Latvia
Corporate taxes and other direct taxes
Since 2018, CIT is, in general, payable only on the distribution of profit: dividends (also interim dividends), payments qualifying as dividends, non-business expenses, loans issued to related parties, interest payments subject to thin capitalization rules, bad debts to be written off, transfer pricing adjustments, liquidation quota, etc. The CIT rate is 20% of the gross taxable value (expense/distribution value) or 25% of the net value (i.e. a 20/80 rate).
Since 2018, the following thin capitalization rules are applicable: (1) the debt/equity ratio exceeds 4 to 1; (2) the amount of interest paid exceeds EUR 3 million as well as 30% of EBITDA. If either of the two thin capitalization thresholds are exceeded, the interest payment will be subject to 25% CIT from the net excess interest value.
Tax exempt capital gains: from 2018 onwards, distributed profit from the sale of directly owned shares (except for shares of low/tax free companies) is not subject to CIT unless the company has held the relevant shares for fewer than 36 months, or the shares belong to a company the majority of whose assets by value is comprised of real estate located in Latvia. Exemption does not apply where the main purpose of setting up the taxpayer or the structure is to benefit from the holding regime (i.e. tax optimization or avoidance of taxes has taken place).
Tax exemption is not applicable to profits from the sale of financial instruments (e.g. investment fund notes, securities, bonds, etc.) or to royalties and interest received.
A withholding tax (WHT) of 20% is applied to management and consulting service fees paid by Latvian companies to foreign companies; 3% WHT is applied to remuneration paid to a foreign company for the disposal of real estate located in Latvia, or for the disposal of shares holding real estate located in Latvia; 5% WHT is applied to remuneration paid to a foreign company for renting or leasing of real estate in Latvia; and 20% WHT is applied to all payments to offshore companies. WHT may be avoided under the active international treaty network consisting of more than 63 double tax treaties.
Level of attention paid by Tax Authority:
VAT and other indirect taxes
The general VAT rate is 21% for the sale of goods and services. A reduced rate of 12% is used, for example, for medical goods, periodicals, accommodation services, and thermal energy supplied to private individuals. Furthermore, a reduced 5% VAT rate is applicable for the supply of fruit and vegetables typically grown in Latvia. As of January 1, 2022, the VAT rate for books, news websites, etc. has been reduced from 12% to 5%, and on e-books from 21% to 5%. A 0% rate is applicable for the export of goods and for the supply of Covid-19 vaccines and devices and services related to Covid-19 treatments. Exemptions are in place for postal services, medical and health services, certain financial services, etc. Entrepreneurs with annual sales of less than EUR 50,000 are exempt from VAT obligations. Monthly returns are electronically recorded. The options/limits based on the EU Directive are determined in the VAT Act.
Other indirect tax types in Latvia include excise and customs duties, and some transactions related to public administration (e.g. submitting application forms, issuing certificates, granting permissions, etc.) are also subject to stamp duty.
| VAT options in Latvia |
Applicable / limits |
| Distance selling |
From July 1, 2021 the OSS system is in force. A VAT registration threshold of EUR 10,000 per year is applicable.
|
| Call-off stock |
 |
| VAT group registration |
|
| Cash accounting - yearly amount in EUR (approx.)* |
EUR 300,000/year
applicable to private entrepreneurs or agricultural companies. |
| Import VAT deferment |
|
| Local reverse charge |
Timber and related services, dealings involving scrap metal, construction services, grain crops, precious metals, game console supplies, supplies of ferrous and non-ferrous semi-finished metal products. |
| Option for taxation |
| - letting of real estate |
 |
| - supply of used real estate |
|
| VAT registration threshold* |
EUR 50,000/year
|
Personal income tax / Social security system
A progressive PIT rate was introduced starting from January 1, 2018. From January 1, 2022, it includes the following: 20% is applied for income of less than EUR 20,004 per year; 23% for income between EUR 20,004 and EUR 78,100 per year; and 31% for income exceeding EUR 78,100 per year. A maximum amount for the object of social contribution tax is set for 2022, 2023 and 2024 in the amount of EUR 78,100.
The tax on annual income of more than EUR 78,100 per year is calculated in a recapitulative order when submitting the annual income declaration. If a payroll tax book is not submitted at a place of employment, the salary tax rate is 23% regardless of monthly income.
Also, from July 1, 2022, the non-taxable minimum has been increased from 350 EUR to 500 EUR (please see wage calculations below).
Income from capital and capital gains is taxed with a 20% PIT rate.
Active incomes fall under the scope of the SSC system: individual social contributions equal a total of 34.09%, of which the employer’s contribution is 23.59% and the employee’s contribution is 10.5%. Benefits in kind earned within employment are taxed with PIT and SSC at standard rates. The examples below show the cost to the employer and employee in the cases of the minimum and the average wage in the private sector.
Wage related taxes
in Latvia |
Minimum wage
|
Average wage
in private sector |
| |
in EUR |
|
in EUR |
|
| |
700 |
|
1,549 |
|
| Total wage cost |
865 |
123.59% |
1,914 |
123.59% |
| Vocational training contribution |
- |
0.00% |
- |
0,00% |
| Social contribution tax |
165 |
23.59% |
365 |
23.59% |
| Gross salary |
700 |
100.00% |
1,549 |
100.00% |
| Personal income tax* |
25.30 |
20.00% |
277 |
20.00% |
| Employees' contributions |
73.50 |
10.50% |
163 |
10.50% |
| Net salary* |
601 |
85.89% |
1,109 |
71.60% |
*When calculating the applicable PIT, it is assumed that the employee has submitted its salary tax book to the employer. It is also assumed that the non-taxable minimum applied is 0 EUR in case of average wage (it is calculated for each taxpayer individually) and in case of minimum wage - 700 EUR.