At Bradford Jacobs, our Employer of Records (EOR) platforms provide reliable solutions for companies wishing to establish their presence in the Latvian economy. Compliance with the local payroll laws and regulations are vital to a business’ smooth and hassle-free transition, which is where we come in. We offer dedicated Latvia Payroll solutions that can be personalized to your requirements.
We aim to make business expansion easy. We navigate the administration of the Latvian payroll system for you – and as part of our service, we make the returns and associated payments for income tax and social security contributions directly from our payroll system to the local tax authorities. We do the work, so you do not have to.
You may encounter some challenges regarding payroll during your expansion into Latvia but allow us to take the reins and answer any of your questions and concerns with our trusty guide on payroll for Latvia.
What Latvia Payroll Options Are Available for Companies?
Businesses in Latvia have access to a variety of payroll options, depending on their needs:
- Remote Payroll
Businesses can operate under a single payroll system for all employees, by adding employees in Latvia to your parent company’s payroll. However, these employees will have to operate under different regulations, which can cause some confusion.
- Internal Payroll
You may also operate payroll out of your subsidiary, especially if you are committed to growing your company’s presence in Latvia. However, this does require hiring a dedicated HR staff that understands the local employment and compliance laws.
- Latvia payroll processing company
If you are keen on outsourcing, working with a Latvia payroll processing company will help in your payroll process – but not when it comes to compliance.
- Latvia payroll outsourcing
Latvia Payroll Services
Payroll regulations in Latvia change frequently, and businesses can risk sanctions and financial penalties if they do not comply with these changes. Our payroll service requires staying up to date with these shifting demands – which includes administering returns and associated payments for wage tax and social security contributions directly from our payroll system to the tax authorities. Our role consists of:
- Registering employees with the Office of Citizenship and Migration Affairs for a Personal Identification Code (PIC) that will be used for all matters of payroll and compliance.
- Registering with the State Revenue Service for a Latvian Tax Identification Number (VID).
- Registering with the State Social Insurance Agency (VSAA) to pay social insurance contributions
- Registering with the National Health Service Fund in Latvia
- Registering employees with the State Employment Agency (NVA)
- Creating employment contracts for your new employees, in Latvian and English
- Applying for employees’ special expatriation status (if applicable)
- Calculating employees’ monthly salary and sending them their pay slips
- Researching for any available tax incentives
- Submitting employees’ or employer’s wage tax returns and national insurance forms
- Corresponding with the applicable national authorities regarding payroll changes and payments
- Creating and submitting your company’s annual accounts, administration, and year-end statements
- Creating payment schedules for wage tax, national insurances, and net wages
- Ensuring proficient personal income tax returns for you and your employees
Outsourcing payroll is a popular practice for Latvian employers, and it is easy to see why. Outsourcing company payroll saves money and time, and guarantees paid employees, filed tax returns, and fulfilled social security obligations in full and on time. Bradford Jacobs provides the complete service to remove the anxiety and stress from your administration.
What Is Required to Set up Latvia Payroll?
The requirements for setting up Latvia payroll will depend on how you establish your presence in the country. If you would like to set up as a subsidiary, you will need to have your subsidiary established first – but this can take some time, depending on where you incorporate as well as the entity type you choose. To start processing payroll in Latvia, you will need:
- A tax identification number
- Registration with the State Revenue Services & the State Social Insurance Agency
- A local corporate bank account
Registering with the authorities and the bank will take at least 5 working days to a few weeks, depending on the documentation required and the bank that you choose.
What Entitlement/Termination Terms Are Needed to Set up Latvia Payroll?
Employees in Latvia benefit from entitlements for employment and termination, which are enforced by the local employment organizations, collective bargaining, trade councils and labor institutions:
National Minimum Wage: The National Minimum Wage of Latvia was recently increased in 2021 to €500 per month. All employees are entitled to a salary of at least this amount.
Working Hours: In Latvia, the standard working time is 8 hours a day, 5 days a week. If a 6-day week is scheduled, the daily working time cannot exceed 7 hours.
There is also a regular working time of employees in jobs associated with special risk may not exceed 7 hours in a 5-day week, 6 hours in a 6-day week, and 35 hours a week overall.
Overtime: Work exceeding 8 hours a day is considered overtime. Any overtime is paid with at least 100% of the employee’s hourly pay.
Leave: Employees in Latvia are entitled to 28 days of annual leave, which can increase according to the length of employment.
Sick Pay: Employees are entitled to 10 paid days of sick leave by the employer, and the maximum amount of time an employee can take for sick leave is 26 weeks. The second and third days of sick leave should be paid at 75% of the regular wages, the fourth through tenth day should be paid at least 80%.
From the 11th day to the limit, The Social Insurance Agency will pay employees 80% of their regular wages.
Holidays: Holiday Leave in Latvia is 11 days a year, as such:
- New Year’s Day (1st January)
- Good Friday (10th April)
- Easter Monday (13th April)
- Labor Day (1st May)
- Declaration of Independence (4th May)
- Midsummer Eve (23rd June)
- St. John's Day (24th June)
- Latvian National Day (18th November)
- Latvian Song and Dance Festival Closing Day
- Christmas Eve (24th December)
- Christmas Day (25th December)
- 2nd day of Christmas (26th December)
- New Year's Eve (31st December)
If May 4th of November 18th falls on a Saturday or Sunday, the next working day is celebrated as the holiday. The day before a public holiday, the working day must be reduced by at least 1 hour. Employees who work on a public holiday are entitled to double pay.
Maternity & Paternity Leave: Pregnant employees are entitled to 112 calendar days of maternity leave, which is divided evenly into pre-natal leave (56 days) and post-natal leave (56 days). This leave is covered by the Social Insurance Agency. If there are any complications, or the pregnant employee gives birth to two or more children, they qualify for 14 days’ additional maternity leave.
Employees are also entitled to 10 days of paternity leave, which must be taken within 2 months of the child’s birth.
Termination/Severance: An employee and employer have the right to terminate the employment contract by giving prior written notice of 1 calendar month (unless a shorter period is stipulated in the contract or collective agreement).
However, depending on the employer’s reasons for dismissal, the notice period can be immediately, 10 days, or 1 month. If the employee is part of a trade union, a notice cannot be given without approval from the union. During the probationary period, the employer or the employee has the right to terminate employment by giving 3 days’ written notice.
An employee is also entitled to a severance pay of at least one month’s average salary – this can increase to up to 4 months depending on the length of employment.
The 13th month pay is not mandatory in Latvia, although it can be paid as an annual bonus.
What Taxation Rules Exist for Payroll?
A crucial aspect of Latvia payroll is knowing the local tax regulations. Employees pay a progressive income tax rate and contribute to health insurance and social insurance through monthly salary deductions.
Salaries are paid monthly. The employer must also make social security contributions monthly, file a monthly social security tax report, as well as a yearly income tax report, which states employees’ yearly earnings.
Employers and companies in Latvia are also obliged to make other payments:
- Corporate Tax: Companies are subject to a corporate income tax of 20%, on distributed profits. The tax period is one month unless they get approval to send in documents quarterly. Payments must be done before or on the 20th day of the following tax period through the State Revenue Service online portal (VID).
- Income Tax: Personal Income Tax (PIT) in Latvia is withheld by the employer and paid to the tax authorities every month. An employee’s income is taxed progressively, depending on their annual income.
- Up to 20,004: 20%
- 20,004 – 62,800: 23%
- Over 62,800: 31.4%
- Social Taxes: In Latvia, the employer is obliged to withhold social security payments from the employee’s monthly salary payments, as well as contribute their own payments to the local social security fund monthly. Social security payments depend on the employment relationship, and the status of the company in Latvia, as the table below shows:
- Employment with company registered in Latvia/the EU/EEA: 23.59 (employer), 10.5 (employee)
- Employee is eligible for retirement, and company is registered in Latvia/the EU/EEA: 20.77 (employer), 9.25 (employee)
- Foreign national is employed by foreign non-resident employer: 31.83 (full rate to be paid by the employer or the employee)
- Solidarity Tax: Solidarity Tax has recently changed under the new Solidarity Tax Act, effective from 1 January 2021. If an employee’s annual salary is over EUR 62, 800 they are also obliged to a solidarity tax of 25.5%, which is split as follows:
Financial Healthcare Services: 1% (split between employer & employee)
Personal Income Tax: 10.5%
State Pensions Budget: 14%
Tax returns on solidarity tax need to be filed and sent to the State Social Insurance Agency by the 1st of June of the following taxation year.
The State Revenue Service shall then refund the overdue tax to the taxpayer (the employer) by 1st of September of the following taxation year. The reimbursement amount is determined as the difference between the tax paid for the year, the social security contributions and the solidarity tax paid for that year.
If you are looking to expand into Latvia and need your employees’ payroll managed with extensive management in compliance, contact us today to see what our International Payroll services can do for you.