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Latvia’s New Personal Income Tax (PIT) System in 2025

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Latvia is entering 2025 with one of the most significant changes to its personal income tax system in recent years. The reform fundamentally reshapes how tax is calculated, who pays more, who pays less, and how predictable the monthly take-home income becomes. If you are an employee, a freelancer, a company owner, or someone responsible for payroll, this new system matters to you directly.

The government is introducing a fixed monthly allowance, adjusting the income thresholds, strengthening the progressive tax elements, and adding a new surtax for high-income earners. On paper, the rules look simple. But what will they feel like in real life? Will your net salary go up? Will your tax planning needs change? Will self-employed people pay more or less? And does the reform truly simplify accounting?

Let’s break everything down, step by step, with clarity and practical examples.

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The Key Changes to PIT in 2025

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Latvia’s 2025 PIT reform introduces four core elements:

• a fixed non-taxable minimum of 510 € per month
• a 25.5% standard PIT rate for annual income up to 105,300 €
• a 33% higher PIT rate for income above 105,300 €
• an additional 3% surtax on income above 200,000 €

Official sources confirming the changes:

• State Revenue Service (VID): https://www.vid.gov.lv
• LSM (Latvian Public Media): https://eng.lsm.lv/article/economy/economy/08.10.2024-set-non-taxable-minimum-to-be-introduced-in-latvia.a571760
• PwC Latvia tax summary: https://taxsummaries.pwc.com/latvia/individual/significant-developments
• Sorainen analysis of tax changes: https://www.sorainen.com/publications/tax-stories-tax-changes-as-of-1-january-2025
• Confidentum insights: https://confidentum.com/insights/major-changes-to-latvias-personal-income-tax-system-coming-in-2025

This combination of measures changes both how PIT is calculated and how predictable income becomes throughout the year.

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The Fixed Monthly Allowance of 510 €: A Major Breakthrough

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For years, Latvia used a differentiated allowance system. The amount of allowance changed depending on a person’s income level. The result?

• net salary fluctuated from month to month
• payroll calculations became complicated
• employees struggled to understand why each payslip looked different
• annual tax settlements often resulted in unexpected payments or returns

The 2025 reform eliminates all of that.
The allowance is no longer tied to income. It is now fixed at 510 € per month.

What does this change achieve?

• simplicity — one number for everyone
• predictability — the net income becomes stable
• transparency — employees finally know what to expect
• fewer errors — accountants handle fewer variables
• fewer surprises in the annual tax return

This is arguably the most impactful part of the reform for everyday citizens.

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Why the Government Abandoned the Differentiated System

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The differentiated allowance was meant to support low-income earners. But in reality, it created systemic deficiencies:

• calculations were overly complex
• payroll software had to handle multiple scenarios
• many employees received unexpected tax bills
• the administrative burden for employers was high

A fixed allowance reduces the entire system to a single rule.
That alone helps thousands of businesses avoid mistakes.

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The 25.5% PIT Rate: The Main Rate for Most of the Population

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Under the new system, the 25.5% rate applies to:

• salaries
• income from contracts for services
• income earned by self-employed individuals
• royalties (unless a special regime is chosen)
• other earnings classified as general income

As long as your annual taxable income does not exceed 105,300 €, the 25.5% rate remains the only PIT you pay.

This means the overwhelming majority of Latvian workers and freelancers fall entirely under this rate.

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The 33% PIT Rate: Applied Above 105,300 € Per Year

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Once a person’s annual income exceeds 105,300 €, the portion above that threshold is taxed at 33%.

How significant is this?

It affects:

• high-level executives
• senior specialists
• entrepreneurs taking large business income as personal income
• people earning multiple income streams

Example:

Annual income: 130,000 €
• 105,300 € → taxed at 25.5%
• 24,700 € → taxed at 33%

The effect is meaningful but limited to high earners.

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The Extra 3% Surtax for Income Above 200,000 €

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This new surtax introduces a third layer of progressivity.

It works like this:

• only the amount above 200,000 € per year is taxed with an extra 3%
• this surtax is added on top of the 33% rate
• it affects a very small part of the population

According to Sorainen’s legal analysis, this measure is targeted at “very high income brackets” and is expected to generate additional budget revenue without affecting most taxpayers:
https://www.sorainen.com/publications/tax-stories-tax-changes-as-of-1-january-2025

Who does this affect?

• top executives
• company owners who take large personal payouts
• high-earning professionals
• residents generating significant investment or royalty income

This change is less about fairness and more about revenue.

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How the 2025 PIT Reform Affects Employees

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Whether you work at a factory, an office, a store, or an IT company, this reform changes your net salary. But the size of the change depends on your income level.

Let’s look at three groups.

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Employees with Lower Income (up to ~1,200 € per month)

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These individuals benefit the most.

The fixed 510 € allowance significantly reduces the taxable base.
This often translates into a clear increase in take-home pay.

If your salary used to fluctuate due to the differentiated allowance, that instability is now gone.

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Employees with Medium Income (1,200–3,000 €)

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For this group:

• the tax burden stays similar
• monthly income becomes more predictable
• annual tax settlements become simpler

The biggest benefit is stability, not savings.

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Employees with High Income (above ~6,500 € per month)

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Here the reform works differently.

• income exceeding 105,300 € per year is taxed at 33%
• if income exceeds 200,000 €, an additional 3% surtax applies

High-income earners now face a noticeably more progressive system.

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Practical Examples of Salary Calculations

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Let’s walk through realistic scenarios.

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Example 1: Salary of 1,500 € (bruto)

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1. Income: 1,500 €
2. Allowance: 510 €
3. Tax base: 990 €
4. PIT: 990 × 25.5% = 252.45 €

This results in a visibly higher net salary than before the reform.

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Example 2: Salary of 2,000 €

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1. 2,000 − 510 = 1,490 €
2. PIT: 1,490 × 25.5% = 379.95 €

The fixed allowance still helps, but proportionally less.

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Example 3: Salary of 6,000 €

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Annual income: 72,000 €.
This stays below the 105,300 € threshold.

1. 6,000 − 510 = 5,490 €
2. PIT: 5,490 × 25.5% = 1,409 €

Here the reform mainly offers stability.

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Example 4: Salary of 10,000 €

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Annual income: 120,000 €.

Threshold crossed → the 33% rate applies.

• up to 105,300 € → 25.5%
• 14,700 € → 33%

This increases the tax burden for high earners.

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How the 2025 PIT Reform Affects the Self-Employed

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Self-employed individuals (pašnodarbinātie) face the same progressive PIT structure as employees, but their deductible allowance works annually rather than monthly.

Key elements:

• 6,120 € annual non-taxable allowance
• progressive rates (25.5%, then 33%)
• additional 3% surtax above 200,000 €
• business expenses must be documented
• social contributions are mandatory

Official VID guidance:
https://www.vid.gov.lv/lv/pasnodarbinatais

Let’s review practical examples.

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Self-Employed Example 1: Income 40,000 €

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1. Income: 40,000 €
2. Allowance: 6,120 €
3. Tax base: 33,880 €
4. PIT: 33,880 × 25.5% = 8,639.40 €

No progressive rates yet.

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Self-Employed Example 2: Income 150,000 €

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1. 150,000 − 6,120 = 143,880
2. 105,300 → taxed at 25.5%
3. 38,580 → taxed at 33%

No surtax yet.

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Self-Employed Example 3: Income 260,000 €

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1. Base: 253,880 €
2. up to 105,300 → 25.5%
3. 105,300–200,000 → 33%
4. above 200,000 → +3%

This is where the surtax kicks in.

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Impact on Micro-Business Tax (MUN) Users

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While the MUN regime itself is not changed by the 2025 PIT reform, the fixed allowance and progressive structure make the standard PIT regime more appealing for many small service providers.

When might switching from MUN be beneficial?

• when you have significant deductible expenses
• when your income is low or unpredictable
• when you want to benefit from the 510 € allowance
• when your business expenses exceed the simple turnover tax rate

As a result, part of the small-business community will reconsider their regime.

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How the Reform Affects Company Accounting and Payroll

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For accountants, the 2025 reform provides both challenges and simplifications.

Necessary updates include:

• payroll software adjustments
• new calculation templates
• updated internal company policies
• employee briefing materials
• new tax planning models
• EDS configuration checks

But the removal of the differentiated allowance reduces complexity dramatically.

Payroll becomes more straightforward, with fewer unexpected corrections.

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Documents Employers Must Use in 2025

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Companies need to ensure that all relevant documents match the new PIT rules:

• employment contracts
• job descriptions
• payroll orders
• internal remuneration policies
• monthly payroll sheets
• EDS monthly reports
• records supporting deductions
• annual tax reconciliation documents
• self-employment income logs (if applicable)

A clean documentation system helps avoid compliance problems.

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How the New System Affects Financial Planning

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For employers:

• budgeting becomes more accurate
• payroll forecasting becomes easier
• unexpected costs decrease
• hiring calculations become clearer

For self-employed people:

• income thresholds become predictable
• annual planning becomes simpler
• expense optimization becomes more meaningful

The new PIT system rewards structured financial planning.

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The PIT Calculation Formula After 2025

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Here is the simplified structure:

1. Annual tax base = income − 6,120 €
2. Income up to 105,300 € → taxed at 25.5%
3. Income above → taxed at 33%
4. Income above 200,000 € → additional 3% surtax

This replaces the older system with many variable factors.

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Changes to the Annual Tax Return (Gada deklarācija)

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The 2025 system reduces surprises during the annual settlement:

• no recomputation of changing monthly allowances
• fewer mistakes in payroll
• clearer tax obligations
• reduced chance of sudden payments
• more accurate refunds

The return is submitted via VID’s EDS tool:
https://eds.vid.gov.lv

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Conclusion

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Latvia’s 2025 PIT reform brings a new level of clarity and predictability.
Low-income earners benefit from higher take-home amounts.
Middle-income individuals receive stability.
High-income earners face a more progressive structure.
Self-employed people gain more straightforward planning.
Employers enjoy simpler payroll operations.

The reform doesn’t just change percentages.
It changes how people understand their income — and how easy it becomes to see where every euro goes.

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FAQ – Five Most Common Questions

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1. Will my net salary increase under the new PIT rules?
If you earn up to roughly 3,000 € per month, your net salary is likely to increase thanks to the 510 € allowance.

2. Do I need to notify my employer to apply the non-taxable minimum?
No. It is applied automatically.

3. Will self-employed individuals pay more taxes in 2025?
Only if their income crosses the progressive thresholds (105,300 € and 200,000 €).

4. Who does the 33% PIT rate apply to?
To the portion of income exceeding 105,300 € annually.

5. When does the extra 3% surtax apply?
Only to the part of annual income above 200,000 €.