Global expansion is a great way to grow your business and Latvia offers many appealing opportunities. However, the tax laws can be complex and require time-consuming research. By using our PEO-service we will take care of the complicated legwork so that you can focus on your business goals in Latvia.
Latvia enjoys access to huge markets in Western Europe, Scandinavia, and the Baltic States. It is a growing hub for businesses and start-ups, and encourages social entrepreneurship, as well as sustainable social development. However, if there is one aspect that counteracts your business goals it will tax penalties but filling in wage returns and calculating the correct wage taxes can be comprehensive.
With our PEO-service we become the EOR (Employer of Record) of your workforce in Latvia and we will be fully responsible for complying with the Latvian tax laws and regulations.
Overview of Latvia Tax:
- Individual Income Tax: 20-34.1% (Progressive)
- VAT: 21%
- Corporate Income Tax (only on capital interests): 20%
- Employer Social Security Contributions: 34.09% (23.59 – employer; 10.5 – employee)
Individual Tax Latvia- Single, Married
Any individual earning an income must pay local taxes in Latvia, regardless of their residential status. Permanent residents are taxed on their worldwide income, whilst foreign nationals living and working in Latvia are only taxed on the income they receive in Latvia.
Individuals are subject to pay Income Tax. Income tax can be withheld by the employers and paid to the State Revenue Services monthly or paid by the individual in certain cases.
Income Tax in Latvia is progressive, depending on one’s annual income. It starts at 20%, with a maximum of 31%.
Income (EUR) Percentage
- Up to 20,004: 20%
- 20,004 – 62,800: 23%
- Over 62,800: 31.4%
Besides income tax, individuals in Latvia are also subject to pay for social security, which amounts to about 11% of their income. Earnings from capital such as interest, gains and dividends and royalties are subject to income tax at 20%. Non-residents attract a fixed income tax rate of 23%.
Income Tax should be withheld from an employee’s salary and paid by employers monthly, so the individual is not obliged to file an annual tax return. If they have received income outside of employment, an individual must file an annual tax return between 1 March and 1 June of the following year.
If the annual tax return exceeds the personal income tax threshold, the due dates range from 1 April to 1 July.
Capital gains of an individual must also be reported by the 15th of the following month if they exceed EUR 1000 in a quarter. If not, the report must be submitted by the 15th of January of the following year.
Filling tax returns can be done in person at the nearest State Revenue Service office, but it is generally done online via Electronic Declaration System (EDS). For tax-filing in Latvia, it is mandatory for a taxpayer to obtain a personal identification code (PIC).
Non-residents are subject to income tax from income earned through a permanent base in Latvia, as well as other income derived in Latvia, such as:
• Employment income.
• Income from profits, dividends, shares, etc.
• Royalties, including copyright and auxiliary rights.
• Rent received from real estate in Latvia.
• Income on sales of immovable property and movable property that is subject to mandatory registration in Latvia.
Non-Latvian tax residents are required to file their personal income tax return to the tax authority monthly, by the 15th of the following month. Capital gains earned by foreign taxpayers must submit a capital gains declaration by the 15th of the following month (unless tax is deducted at the time of payment.
Latvian Individual Tax Rules
Eligibility for Latvian Income Tax, as well as other taxes, depends on their residency classification. The residency of an individual is regarded as the permanent home of an individual, or where the person resides for most of the year.
In Latvia, the tax year is the calendar year. A person is eligible to pay taxes if they are registered as a local employee or self-employed individual and is taxed on their individual income. If you are a non-resident in Latvia, you are only subject to paying taxes on your income derived in Latvia, as the country benefits from a double taxation treaty.
If you are married, you are to be taxed separately, and if you are an EU member-state resident, with most of your income coming from Latvia, you can benefit from tax reductions and benefits.
To be considered a tax resident in Latvia, an individual must meet one or more of the following criteria:
• The individual’s permanent place of residence is in Latvia, or they have a registered address in Latvia.
• The individual’s center of vital interests (economic, social, and personal) is in Latvia.
• The individual stays in Latvia continuously or with interruptions for at least 183 days in a tax year.
• A Latvian citizen is employed and compensated by Latvian state institutions.
VAT & Excise Duty, and others
VAT rates in Latvia depend on the type of service being offered. Latvia has a standard VAT (PVN) rate of 21%, which applies to most goods and services.
Latvia also has a reduced VAT rate of 12% that applies to mass media and subscriptions, medicines and medical devices authorized by state pharmaceutical authorities, literature printed for schools and universities, original literature, supply of thermal energy, public transport services, and accommodation services.
There are also goods and services in Latvia that are VAT exempt, such as educational services, medical services, cultural services, financial services provided by banks and insurance companies, betting and gambling, and postal services provided by Latvijas Pasts.
Latvia also has an excise duty on oil products, alcoholic and non-alcoholic beverages, tobacco products, and natural gas.
Individuals are also subject to a Vehicle Operation tax that is paid monthly according to the size of the engine of their vehicle.
Employer’s Social Security and Statutory Contributions
In Latvia, social security and statutory contributions are settled through an employee’s salary (which are withheld from an employee’s salary and paid by employer every month) as well as an employer’s own monthly contributions.
Currently, an employee must contribute 10.5% of their monthly wages, whilst an employer must pay their own contributions of 23.59% of an employee’s salary.
For employees that are earning more than EUR 62,800 per year, employers are also obligated to contribute to a solidarity tax, which is split into an extra 23.59% from the employer’s side and an extra 10% from employee’s side. However, employers are entitled to reimbursement.
Contributor Social Security & Solidarity Tax Contribution
For foreign employees who do not have a permanent residence in Latvia, but remain in the country for more than 183 days and are employed by a non-EU/EEA company must pay quarterly contributions at a rate of 31.83% (which could be paid by either the employer or the employee).
Latvia Corporate Tax
Companies in Latvia are obliged to pay a corporate income tax of 20%. Resident companies in Latvia are taxed on their worldwide income and profits, whereas permanent establishments of non-resident companies are only taxed on their local income and profits.
As of 2018, a 0% Corporate Income Tax is paid only when companies pay dividends or other payments with the aim of profit distribution. This is available for both domestic and foreign companies. The tax rate of 20% will be paid from the profit share/tax base only, which will be distributed as dividends or used for purposes not directly related to business development.
When assessing the corporate income tax base, the value of the taxable objects is divided by the co-efficient 0.8, and then the tax rate applied. The taxable base is thus increased by the co-efficient, so the effective corporate income tax rate is 25%.
Other Latvian-sourced income derived from non-residents may be subject to a withholding tax or income tax by way of assessment.
The taxable period for corporations is one month. Items subject to corporate tax returns must be submitted either monthly, by the 20th of the following month, or annually, depending on the nature of the items. Companies must also file an annual tax return for the last month of the financial year.
Capital Gains & Withholding Tax
The new tax model only includes distributed profits in the tax base and are subject to a 20% tax rate. This applies to dividends, interests, shares, etc.
Withholding tax is exempt from payments on interest for EEA countries, as well as countries with which Latvia has a Double Tax Treaty.
Any gains obtained by a non-resident on the sale of a company’s shares where more than 50% of its assets consist of local real estate is subject to a withholding tax of 3%. Sale of a property by a non-resident is also subject to a 3% withholding tax. Both are only taxed if there is a profit distribution.
For local taxpayers, capital gains must be filed on the 20th of the following month if they exceed EUR 1000 in the quarter – if not, the report is due on the 15th of January of the following year. Tax payments are due on the 23rd of the month or the following month in which the report was filed.
Foreign taxpayers must submit a capital gains declaration by the 15th of the following month unless tax has been deducted at the time of the payment.
Entertainment and all other non-commercial expenses, including employee benefits, are exempt from corporation tax payment of up to 5% of gross salary.
Donations made to Latvian charities or their equivalents in the EU/EEA are eligible for deductions which may apply to payment of up to 5% of profit, or 2% of total gross wages. Donations may also give rise to a 75% reduction in corporate income tax on dividends.
Stamp duties are collected on legal transactions, including the registration of real estate (2%). A stamp duty is also applied to capital contributions (1%).
Learn more about Latvian Tax rules
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