Taxation and Social Security

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Taxation
      Personal Income Tax
      Mandatory State Social Insurance Contributions
      The Value Added Tax (VAT)
Social Security
      Pensions
      Health Care System
Institutions

Taxation

The tax regulation differs partially regarding to residents and non-residents (foreign taxpayers). In tax laws a natural person shall be considered a resident if:

  • the place of permanent residence for such person is Latvia, or
  • such person is present in Latvia for 183 days or longer during any 12 month period which begins or ends in a taxation year.

The provisions of the tax conventions regarding double taxation avoidance shall be taken into account to determine the taxable income of non-residents. Up to 01.01.2011, Latvia had initiated tax conventions with 59 states, from which 53 conventions are signed and 51 conventions are applied (including all EU countries, except Cyprus; see the full list on the portal of the Ministry of Finance (http://www.fm.gov.lv/?eng/taxes/conventions). 

Employees in Latvia are subjected to Personal Income Tax and Mandatory State Social Insurance Contributions. In everyday life, persons are faced to the Value Added Tax.

Personal Income Tax

The Personal Income Tax shall be paid by natural persons who are non-residents and who have obtained income in Latvia during the taxation period. Between the taxable income of the foreign taxpayer (non-resident) shall be:

  • employment income,
  • income from professional activities,
  • payment for intellectual property (author fees (royalty) for the creation of works of science, literature …).

The fellowships shall not be mentioned as the annual taxable income for non-residents.

The rate of Personal Income Tax to be paid from the annual taxable income shall be 25% (except a Mandatory State Social Insurance Contributions). Payroll tax deduction and payment (transfer to the budget) is performed by employers of employees (tax payers). The definite expenditures shall be deducted from the amount of annual taxable income both the residents and non-residents.

Mandatory State Social Insurance Contributions

A Mandatory State Social Insurance Contributions is a payment, which gives the right to a socially insured person to receive social insurance services:

  • state pension insurance; 
  • social insurance in case of unemployment; 
  • social insurance in respect of accidents at work and occupational diseases;
  • invalidity insurance; 
  • maternity and sickness insurance; 
  • parents insurance.

The object of mandatory contributions of an employer and employee shall be all calculated employment income from which personal income tax must be deducted. If an employee has been insured for all types of social insurance, the mandatory contribution rate shall be 33,09% from which an employer shall pay 24,09% and an employee shall pay 9%. Employees make statutory contributions through employers: employers shall deduct the contributions that employees must pay and transfer these amounts to a special budget account.

The Value Added Tax (VAT)

in Latvia is 22%. Us usually, the specified retail prices of goods and services include VAT!

Exception 10% VAT is applied to some part of books (textbook, original literature ...), newspapers, journals and other periodicals, some medicaments and medical goods, public inland transport, as well as to some other goods and services.

Exception 0% VAT is applied to international passenger traffic (flight, train, ferry, bus).

Social Security

The application of social security schemes (including pensions) to persons and their family members moving within the EU, European Economic Area and Switzerland is realized according to the principle of equal attitude and taking into account the requirements of EU directives, including the principles of aggregation of insurance and export of benefits.

The bilateral agreements in the sphere of social security (including pensions), up to the present moment, are concluded between Latvia and the United States (only regarding pensions), Canada and the Ukraine. Regarding the 3rd country persons from other countries and their family members, the legislation of Latvia will be applied concerning the social security.

Sickness Benefit is granted and paid from the 15th day of the incapacity for work in the amount of 80% from the persons average contribution wage. For the first 14 days of sickness the sick pay is paid provided by the employer. Sickness benefit for sick child care is granted and paid for the period of Social Security incapacity for work from the 1st to the 14th day and from the 15th to the 21st day, also in the cases when the child receives health care at the hospital. Persons entitled to receive: employee, a self-employed person, a voluntarily joined person.

Maternity Benefit is allocated and paid in the amount of 100% from the average contribution wage, that is calculated from the six month period income (for the self-employed – 12 months). Persons entitled to receive: employee, a self-employed person, a voluntarily joined person.

Unemployment Benefit. The unemployment benefit amount is determined by taking into account the length of time the person has been insured, and the average insurance contribution wage. Persons entitled to receive: who has unemployment insurance, a total social insurance payments have been made for no less than 1 year and who has gained the status of an unemployed person.

Insurance Indemnity Related to Accident at Work or Occupational Disease include: sickness benefit; compensation for the loss of capacity for work; lump sum benefit; compensation for additional expenses, that are connected with medical treatment and rehabilitation, care, purchasing and repair of technical aids, travel costs for visiting the physician. Persons entitled to receive: socially insured, who due to a job injury or occupational disease who has a temporary incapacity for work, loss of ability to work or death.

Other kinds of social security benefits, allowances and compensations in Latvia: Child Birth Benefit, Child Care Benefit, Paternity Benefit, Parents Benefit, Family State Benefit, Social Security State Benefit, Disability Pension and others.

Pensions

Since July 2001 there is a three tier pension system in Latvia, it includes the 1st tier (state compulsory unfunded pension scheme), the 2nd tier (state funded pension scheme) and the 3rd tier (private voluntary pension scheme). All persons making social insurance contributions are involved in the 1st tier. Social insurance contributions of those who participate in the 2nd pension tier through chosen fund managers are invested into the financial market and saved for the pension of the specific contributor. The third pension tier ensures the possibility for every individual according to his free choice to create additional savings for his pension in the private pension funds.

Health Care System

State compulsory health insurance. The medical assistance guaranteed by the state shall be provided to citizens of Latvia, non-citizens, persons with permanent residence permits, EU, European Economic Area and Switzerland Health care system persons who are employed or self-employed in Latvia and their family members. The foreign students and persons, whose remuneration is provided by fellowships, as well as their family members, are not embraced by the state compulsory health insurance!

The tasks of health insurance in Latvia are to cover the costs of health services provided to insured persons, to prevent and cure diseases, to finance the certain part of medicines and medical products. There is no refund system in Latvia. If the health service provider has a contract with the Health Compulsory Insurance State Agency, all costs incurred are directly reimbursed by the Agency. The patient should pay only the amount of own contribution – the patient fee. Compensation for medicines partly is covered under national social insurance scheme for medicines prescribed by Latvian doctor. The dental treatment expenses are not covered by state with exception for children below 18 years.

Institutions

Ministry of Finance (http://www.fm.gov.lv/)

State Revenue Service (under the supervision of the Ministry of Finance) (http://www.vid.gov.lv/)– a state institution responsible for implementation of customs policy and tax (duty) administration.

Ministry of Welfare (http://www.lm.gov.lv/)

State Social Insurance Agency (under the supervision of the Ministry of Welfare) (http://www.vsaa.gov.lv/) – a state institution performing the public administration function in the area of social insurance and social services.

Ministry of Health (http://www.vm.gov.lv/)

Health Payment Center (under the supervision of the Ministry of Health) (http://www.vnc.gov.lv/) - a state institution to realize and implement state policy for availability of health care services, as well as to administrate the state budgetary funds prescribed for health care.


If you need additional information or need personal assistance for particular case regarding the General information about Latvia, please use our HelpDesk or contact the EURAXESS Latvia Services Centre.

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Page last updated:29.09.2014