year: The tax year in Latvia aligns with the calendar year (January 1st to December 31st).
• Value Added Tax (VAT): The standard VAT rate in Latvia is 21%, with reduced rates applied to specific goods and services.
• Social Security Contributions: Both employers and employees contribute to social security. Specific rates and thresholds apply, with the upper limit for social security contributions set at EUR 105,300 of annual income as of 2025. Income exceeding this threshold is subject to a solidarity tax.

This information is current as of February 5, 2025, and may be subject to change due to legislative updates or future adjustments in tax regulations. It is recommended to consult with a tax advisor or refer to official government sources for the most up-to-date information.