Taxation in Latvia is a complex thing to understand, so, it is important to get help from local experts. If you are a foreigner in Latvia, you are advised to get in touch with our company formation agents to learn about taxation, because it is crucial to comply with local laws in the region if you want to avoid any complications.
| Short Facts | |
|---|---|
| Main taxes in Latvia | – corporate income tax, – VAT, – personal income tax, – capital gains tax, – real estate tax |
| Corporate income tax rate (CIT) | 20% |
| Personal income tax rate (PIT) | – 25.5% applied to annual income not exceeding EUR 105,300/year; – 33% for income above EUR 105.300/year |
| VAT in Latvia | 21% as the standard VAT rate. Lower rates apply to specific products and services. |
| Capital gains tax in Latvia | 25.50% |
| Real estate tax | 1.50% |
| Social security contributions | 23.59% paid by the employer and 10.5% paid by the employee |
| Micro-enterprise tax | 25% |
| Dividend tax | 20% |
| Surtax in Latvia | An extra 3% tax rate applies to annual revenue exceeding EUR 200,000 |
| Solidarity tax | Imposed on income above EUR 105,300 – 34.09% |
| Taxation on sole traders in Latvia | 25.5% on annual revenue not exceeding EUR 105,300 |
| Tax residency in Latvia | 183 days in 12 months |
| Tax year in Latvia | The calendar year |
| Working with our Latvian tax advisors | For tax registration, tax advice, minimization options, tax efficiency, and many more. |
Table of Contents
Latvian personal income tax
A progressive personal income tax (PIT) system exists in Latvia. Unless the legislation specifies a different rate, the progressive rate is determined using the following formula based on the level of yearly income. See the Latvian income tax rates below:
- Progressive rate of 25.5% for annual taxable income up to EUR 105,300;
- 33% for the amount exceeding EUR 105,300;
- An additional 3% rate for income exceeding EUR 200,000.
There is also a 25.5% rate of personal income tax on dividends. There will not be any PIT to pay, though, if a corporation has already charged its profits to the corporate income tax (CIT). This Latvian income tax applies to businesses in Latvia as well as those in the EU, EEA, and other countries, except for companies in the tax havens. Apart from EU/EEA enterprises, where no proof is required because it is presumed that tax (personal income tax (PIT) or corporate income tax (CIT)) has been imposed at source by default, profits should be zero-rated for PIT if proof of PIT or CIT paid abroad has been provided.
Capital gains tax in Latvia
Capital gains tax is a levy on the profit made from selling an asset, such as stocks, bonds, real estate, or valuable personal property, that has increased in value. The method used to buy the capital asset will determine the acquisition value. The Latvian capital gain income tax is levied at a 25.5% rate. According to Latvian law, income from capital other than capital gains includes:
- dividends from company stocks and shares;
- income from other rights (not derived from debt obligations) to participate in profit distribution;
- income from private partnerships, as well as income related to interest income;
- income from investments in private pension funds;
- income from life insurance agreements with savings.
If you are unable to understand the Latvian capital gains tax efficiently, our experts can explain it to you. Get in touch with our company incorporation experts for their services.
If you have a firm in Latvia and you need accounting services, you can rely on our experts. They can offer you efficient accounting services in Latvia. A qualified Latvian accountant may be a valuable source of guidance and advise on how to control your company’s expenses and report losses. You may then base your judgments on measured risks and anticipated outcomes. You should be aware that financial statements including trading and profit & loss account, balance sheet, and others may be simply created if accurate transaction documentation is kept.
Below you can find a useful infographic on the main taxes applied in Latvia:
The corporate income tax rate in Latvia
Latvia follows a system of corporate tax in which profits are only taxed at a 20% rate when they are distributed, while retained profits are not taxed. Taking into account all the adjustments that the tax regulations specify, it is applied to the annual profits. For the Latvian corporate income tax, business expenses are deductible. The tax exemption is also applicable to interest and sales of public bonds, but the bond must first be quoted on markets governed by the EU or the EAA. Capital gains are another type of income subject to the Latvian corporate income tax rate. This is especially true of capital gains from the sale of a property. The distinction between a property’s net tax value and the sales price in this instance represents the taxable income. Capital gains from the selling of shares are not subject to the corporate income tax rate in Latvia.
The reduced version of the Latvian corporate income tax is available to permanent enterprises that have been in operation for no more than a year. Such a business pays corporate income tax on 20% of its revenue if it applies to a simplified tax regime. If you have more questions about Latvian corporate income tax, our experts can guide you.
Furthermore, our specialists can also help you incorporate a branch in Latvia. You can take advantage of the free zone by setting up a company in Latvia. The European Union considers Latvia to be a nation and a member state (EU). Along with that, Latvia is a participating member of the World Trade Organization (WTO) and the Organization for Economic Co-operation and Development (OECD) (WTO). As a result, there are numerous possibilities for commerce and incentives for both imports and exports among the member nations in these international organizations.
Value-added tax in Latvia
The entire European Union, including Latvia, is subject to the VAT, which is a consumption tax. The VAT is imposed on products and services bought and sold for use or consumption. Since the end user is responsible for paying this tax that is incorporated into the cost of a commodity or service, it is seen as an indirect tax. According to Latvia’s value-added tax law:
- The standard tax rate is 21%;
- There are also reduced VAT rates: 12%, 5%, or, 0% depending on the good or service.
Microenterprise tax regime in Latvia
Latvia has a simple taxation system, which is called the micro enterprise tax regime. This is a special taxation system created specifically to help small businesses, freelancers, and startups at their initial stages of development. The system allows companies in Latvia to pay a single tax on their turnover. This makes it easier for entrepreneurs planning to open a companyin Latvia, especially small businesses, as it reduces the burden of taxation.
This system can be very advantageous, especially at the initial stages, as it provides a simpler way of paying a single tax on the turnover. However, there are specific requirements that must be met in order to qualify. The requirements include a limit on the number of employees. The system can be advantageous in the initial stages, but companies must also be aware of their future, especially when the business grows. The standard Latvian taxation system might be required at a later date.
Tax benefits for foreign investors in Latvia
Foreign entrepreneurs seeking to establish a company in Latvia can experience the benefits of a transparent, stable, and EU-compliant tax regime. Latvia has created a modern tax system, which is conducive to investment and business growth, making it easier for foreign investors to start a company in Latvia and operate in the European markets. Latvia has also entered into numerous double taxation treaties, which help avoid the taxation of the same income in two different countries, which is an important aspect for foreign investors.
Moreover, foreign investors may also enjoy the benefits of the following important aspects of taxation in Latvia:
- No tax on corporate profits reinvested in the business, which enables business growth without any tax burden;
- Access to the single European Union market, which is extremely beneficial in terms of trade;
- Double taxation treaties, which minimize tax risk in foreign countries;
- Relatively easy company registration in Latvia, which is beneficial in terms of business growth in the region;
- Low labor and operational costs in Latvia compared to Western European countries.
This way, our specialized company formation agents in Latvia can offer their support in every step of this process.
Data on taxation in Latvia
Recent data from the Organization for Economic Co-operation and Development (OECD) indicates a strong increase in revenues collected through taxation, thus indicating that taxation policies in Latvia are changing and aligning with the broader trends observed across the OECD:
- Latvia’s tax-to-GDP ratio was 34.9% in 2024, up from 32.5% that was registered in 2023;
- This marks a +2.4% point increase, which is the largest increase observed across the OECD countries.
- Latvia’s tax-to-GDP ratio is now slightly above the OECD average, which stands at 34.1%.
Besides assistance for the Latvian income tax, you can also get in touch with our company incorporation consultants if you want to buy a shelf company in Latvia. They can also help you with opening a company in Latvia, no matter its type.
Furthermore, our specialists can also help you incorporate a branch in Latvia. You can take advantage of the free zone by setting up a company in Latvia. The European Union considers Latvia to be a nation and a member state (EU). Along with that, Latvia is a participating member of the World Trade Organization (WTO) and the Organization for Economic Co-operation and Development (OECD) (WTO). As a result, there are numerous possibilities for commerce and incentives for both imports and exports among the member nations in these international organizations.
Moreover, our company incorporation agents can help you get a virtual office in Latvia. They will explain to you all the available packages and you can select anyone as per your business needs.
For more information and support regarding taxation in Latvia and more on Latvian company formation in this country, do not hesitate to contact us.