Taxes defined in the Latvian laws shall be paid by:
- domestic taxpayers = residents for all the income received in Latvia and outside Latvia;
A natural person will be considered a resident if the declared place of residence of this person is in Latvia or if this person has been staying in Latvia 183 or more days over any 12 month period, which starts or ends in the tax year and if the person has registered as a domestic taxpayer = resident in the State Revenue Service.
- foreign taxpayers = non-residents for income received in Latvia.
The conditions are equally applicable to nationals of the European Union, the European Economic Area and Switzerland and third country nationals.
Personal income tax
Personal income tax is paid by natural persons:
- residents, who earned income in Latvia and/or abroad during the calendar year
- non-residents, who earned income in Latvia during the calendar year. Thus, if a person is considered to be a non-resident for the purposes of Latvian tax legislation, then personal income tax applies only to the specific type of income earned in Latvia.
Income of a non-resident liable to personal income tax is:
- income from employment,
- income from professional activity carried out in favour of permanent representations of residents or non-residents in Latvia or outside Latvia,
- other income (for example, services are provided in Latvia, however, the person has registered as a taxpayer in his or her home country).
In a general case, the employer applies 23% personal income tax to non-resident’s income at the time of its payment.
A progressive personal income tax is used in Latvia. The progressive personal income tax rate to be paid from taxable income of a non-resident:
- 20% – from annual income below 20,004 euros;
- 23% – from the part of annual income exceeding 20,004 euros, but not exceeding 55,000 euros;
- 31,4 % – from the part of annual income which exceeds 55,000 euros.
Income from employment
Gross wage* = salary (monthly wage)
+ payment for extra work (overlapping works, temporary fulfilment of duties of an absent employee)
+ payment for overtime work
+ payment for work on holidays and weekends, payment for night work + costs of material incentives (bonuses for qualitative work, bonuses for annual results and other bonuses)
+ other types of payouts anticipated in the collective agreement – compensation amounts reimbursed by the employees, which are related to employee’s
business or work trip to Latvia and abroad.
* All the elements of payment for work included in the Labour Law
Prior to taxation of gross wage, the following should be deducted from the monthly income:
- state social insurance payments paid;
- contributions made to private pension funds;
- payments of insurance premiums (with accumulation of funds).
If a non-resident is subject to the state social insurance system of another country of the European Union or the European Economic Area (certificate A1 issued) and the monthly income of an employed non-resident exceeds 4,583 euros, the part of his or her monthly income exceeding 4,583 euros shall be subject to 31.4 % tax rate at the time of payment.
Income from professional activity
Professional activity is any independent provision of professional services outside the legal employment relationship, also scientific, literary, teaching, consultancy, engineering activity.
23% personal income tax is applied to non-resident’s income from professional activity in Latvia or outside Latvia.
Eligible expenses, reliefs and non-taxable minimum
The non-taxable minimum and tax reliefs do not apply to non-residents, with the exception of non-residents, who are residents of a European Union member state or a country of the European Economic Area and earned more than 75 percent of their total income in Latvia during the taxation year.
If a non-resident, who is a resident of a European Union member state or a country of the European Economic Area and earned more than 75 percent of his or her total income in Latvia during the taxation year, wants to apply the non-taxable minimum, tax reliefs and eligible income, he or she may submit an annual tax return to the State Land Service in the year following the taxation year and starting from March 1.
If this condition is met, then taxable income can be reduced for eligible expenses:
- the social tax amount paid and state social insurance payments;
- solidarity tax;
- expenses on the improvement of qualification, obtaining of a speciality, obtaining of education of the payer and his or her family members, including mastering of interest-related education programmes for children, for the use of medical and therapeutic services and payments of health insurance premiums to insurance companies created and operating in accordance with the Law on Insurance Companies and Supervision Thereof;
- amounts transferred in the form of a donation to a budget institution or an association, foundation, religious organisation or their institutions having a status of a public benefit organisation, or in other European Union member state or country of the European Economic Area, with which Latvia has concluded a convention for the avoidance of double taxation and prevention of tax evasion, if this convention has entered into force, to a registered non-governmental organisation, which is operating with a status equivalent to a Latvian public benefit organisation according to regulatory enactments of the respective European Union member state or country of the European Economic Area;
- expenses of authors and performers of scientific, literary and art works, discoveries, inventions and industrial designs, who are related to the creation, issuance, performance or other use of these works and for which these authors and performance receive the author’s remuneration (fee);
- contributions made to private pension funds established in accordance with the Law on Private Pension Funds or private pension funds registered in other European Union member states or countries of the European Economic Area, or in members states of the Organisation for Economic Co-operation and Development;
- payments of insurance premiums, which pursuant to the life insurance agreement (with accumulation of funds) are made to an insurance company, which was established and is operating in accordance with the Law on Insurance Companies and Supervision Thereof, or an insurance company, which is registered in another member state of the European Union, or country of the European Economic Area, or member state of the Organisation for Economic Co-operation and Development;
- the amounts, which pursuant to the Law on Financing of Political Organisations (Parties) were transferred in the form of a donation to a political party or a union of political parties registered in the Republic of Latvia.
An annual income tax return may be submitted using the Electronic Declaration System of the State Revenue Service or on paper in any customer service centre of the State Revenue Service.
Application of international agreements
When applying a tax to the income earned by a non-resident in Latvia, provisions of tax conventions shall apply.
If a tax convention envisages provisions differing from those of the law, the tax convention provisions shall apply. If the tax convention sets rates higher than those set under the law, the rates set under the law shall be applied.
If the rates set in the convention are lower than those set in the law or include exemptions from taxation, the provisions of the convention are applied in the manner prescribed by Regulations of the Cabinet of Ministers No.178 of 30 April 2001 “Procedures for Application of Tax Relief Determined in International Agreements for Prevention of Double Taxation and Tax Evasion”.
If a tax is deducted from payments to a non-resident in accordance with the Law on Personal Income Tax, the non-resident shall be entitled to a refund of the overpaid tax amount within three years by submitting a competed residence certificate-application for a tax refund to the State Revenue Service. (Annex 2 to Regulations of the Cabinet of Ministers No.178 of 30 April 2001).
A Latvian resident, who earned income in a foreign country during the calendar year, shall declare his or her income earned in Latvia and elsewhere in the world, pay personal income tax (tax) for the income earned in Latvia and elsewhere in the world.
When calculating tax from income received abroad, Latvia takes into account the tax paid in the country, with which Latvia has a concluded convention for the avoidance of double taxation and prevention of tax evasion (convention), which has entered into force.
Income from employment of a Latvian resident, which was earned in a European Union member state or a country, with which Latvia has concluded a convention, which has entered into force, is not liable to tax.
Each resident of the Republic of Latvia has a payroll tax book, issued by the State Revenue Service. The book shall be submitted to one place, where income is earned, at the payer’s discretion. The book ensures the application of the non-taxable minimum and tax reliefs to the taxpayer.
Types of resident’s income liable to tax are:
- income from employment,
- income from economic activity, including professional activities carried out in Latvia or outside Latvia,
- other income.
If a resident has not submitted his or her payroll tax book to the payer of income, in a general case the income earned is liable to 23% tax rate.
The progressive personal income tax rate to be paid from taxable income of a resident:
- 20% – from annual income below 20,004 euros;
- 23% – from the part of annual income exceeding 20,004 euros, but not exceeding 55,000 euros;
- 31,4 % – from the part of annual income which exceeds 55,000 euros.
Income from employment
Gross wage* = salary (monthly wage)
+ payment for extra work (overlapping works, temporary fulfilment of duties of an absent employee)
+ payment for overtime work
+ payment for work on holidays and weekends, payment for night work + costs of material incentives (bonuses for qualitative work, bonuses for annual results and other bonuses)
+ other types of payouts anticipated in the collective agreement – compensation amounts reimbursed by the employees, which are related to employee’s
business or work trip to Latvia and abroad.
* All the elements of payment for work included in the Labour Law
Prior to taxation of gross wage, the following should be deducted from the monthly income:
- state social insurance payments paid;
- payer’s annual differentiated non-taxable minimum (monthly non-taxable minimum predicted by the State Revenue Service);
- tax reliefs;
- contributions made to private pension funds;
- payments of insurance premiums (with accumulation of funds).
If a taxpayer has not submitted his or her payroll tax book to the payer of income, the payroll tax rate to be paid from monthly income is:
20% – from monthly income below 1667 euros;
23% – from the monthly income exceeding 1667 euros.
In order to receive a refund of the overpaid personal income tax for eligible expenses (education, medicine, dentistry, contributions to pension funds, etc.), natural persons may voluntarily submit annual income tax returns.
Income from economic activit
Economic activity of a natural person is any activity aimed at production of goods, performance of works, trade and provision of services for a fee. Economic activity also includes activities related to the fulfilment of contractor agreements, professional activity, management of immovable property, activity of a commercial agent, broker and individual economic operator, as well as operations of an individual company owned by a natural person (also farming and fishing companies).
Professional activity is any independent provision of professional services outside the legal employment relationship, also scientific, literary, teaching, consultancy, engineering activity.
Prior to starting economic activity, a natural person should register with the State Revenue Service as a taxpayer – the performer of economic activity – specifying the area, in which the person will perform economic activity.
The performer of economic activity should choose one of tax payment regimes:
- tax for income from economic activity,
- tax for income from economic activity pursuit,
- reduced patent fee for individual types of economic activity,
- notifies that economic activity will not be registered,
- microenterprise tax.
The procedure of payment and the rate of tax are determined depending on the type of economic activity and the selected tax payment regime.
Performers of economic activity, who are payers of personal income tax, must submit an annual income tax return to the Electronic Declaration System of the State Revenue Service.
Value added tax
The general rate for the value added tax in Latvia is 21%.
Reduced rate for the value added tax is 12%. The rate of 12% is eligible for medication, medical equipment, newspapers, hotels, heat energy, etc.; reduced rate 5% for the value added tax are applied for fresh fruit, vegetables and berries.
The exception on the value added tax rate (0 % rate) is applied to international passenger traffic.
General information :
General information about taxes in Latvia
Mandatory State Social Insurance and 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;
- parent’s 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. The mandatory contribution rate shell be 35.09 % from which an employer pays 24.09% and employee pay 11%. Employees make statutory contributions through employers: employers shall deduct the contributions that employees must pay and transfer these amounts to a special budget account. From January 1, 2018 the mandatory contribution rate for author fees (royalty) should be 5%.
It is important to emphasize the application of the regulation No883/2004 of the European parliament and of the council of 29 April 2004 on the coordination of social security systems. There are cases where an employer has the need to temporarily (for a period of up to two years) send his employee to a specific job in another Member State. If the employee has been sent to work to another Member State for a period less than two years, the employee may continue to pay social security contributions in his own country. If an employee is employed in two or more Member States, the social security contributions will be paid in the Member State in which employee has closer links. In both situations, mentioned above, it is necessary to receive certificate A1 according to the Regulation.
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, on the basis of sick – leave A, is paid by employer until the 10th day of sickness. Employer pay sickness benefits from its own funds not less than 75% of the average earnings for the 2nd and 3rd day of illness and not less than 80% from the 4th day of sickness. On the basis of sick – leave B, sickness benefit shall be granted from the 11th day of sickness and is 80% from the average contribution wage. Sickness benefit shall be paid for not longer than 26 weeks if sickness is all the time, but on the basis of the State Medical Commission for the Assessment of Health Condition and Working Ability the opinion of the cost of sickness benefits may be temporarily extended to 52 weeks. Sickness benefit on the basis of sick – leave B, is paid from the funds of the State Social Insurance Agency. 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.
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.
Maternity benefit paid before and after childbirth and can be requested by expectant mothers who:
- are employed and receive a salary;
- are self-employed;
- are spouses of a self-employed person and have voluntarily joined the social insurance.
The grounds for awarding the benefit are: application for receiving the benefit and sickness leave B (work Disability Form B). An application and sickness leave (Work Disability Form B) you can submit in one of the divisions of the State Social Insurance Agency. The benefit will be paid in two parts – before and after childbirth. The first part is paid for 56 or 70 days of the maternity leave. The benefit for 70 calendar days is paid to expectant mothers who are undergoing medical supervision from their 12th week of pregnancy. The second part – for 56 or 70 calendar days – is paid after childbirth. The benefit for 70 days can be obtained, if: (a) the mother has had health problems during her pregnancy, childbirth or postpartum period; (b) two or more babies are born. The maximum period for which the maternity benefit can be obtained is 140 days. If an employment relationship is terminated due to winding-up of the workplace, the maternity benefit shall be granted, if the maternity leave has started not later than within 210 days after the termination of the employment relationship. The rates of the benefits: the benefit shall be granted in the amount of 80% of the average insurance contributions salary of the applicant. The average insurance contributions salary of an employee is calculated for a period of 12 calendar months ending two months before the month in which the pregnancy leave began. The benefit must be requested within 6 months from the first day of the maternity leave. The benefit shall be transferred to the account in a credit institution or postal payment system (PNS) indicated in your application.
Allowance for child care
People entitled to receive the allowance for child care: citizens of Latvia, non-citizens, foreigners and stateless persons permanently residing in Latvia, to whom a personal identity code has been granted. The allowance is not granted to people, who have received a temporary residence permit.
It is possible to receive this benefit, if:
- you have been granted the status of the unemployed (Support for Unemployed Persons and Persons Seeking Employment Law);
- Your total insurance (employment) period is not less than one year;
- You have made mandatory unemployment social insurance contributions for at least 12 months during the last 16 months prior to the acquisition of the unemployed status.
Unemployed status may be obtained at the State Employment Agency. An application for unemployment benefit you can submit in one of the divisions of the State Social Insurance Agency. The benefit shall be calculated in proportion to the total length of the insurance (employment) record and in accordance with the income from which unemployment contributions have been paid:
- from 1 to 9 years (included) - 50% of the average contributions salary;
- from 10 to 19 years (included) – 55% of the average contributions salary;
- from 20 to 29 years (included) – 60% of the average contributions salary;
- from 30 years or more – 65% of the average contributions salary.
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.
For detailed information and advice please contact:
- State Revenue Service – a state institution responsible for tax administration
- State Social Insurance Agency– a state institution performing the public administration function in the area of social insurance and social services
- The National Employment Agency- a state institution ensuring the implementation of unemployment reduction policy