EY
Muitas iela 1A LV-1010 Riga Latvia
Executive contacts
Ilona Butane +371 6704-3836
Fax: +371 6704-3802 Email: ilona.butane@lv.ey.com
Sandra Usane +371 6704-3967
Fax: +371 6704-3802 Email: sandra.usane@lv.ey.com
Immigration contacts
Ilona Butane +371 6704-3836
Fax: +371 6704-3802 Email: ilona.butane@lv.ey.com
Sandra Usane +371 6704-3967
Fax: +371 6704-3802 Email: sandra.usane@lv.ey.com
A. Income tax
Who is liable. Residents are subject to Latvian personal income tax on their worldwide income. Nonresidents are subject to tax on their Latvia-source income.
Under the Latvian law, an individual is considered to be a resident of Latvia if any of the following conditions are satisfied:
• The individual’s registered (declared) place of residence is located in Latvia.
• The individual stays in Latvia for 183 days or longer in a 12-month period beginning or ending during the tax year.
• The person is a citizen of Latvia and is employed abroad by the government of Latvia.
If a convention for the avoidance of double taxation and the pre vention of fiscal evasion with respect to taxes on income and on capital is concluded between Latvia and another jurisdiction, its provisions prevail over the local regulations when defining residency status.
Income subject to tax. The taxation of various types of income is described below.
Employment income. Progressive personal income tax is imposed on employment income earned by individuals at the following rates.
• Up to EUR20,004 per year (EUR1,667 per month): 20%
• From EUR20,004.01 to EUR62,800 per year (from EUR1,667.01 to EUR5,233 per month): 23%
• More than EUR62,800 per year (more than EUR5,233 per month): 31%
For employees who are subject to the Latvian social security system, the employer withholds tax at 20% and 23% rates from total employment income. The 20% tax rate can be applied only by an employer to which the employee submitted a salary tax book (an electronic set of data summarizing information that affects the application of personal income tax). For employees who are subject to a foreign social security system (in possession of a valid A1 Certificate or Certificate of Coverage), the employ er is responsible for withholding and payment of personal income tax at rates of 20%, 23% and 31%.
In general, employment income subject to tax consists of salary, premiums, single and regular remuneration, and any other pay ments or benefits received directly or indirectly in cash or in kind by the employee from the employer based on existing or previous employment relationships. Fringe benefits, including employerprovided lodging and car usage, are also taxable.
Self-employment and business income. The income of individuals engaged in self-employment activities is subject to personal income tax at the following progressive rates:
• Up to EUR20,004 per year: 20%
• From EUR20,004.01 to EUR62,800 per year: 23%
• More than EUR62,800 per year: 31%
For purposes of determining income tax on self-employment income, taxable income equals gross income minus eligible expenses. As of 1 January 2018, business expense deductions are limited to 80% of earned income, except specific expenses that, according to the legislative acts, are fully deductible.
A specific group of individuals (generally pensioners or people with a disability) performing business activities in certain speci fied areas (for example, florists and those engaging in manufac turing or repair of clothing and footwear) may choose to pay the fixed reduced patent fee instead of paying personal income tax and social security contributions based on the amount of income. The amount of the reduced patent fee is EUR17 per year or EUR9 per half year.
Investment income. For residents and nonresidents, the following investment income is taxed at a rate of 20% as income from capital other than capital gains:
• Dividends and income related to dividends, if exemption crite ria are not met
• Interest income and income related to interest
• Income from contributions in private pension funds
• Income from concluded life insurance contracts with the accumulation of funds
• Income from individual management of financial instruments according to the investor’s mandate
• Income from investment account
Dividends are exempt from taxation if one of the following crite ria is met:
• Dividends are distributed from profit earned after 1 January 2018 that is subject to corporate income tax according to Corporate Income Tax Law.
• Dividends are distributed from profit subject to corporate income tax abroad or a tax equivalent to corporate income tax or personal income tax, or a tax equivalent to personal income tax is withheld from dividends abroad.
Directors’ fees. Board members of resident and nonresident com panies are subject to personal income tax at progressive rates, regardless of whether the fees are paid by Latvian-registered companies or foreign companies. The personal income tax rates are the same as those for employment income.
Rental income. Income from rent of own property is subject to personal income tax at a rate of 10% if the individual registers the rent agreement with the tax authorities within five business days from the day on which the rent agreement is concluded and does not incur a substantial amount of business-related expenses.
Lotteries and gambling. Lotteries and gambling wins are subject to personal income tax at progressive rates if the amount (value) of the prizes during the tax year exceeds EUR3,000. The per sonal income tax rates are the same as those for employment income.
Taxation of employer-provided stock options. Under Latvian laws, employee income from employer-provided stock options is exempt from tax if the following conditions are met:
• The minimum period for the holding of the stock options (period from day when the stock options are granted until the day when the employee is entitled to exercise the stock options) is not less than 12 months.
• During the period for the holding of the stock options, the employee is in an employment relationship with a capital company that granted the share acquisition rights to the employee (or related group company).
• The employer (Latvian local entity) has provided to the Latvian tax authorities information (informative report) regarding the stock option plan and its participants.
• The stock options are exercised not later than within six months from the date of termination of the employment relationship between the employee and the employer that has granted the stock options (or related group company).
• The capital company (or related group company) that granted stock options to the employee did not issue a loan to the employee that was not repaid until the exercise of the stock options.
If the abovementioned conditions are not met, income derived from the exercise of employer-provided stock options is subject to personal income tax at progressive rates (social security con tributions also need to be paid). The personal income tax rates are the same as those for employment income. Income derived from the exercise of employer-provided stock options is calculated as the difference between the market value at the time of exercise and the acquisition value.
Income from a substantial participation in a foreign entity. Income from a substantial participation in a foreign entity that is regis tered in a low-tax country is subject to income tax, regardless of whether the profit is distributed to the individual.
Benefit from use of company’s car. The use of an employer’s car for private purposes is considered to be a benefit to the employee that is subject to personal income tax, unless the employer has paid tax on the use of its vehicles. The amount of tax for the use of vehicles registered after 2005 ranges from EUR31 to EUR82, depending on the vehicle’s engine capacity.
Capital gains. Capital gains are taxed at a rate of 20% in Latvia.
Capital gains equal the difference between the disposal price of a capital asset and the acquisition price of that capital asset. In the event of the liquidation of a company, the capital gains on invest ments in share capital equal the difference between the liquidation quota and the investment value.
The following are considered to be capital assets:
• Shares, investments in partnerships and other financial instruments
• Investment fund certificates and other transferable securities
• Debt securities (promissory notes, certificates of deposit and short-term debt instruments issued by companies) and other money instruments
• Real estate (with certain exceptions)
• Investment in cryptocurrency
• A company within the meaning of the commercial law
• Intellectual property
• Investment gold and other precious metals, and transaction objects in currency trading exchanges or goods’ exchanges
Capital gains derived from the sale of real estate are not taxable if any of the following circumstances exist:
• The individual has owned the real estate for more than 60 months, and the address of the real estate had been the person’s declared place of residence for at least 12 months before the sale.
• The individual has owned the real estate since it was registered in the Land Register for more than 60 months, and the real estate had been the only real estate possessed by the individual.
• The individual had owned only the real estate declared in the Land Register and the income from the property sale is invested in functionally similar property within 12 months after the sale of the real estate.
Sales of other types of personal property in one-off transactions that are not part of a commercial activity are not subject to per sonal income tax.
Income, including sales income, from government promissory notes is not subject to personal income tax.
Deductions
Deductible expenses. Individuals may deduct the employees’ por tion of social security contributions from the income reported on their tax returns. They also may deduct the employees’ portion of payments in other European Union (EU)/European Economic Area (EEA) member states that are essentially similar to social security contributions and that are determined by legislative acts of such states if the respective payments have not been deducted in the other state.
Personal deductions and allowances. Individuals may deduct the following expenses from the income reported on their tax returns:
• Contributions to private pension funds and to life insurance schemes with the accumulation of contributions. However, the deduction for the sum of both types of contributions is limited to 10% of annual taxable income, but not more than EUR4,000 per year.
• Contributions to life insurance schemes without the accumulation of contributions and to health or accident schemes. However, both types of contributions are limited to 10% of annual taxable income but not more than EUR426.86 per year.
• Medical expenses, expenses for professional education and donations to acceptable charitable organizations and govern mental institutions. However, such expenses are limited to 50% of annual taxable income, but not more than EUR600 per year.
The current differentiated nontaxable minimum (used to reduce the amount of taxable income) ranges from EUR0 to EUR300 per month, depending on an individual’s income. For an individ ual whose monthly income does not exceed EUR500, the full amount of the nontaxable minimum applies. However, for income between EUR500 and EUR1,800 per month, the nontaxable minimum decreases, and if the income exceeds EUR1,800 per month, the nontaxable income minimum equals EUR0.
A parent may deduct EUR250 per child per month.
The above tax allowance in the amount of EUR250 cannot be applied for parents, grandparents and other family members, unless these persons have a disability status and do not receive a state pension. Effective from 1 July 2018, the allowance in the amount of EUR250 applies to an unemployed spouse if any of the following conditions are satisfied:
• He or she has a dependent child under the age of 3.
• He or she has three or more children under the age of 18 or 24 and at least one child is under 7 years old, until the children pursue basic, professional, higher or special education.
• He or she has five children under the age of 18 or 24, until the children pursue professional, higher or special education.
Income tax paid abroad may be credited against tax payable in Latvia. The amount of the credit is limited to the amount of the tax paid on the income in Latvia.
If a Latvian resident earns employment income for work in the EU, EEA or in a country with which Latvia has entered into a double tax treaty, and if the respective income is subject to income tax in the work country, the income is non-taxable in Latvia. As a result of the automatic exchange of information between tax authorities, Latvian tax residents who work in EU countries are exempt from the submission of an annual personal income tax return in Latvia. However, Latvian tax residents who work in other countries must declare the foreign employment income in their annual personal income tax returns in Latvia and must attach a document issued by the foreign tax administration stating the type, amount of income received and amount of tax paid.
Personal deductions for medical and educational expenses may not be claimed by nonresidents, except for nonresidents who are residents of another EU/EEA member state and have derived more than 75% of their total income from Latvia in the tax year.
Business deductions. Costs for materials, goods, fuel and energy, salaries, rent and leases, repairs and depreciation on fixed assets, and other costs may be deducted from the taxable income of a self-employed individual.
Expenses incurred to obtain intellectual property rights are deduct ible, subject to limits set forth in rules of the Cabinet of Ministers.
Rates. The following progressive personal income tax rates are imposed on taxable income earned by individuals at the following rates:
• Up to EUR20,004 per year: 20%
• From EUR20,004.01 to EUR62,800 per year: 23%
• More than EUR62,800 per year: 31%
Relief for losses. Self-employed individuals may carry losses for ward for three years.
B. Other taxes
Property tax. Property tax is imposed on individuals, legal enti ties and nonresidents that possess or hold Latvian land, buildings and engineering constructions. The property tax rate, which is set by the municipalities, ranges from 0.2% to 3% of the cadastral value of land, buildings and constructions (however, see below the rates for houses and flats not used for commercial purposes). A municipality can apply a rate exceeding 1.5% of the cadastral value only if the property is not maintained in accordance with the required standards. Agricultural land that is not cultivated (except for land that has an area not exceeding one hectare and land subject to limitations on its use for agricultural activities), collapsed buildings that are environment-degrading and build ings hazardous to personal safety are subject to 3% real estate tax. Engineering constructions that are owned by natural persons and that are not used for commercial activities and ancillary buildings (if certain conditions are met) are exempt from prop erty tax.
The following are the property tax rates for houses and flats not used for commercial purposes:
• 0.2% of the cadastral value below EUR56,915
• 0.4% of the cadastral value exceeding EUR56,915 but below EUR106,715
• 0.6% of the cadastral value exceeding EUR106,715
For immovable property located in Riga, the owner of the prop erty must pay property tax at a rate of 1.5% to the municipality if no person is registered (declared) for the immovable property.
Estate and gift taxes. Estate and inheritance taxes are not imposed in Latvia. Gifts above EUR1,425 received from non-relatives are taxed as personal income. Royalties received by legal successors of deceased persons are taxable as personal income. State author ities may impose duties on the value of inheritances at rates rang ing from 0.125% to 7.5%.
Microenterprise tax. On meeting certain requirements, an indi vidual performing business activities in specific areas deter mined by law may apply for the microenterprise tax payment procedure. Under this procedure, the company pays microenter prise tax at a rate of 25% of turnover not exceeding EUR25,000 and at a rate of 40% of turnover exceeding EUR25,000. If turn over or the applicable tax amount does not exceed EUR50, the microenterprise must pay a tax of EUR50. The microenterprise tax payment includes state social insurance contributions and personal income tax. The microenterprise tax regime applies only to the income of an individual performing business activities. If such an individual employs employees, employment income of the employees is taxable as standard employment income.
C. Social security
The base for mandatory social security contributions is employ ment income, which is subject to personal income tax in Latvia. In general, employers (or in certain cases, employees) make social security contributions on a monthly basis. As of 1 July 2021, the minimum base for social security contributions equals the minimum monthly salary (EUR500 for 2021). If an employee’s monthly base for social security contributions is lower than the minimum monthly salary, the employer covers the difference between mini mum social security contributions and the employee’s calculated social security contributions. The legislative acts provide some specific exemptions from the application of the minimum base for social security contributions.
Employers and employees make social security contributions on monthly salaries at general rates of 23.59% and 10.5%, respectively.
Foreign employees, who do not have a permanent place of resi dence in Latvia, but who remain in Latvia for more than 183 days in any 12-month period and who are employed by a non-EU com pany, pay quarterly social security contributions at a rate of 31.83%.
The income cap for social security contributions is EUR62,800. However, solidarity tax is imposed on income that exceeds the cap at the same rates as the social security contributions. Part of solidarity tax covers the highest rate of personal income tax (that is, used as credit against personal income tax imposed at a 31% rate).
The annual rate of solidarity tax equals 25%, which consists of the following:
• 1% health insurance contributions (0.5% employee part; 0.5% employer part)
• 10% transferred to personal income tax to cover highest rate of 31% (payable by employee)
• 14% state pension insurance (payable by employer)
The employee’s part of solidarity tax goes to the personal income tax budget, state pension special budget and financing of health care services, but the employer receives a refund of overpaid solidarity tax (difference between 23.59% and 14%) by 1 September of the year following the tax year.
If a company from an EU/EEA member state employs citizens of Latvia, it must register with the State Revenue Service in Latvia for the purpose of social security contributions or the employee
can register as a social security contribution payer. Regulation (EC) No. 883/2004 of the European Parliament and of the Council of 29 April 2004 on the coordination of social security systems applies to nationals of a member state, stateless persons and refugees residing in an EU member state who are or have been subject to the legislation of one or more of the EU member states, as well as to the members of their families and to their survivors.
D. Tax filing and payment procedures
The tax year in Latvia is the calendar year.
Employers must withhold taxes and social security contributions on personal salary and then remit the withheld amounts to the fiscal authorities monthly on the same day the salary is paid.
Every taxpayer receives a tax code number from the fiscal author ities. Individual taxpayers must submit an annual tax return, but they may authorize a certified auditor to submit the return on their behalf. In general, the tax return must be filed during the period of 1 March to 1 June of the year following the tax year. However, if income for the tax year exceeds EUR62,800, the tax return must be filed during the period of 1 April to 1 July of the year following the tax year.
A nonresident who permanently leaves Latvia before year-end must file an annual tax declaration within 30 days after he or she stops receiving income.
If the tax payable exceeds EUR640, the tax may be paid in three equal installments. These installments are due on 23 June, 23 July and 23 August of the year following the tax year if the filing deadline is 1 June. If the filing deadline is 1 July, the installments must be paid by 23 July, 23 August and 23 September.
The following are the rules for the filing of a capital gains tax return:
• If capital gains do not exceed EUR1,000 per quarter, a capital gains tax return must be filed by 15 January of the year follow ing the tax year.
• If capital gains exceed EUR1,000 per quarter, a capital gains tax return must be filed for the quarter by the 15th day of the month following the respective quarter.
If an individual realized capital gains and incurred capital losses during the tax year, he or she can submit an annual capital gains tax return by 1 March of the year following the tax year to calculate tax on capital gains based on a summary procedure.
E. Double tax relief and tax treaties
Foreign taxes paid may be credited against Latvian tax liability on the same income. The exemption method applies to income derived in Lithuania.
Latvia has entered into double tax treaties with the following jurisdictions.
Albania Iceland Qatar Armenia India Romania
Austria Ireland Russian Federation
Azerbaijan Israel Saudi Arabia
Belarus Italy Serbia Belgium Japan Singapore
Bulgaria Kazakhstan Slovak Republic
Canada Korea (South) Slovenia
China Mainland Kuwait Spain
Croatia Kyrgyzstan Sweden
Cyprus Lithuania Switzerland
Czech Republic Luxembourg Tajikistan
Denmark Malta Turkey
Estonia Mexico Turkmenistan
Finland Moldova Ukraine
France Montenegro United Arab
Georgia Morocco Emirates
Germany Netherlands United Kingdom
Greece North Macedonia United States
Hong Kong Norway Uzbekistan
SAR Poland Vietnam Hungary Portugal
Latvia has initialed but not yet signed tax treaties with Bosnia and Herzegovina, Egypt, Kosovo, Mongolia, Pakistan and Tunisia.
Latvia is currently negotiating double tax treaties with Andorra, Bahrain, Ethiopia, Jordan, Lebanon, South Africa, Sri Lanka and Uruguay.
F. Entry visas
All member states of the Schengen Agreement have unified pro cedures and conditions for issuing Schengen visas. The Schengen visa is a visa that provides to a foreigner the right to stay in Latvia and in other Schengen member states for a period indicated in the visa sticker.
Types of visas. The types of Schengen visas are described below.
Airport transit visa (Category A). An airport transit visa (Category A) may be issued for a stay in an international transit zone at the airport of a Schengen member state. An airport transit visa is required for nationals of certain countries who need to change an airplane at the airport of a Schengen member state or whose airplane lands in the airport of a Schengen member state on the way from one non-Schengen member state to another nonSchengen member state.
Short-term visa (Category C). A short-term visa (Category C) is issued for a short-term visit to Schengen member states or for transit through such states. Depending on the purpose of the visit, it may be issued for one, two or multiple entries. An entry means crossing the border between a Schengen member state and a nonSchengen member state. A foreigner holding a C visa may stay in Schengen member states for up to 90 days in a half-year period after the first crossing of the border between a Schengen member state and a non-Schengen member state.
Long-term visa (Category D). Depending on the circumstances, a foreigner who needs to stay in Latvia more than 90 days in a
half-year period can apply for a long-stay visa (or a residence permit).
Visa with a limited territorial validity. If a third-country national needs to enter a Schengen member state, but circumstances for bid such person from having a uniform visa that is valid in all Schengen member states, he or she may be granted a visa with a limited territorial validity. This means that visa is valid for enter ing only those Schengen member states that are indicated on the visa. If a visa states that it is valid only for Latvia, a foreigner is barred from entering other Schengen member states.
Visas with limited territorial validity may be issued for transit or a short-term visit in a Schengen member state that does not exceed 90 days in a half-year period.
Rules applicable to citizens of various countries. Citizens of EU/ EEA member states and Switzerland must obtain a residence card if their stay in Latvia exceeds 90 days in a half-year period, counting from the date of entry. The following is a list of these countries.
Austria Greece Norway Belgium Hungary Poland Bulgaria Iceland Portugal Croatia Ireland Romania Cyprus Italy Slovak Czech Republic Liechtenstein Republic Denmark Lithuania Slovenia Estonia Luxemburg Spain Finland Malta Sweden France Netherlands Switzerland Germany
Citizens of the following jurisdictions may enter and stay in Latvia for 90 days within a 180-day period without visas.
Albania (a) Kiribati
St. Vincent Andorra Korea (South) and the Antigua and Liechtenstein Grenadines Barbuda Macau Samoa
Argentina Malaysia San Marino Australia Marshall Islands Serbia (c) Bahamas Mauritius Seychelles Barbados Mexico Singapore Bosnia and Micronesia Solomon
Herzegovina (a) Moldova (a) Islands Brazil Monaco Taiwan (b) Brunei Darussalam Montenegro (a) Timor-Leste Canada New Zealand Tonga Chile Nicaragua Trinidad Colombia North Macedonia (a) and Tobago Costa Rica Northern Tuvalu Dominica Mariana Ukraine (a)
El Salvador Islands United Arab Georgia (a) Palau Emirates
Grenada Panama United Kingdom Guatemala Paraguay United States Honduras Peru Uruguay
Hong Kong St. Kitts and Vanuatu
Israel Nevis
Vatican City
Japan St. Lucia Venezuela
(a) Only for holders of biometric passports. (b) Only for holders of passports with personal identification number. (c) Only for holders of biometric passports (excluding holders of Serbian passports issued by the Serbian Coordination Directorate ([Koordinaciona uprava]).
G. Work and residence permits
A residence permit is required if a foreigner wants to reside in Latvia for a time period exceeding 90 days within a half year, beginning from the date of first entry. EU citizens are not required to obtain a residence permit. However, they must regis ter and obtain a residence card or permanent residence card (with the exception of an EU citizen who works in Latvia but travels back to his or her residence country on a weekly basis).
Residency permit for non-EU citizens. Non-EU citizens can obtain five-year residency permits in Latvia, which allow unre stricted travel within the territory of Schengen member states. An individual can apply for a residency permit if he or she makes the following investments in Latvia and complies with certain crite ria provided by law:
• Investment in a company
• Purchase of real estate
• Investing in a bank’s subordinate capital (deposit)
H. Family and personal considerations
Family members. Spouses and dependents of expatriates may apply jointly with the expatriate for residence permits as well as work permits. They must provide legalized copies of marriage and birth certificates to obtain Latvian visas or residence permits.
Marital property regime. The default marital property regime in Latvia is one of community property. Spouses may establish, alter or terminate their property rights by marital contract before or during the marriage. Under the community property regime, property owned by a spouse prior to marriage and property acquired during the marriage is community property, unless specifically reserved as separate property by contract.
Forced heirship. Forced heirs in Latvia include a surviving spouse and any descendants, or the most closely related ascendants. The amount of their legal portion varies, according to the number of forced heirs surviving.
Driver’s permits. Latvia recognizes foreign driver’s licenses in accordance with the European Convention on Road Transport, including international driver’s licenses. In other cases, if a for eign national resides in Latvia longer than 12 months, he or she must exchange the foreign driver’s license for a Latvian driver’s license. To obtain a Latvian license, the foreign national must take a driving test. Licenses issued by EU-member countries are valid in Latvia.