Main Taxes in Latvia: A Clear Guide for Residents and Businesses

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The tax system of any country can feel like a complicated maze, especially for people who have just moved or are planning to start a business in a new place. Latvia is no exception, but in reality its tax structure is fairly clear and logical once you understand the basic principles. In this detailed guide, we will cover the key taxes that can affect both ordinary residents and entrepreneurs in Latvia. Let’s break down how much you need to pay, what you pay for, and how to live and work in this Baltic country calmly and legally.

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How Latvia’s Tax System Works

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Latvia’s tax system follows principles typical for most European countries. The main authority responsible for collecting taxes and monitoring compliance is the State Revenue Service, known as Valsts ieņēmumu dienests or VID. This institution has broad powers and a modern electronic system that allows it to track taxpayers’ financial operations. The official website is https://www.vid.gov.lv, where you can find current information and submit declarations online.

Taxes in Latvia are divided into direct and indirect taxes. Direct taxes are paid directly from income or property, for example personal income tax or real estate tax. Indirect taxes are included in the price of goods and services, and the most important one is value added tax. Compared to some other European countries, Latvia’s tax system is considered relatively straightforward, but it still requires attention and timely payment of all mandatory charges.

It is important to understand that tax legislation changes regularly, and tax rates can be adjusted almost every year. The government often amends tax laws in response to the economic situation and budget needs. That is why it is always worth checking the latest information on official resources or consulting specialists before making important financial decisions.

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Personal Income Tax

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Personal income tax, known in Latvian as iedzīvotāju ienākuma nodoklis, is one of the main sources of state budget revenue. From 2025, the basic rate is 20 percent for annual income up to 20,004 euros and 33 percent for income above that amount. This progressive scale is designed so that people with higher earnings contribute more to public needs.

The non taxable minimum in Latvia is differentiated and depends on the amount of annual income. For people with low income, the non taxable minimum can reach 500 euros per month or 6,000 euros per year. However, as income increases, this minimum gradually decreases, and for annual income above 78,100 euros the non taxable minimum does not apply at all. This system supports people with smaller earnings and ensures a fair distribution of the tax burden.

Employers automatically withhold personal income tax from employees’ salaries and transfer it to the budget. An employee usually does not need to file a declaration if they have only one source of income and do not claim additional deductions. However, if a person has several jobs, rental income, dividends, or other sources of income, they must submit an annual declaration by June 1 of the following year through the electronic declaration system.

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Social Contributions and Why They Matter

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In addition to personal income tax, mandatory social insurance contributions are paid from employees’ wages. These funds go to pensions, healthcare coverage, and other social needs. The total social contribution rate is 34.09 percent of gross salary. Out of this amount, 23.59 percent is paid by the employer on top of the employee’s salary, while 10.50 percent is withheld from the employee’s salary. As a result, the real cost of an employee for a company is significantly higher than the net amount the employee receives.

Social contributions give entitlement to a state pension, healthcare within the mandatory insurance system, unemployment benefits, sick leave payments, and other social benefits. In 2025, the minimum monthly base for calculating social contributions is 700 euros, even if the actual salary is lower. This means that even if a person earns 500 euros, social contributions must still be paid at least from 700 euros.

Self employed persons and micro enterprise owners pay social contributions under slightly different rules. The self employed can choose the base for contributions, but it cannot be lower than the minimum wage. In 2025, the minimum monthly wage is 700 euros, so the minimum mandatory social contribution payment for a self employed person will be about 238 euros per month.

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Value Added Tax

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Value added tax, or VAT, known in Latvian as pievienotās vērtības nodoklis, is an indirect tax included in the price of most goods and services. The standard VAT rate in Latvia is 21 percent, which is close to the European Union average. End consumers pay this tax in practice, but it is collected and transferred to the budget by companies that sell goods or provide services.

There are reduced VAT rates for certain categories of goods and services. A 12 percent rate applies to medicines, medical devices, books and periodicals, hotel services, and some food products. A 5 percent rate applies to fresh fruits and vegetables, making healthy food more affordable. Some services are exempt from VAT entirely, such as medical and educational services, financial transactions, and insurance.

Companies must register as VAT payers if their annual turnover exceeds 50,000 euros. However, voluntary registration is possible even with a lower turnover if it benefits the business. VAT payers must submit VAT returns monthly or quarterly depending on turnover and pay the difference between input VAT and output VAT to the budget. This requires detailed accounting and retaining supporting documents for all transactions.

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Corporate Income Tax

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Latvia applies a unique corporate income tax system introduced in 2018, which attracted significant international investor interest. The idea is that companies do not pay corporate income tax until they distribute profits as dividends or carry out certain non market transactions. The rate is 20 percent and applies only to distributed profit, not to the company’s total profit.

This model encourages reinvestment because if a company keeps earnings for development, equipment purchases, or operational needs, it does not pay corporate income tax at all. The tax arises only when owners decide to take money out of the company as dividends. The effective tax on distributed profit is calculated as 20/80 of the amount paid out, which results in 25 percent of net profit.

Certain expenses are also taxed even if dividends are not formally paid. These include costs not related to economic activity, such as representation expenses above the allowed limit, gifts, writing off bad debts to related parties, and similar transactions. Companies must track such expenses carefully and classify them correctly in accounting.

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Real Estate Tax

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Real estate tax, known as nekustamā īpašuma nodoklis, is charged to owners of land, buildings, and structures in Latvia. This is a local tax, meaning it goes to municipal budgets, and municipalities set the specific rates within the limits set by law. The rate ranges from 0.2 to 3 percent of the property’s cadastral value per year depending on the type of property and the local municipality’s decision.

For residential property, rates are usually between 0.2 and 0.6 percent. For commercial property and land plots, rates can be higher and reach up to 1.5 percent. For abandoned or unused buildings and land, the rate can be increased to 3 percent, encouraging owners either to use the property or sell it to someone who will. This is one tool to reduce inefficient land use.

Cadastral value is determined by the State Land Service based on factors such as location, area, building type, year of construction, and other characteristics. This value is usually lower than market value and is updated periodically. Property owners receive tax notifications from the municipality and must pay within the set deadlines, typically in two or four payments during the year.

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Taxes for Vehicle Owners

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Owners of cars and other vehicles in Latvia pay several taxes and mandatory fees. The main one is the annual vehicle tax, transportlīdzekļa nodoklis, which depends on the vehicle’s technical characteristics. For passenger cars, the amount is influenced by engine capacity and environmental indicators. The larger the engine and the higher the CO2 emissions, the higher the tax.

The minimum annual tax for a passenger car with an engine up to 1500 cubic centimeters is around 30 euros, while for powerful cars with engines above 3000 cubic centimeters it can exceed 150 euros. Electric vehicles and hybrids benefit from tax relief and pay significantly less, or can be exempt for a certain period. This supports national policy to promote environmentally friendly transport.

In addition to the annual tax, vehicle owners must pay mandatory third party liability insurance, OCTA. The cost depends on the driver’s age, driving experience, accident history, and the vehicle’s characteristics. Another significant payment is a tax on purchasing a used car imported from abroad, calculated by a special formula based on the car’s age, engine size, and environmental class.

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Excise Duties on Specific Goods

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Excise duties, akcīzes nodoklis, are special taxes on specific categories of goods, usually those considered harmful to health or the environment. In Latvia, excise duties apply to alcoholic beverages, tobacco products, fuel, electricity, and some other goods. The government sets these rates and reviews them regularly, usually increasing them.

For alcohol, excise rates depend on strength and are measured in euros per hectoliter of pure alcohol. For beer, the rate is about 10.90 euros per hectoliter for each percent of alcohol content. For strong spirits, the rate can reach 1,950 euros per hectoliter of pure alcohol. Wine is taxed at around 133 euros per hectoliter. These high excise duties make alcohol relatively expensive in Latvia.

Tobacco products are also subject to significant excise duties that include a fixed amount per unit and a percentage of the retail price. For cigarettes, the minimum excise is around 130 euros per 1,000 pieces. Fuel excise varies by type: for gasoline it is roughly 514 euros per 1,000 liters, and for diesel fuel about 372 euros per 1,000 liters. These excise duties form a substantial part of fuel prices at the pump.

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Taxes for Micro Enterprises

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Latvia offers a simplified tax regime for micro enterprises called the micro enterprise tax, mikrouzņēmumu nodoklis. This regime is available for small companies with annual turnover up to 100,000 euros and no more than five employees. The main advantage is that instead of several different taxes, the company pays one combined tax.

The tax rate is 25 percent of turnover for companies without employees and 40 percent for companies with employees. These rates include both personal income tax and social contributions, which greatly simplifies accounting and reporting. Micro enterprise owners submit declarations quarterly and pay the tax once per quarter, which is much simpler than the standard system.

However, this regime has limitations. Micro enterprises cannot engage in certain activities such as financial services, insurance, or gambling. There are also restrictions on allowable expenses. In addition, the company cannot be a VAT payer, which may be disadvantageous when working with large partners who require VAT invoices. That is why it is important to calculate pros and cons carefully before choosing this regime.

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Patent Fees for the Self Employed

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Self employed persons providing certain services can work under a patent system, which is another simplified taxation option. A patent gives the right to carry out a specific type of activity without registering a company. The cost depends on the type of activity and location, but typically ranges from 50 to 200 euros per month.

The patent system is available for activities such as tutoring, hairdressing, cosmetology, repair work, cleaning services, childcare or elderly care, and some other services. A key condition is that the self employed person cannot hire employees and must provide services personally. Annual income under the patent regime is limited to 20,000 euros.

The advantage of the patent system is simplicity. A person buys a patent, pays a fixed amount that includes all taxes and social contributions, and can work without complex bookkeeping or declarations. However, this regime is suitable only for smaller volumes of work and a limited range of professions.

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How to File Tax Declarations Correctly

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Latvia has a modern electronic tax declaration system called the Electronic Declaration System, Elektroniskās deklarēšanas sistēma or EDS. It is available on the State Revenue Service website and allows you to file declarations, check your balance with the budget, receive notifications, and communicate with tax inspectors online. To log in, you need an e signature or Latvian bank internet banking.

Individuals who have only one source of employment income usually do not have to file a declaration because the employer has already withheld all taxes. However, you must file if you have income from business activity, rental income, sale of real estate or securities, dividends, interest, or other income types. A declaration is also needed to claim deductions, for example for education, medical expenses, or contributions to private pension funds.

The deadline for filing the annual personal income declaration is June 1 of the year following the reporting year. For example, a declaration for 2024 must be filed by June 1, 2025. Companies file different declarations depending on applicable taxes: VAT returns monthly or quarterly, and annual reports and corporate income tax declarations once per year. Late filing leads to penalties, starting from 50 euros and potentially reaching significant amounts for repeated violations.

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Tax Deductions and Benefits

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Latvia’s tax system provides various deductions and benefits that reduce the taxable base and therefore the amount of tax payable. The non taxable minimum is the main relief for all working people, but there are also additional options. For each dependent, whether a child or a retired parent, you can claim a deduction of 250 euros per month or 3,000 euros per year.

Education expenses also qualify for a tax deduction. You can receive back 20 percent of the amount paid for studies at accredited educational institutions, but not more than 1,200 euros per year. Medical expenses, including dental services, purchase of glasses, and certain medicines, are also considered. The maximum deduction for medical expenses is 600 euros per year.

Contributions to third pillar private pension funds qualify for a deduction of up to 10 percent of annual income, but not more than 4,000 euros. Interest on a mortgage loan for the purchase of a primary residence can also be included, with a deduction up to 400 euros per month. To use these benefits, you must file an annual declaration and attach all supporting documents.

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Liability for Non Payment of Taxes

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Failure to pay taxes or late payment in Latvia can result in serious consequences. The State Revenue Service has broad powers to collect debts and apply sanctions. For each day of delay, late payment interest is charged at 0.05 percent of the debt amount, which is about 18 percent per year. These charges can quickly increase the original debt if it is not paid on time.

In addition to late payment interest, the tax authority can impose fines for various violations. Failure to submit a declaration on time can result in a fine from 50 to 700 euros. Underreporting the tax base or providing false information can be punished with a fine of up to 100 percent of the unpaid tax amount. In particularly serious cases involving intentional tax evasion, criminal liability is possible, including imprisonment of up to eight years.

The State Revenue Service can freeze the debtor’s bank accounts, place liens on property, and initiate forced collection through bailiffs. For legal entities, tax debt can be grounds for removal from the Commercial Register. Company managers can be held personally liable if it is proven that they contributed to tax non payment or asset withdrawal to the detriment of the budget.

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Latvia’s tax system is balanced and fairly clear once you study it in detail. The main taxes include progressive personal income tax up to 33 percent, social contributions of 34.09 percent, VAT with a standard rate of 21 percent, and a unique corporate income tax that is payable only when profits are distributed as dividends. The system also offers simplified regimes for small businesses, such as micro enterprises and the patent system, making small business operations more accessible.

Timely and correct tax payment is not only a legal obligation, but also a contribution to society’s development. Tax revenue finances education, healthcare, infrastructure, social protection, and other important areas. Modern electronic systems make declaring and paying taxes convenient, so there is little reason to avoid these obligations.

If questions or difficulties arise, it is always better to seek professional help than to risk fines or more serious problems. Tax planning and proper use of available deductions can significantly optimize the tax burden through legal methods. Latvia provides sufficient opportunities for comfortable living and successful business activities, as long as tax laws are respected.

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Frequently Asked Questions

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Do you need to file a declaration if you only work under an employment contract?

If you have only one income source from salary and your employer correctly withholds all taxes, filing an annual declaration is not mandatory. However, it is worth filing if you want to claim deductions for education, medical expenses, dependents, or mortgage interest. A declaration is also mandatory if you have any additional income, even small amounts, from rent, freelance work, or investments.

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How long must tax documents be kept?

Latvian law requires accounting and tax documents to be kept for five years from the end of the financial year to which they relate. This includes invoices, delivery notes, contracts, bank statements, payroll records, and all other documents related to business and financial activity. The tax authority may request these documents for inspection at any time during that period.

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Can taxes be paid in installments?

Yes, the State Revenue Service can grant a payment extension or an installment plan in cases of temporary financial difficulties. You must submit a reasoned application and provide supporting documents. An installment plan is typically granted for three to 36 months with interest charged at a reduced rate. It is important to apply for an installment plan before the tax payment deadline, not after a debt has already formed.

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What is the difference between working with a patent and registering a micro enterprise?

A patent is the simplest way to legalize small self employment in certain service fields. You pay a fixed amount and work without registering a company, but with restrictions on activity types and an annual income cap of 20,000 euros. A micro enterprise is a fully registered company in the Commercial Register, with the ability to hire up to five employees and annual turnover up to 100,000 euros. A micro enterprise is suitable for more serious business, but it requires bookkeeping and filing declarations.

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How can you check whether you have tax debt?

The easiest and most reliable way to check your tax balance is to use the Electronic Declaration System, known as EDS, which is available on the official website of the State Revenue Service. This system allows you to access complete and up to date tax information online, without the need to visit government offices in person.

After logging into EDS using internet banking, an electronic signature, or an eID, you should open the section related to settlements with the state budget. This section displays information on all assessed taxes, payments made, possible overpayments, and any outstanding tax liabilities. The system clearly shows which tax the debt relates to, for which period, and in what amount.

If a tax debt exists, EDS also provides payment deadlines and bank details for making the payment. In some cases, it is possible to generate a payment order or download a statement for accounting purposes. If there is no debt, the system will show a zero balance or an overpayment, which can be refunded or offset against future tax liabilities.