Tax Changes in Latvia from 2026. What Residents and Businesses Need to Know

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Are you ready for significant changes in the tax system? The Latvian government has approved a comprehensive tax reform that will come into force in 2026 and will affect both individuals and businesses. These changes concern income tax, corporate income tax, value added tax and many other areas. Understanding these new regulations will help you better plan your financial future and avoid unnecessary problems with the State Revenue Service.

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Why are these changes happening and what do they entail?

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Latvia's tax reform for 2026 is not a random set of decisions but rather a thoughtful strategy aimed at modernizing the country's economy and increasing budget revenues. The government wants to align Latvia's tax system with European Union standards while simultaneously stimulating economic growth. According to official information from the Ministry of Finance, these changes will affect almost every taxpayer in Latvia.

The main components of the reform include adjustments to the progressive personal income tax system, optimization of the corporate tax burden, and the introduction of taxes on digital services. These changes are not just a shift in numbers but a substantial transformation of the system that will require adaptation from both residents and businesses. To understand how these changes will affect your particular situation, it is necessary to examine each tax category in detail.

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Personal Income Tax Changes from 2026

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Personal income tax will experience some of the most substantial changes. The progressive tax system will become even more differentiated, ensuring a fairer distribution of the tax burden. Starting from January 1, 2026, incomes up to 20000 euros per year will be subject to a rate of 20 percent, which remains unchanged compared to the current system.

For incomes from 20001 to 78000 euros per year, the tax rate will be 23 percent. This is a small change compared to the existing system, but it will affect the majority of working residents of Latvia. For incomes exceeding 78000 euros per year, the maximum rate of 31 percent will apply. These thresholds are set based on the country's economic indicators and the average salary level in Latvia.

It is important to note that the non-taxable minimum will remain at 500 euros per month, but it will gradually decrease at higher income levels. For persons with monthly incomes above 2100 euros, the non-taxable minimum will no longer apply. The dividend tax will increase from 20 to 25 percent, which will significantly affect business owners and shareholders. This change is aimed at ensuring that capital income is taxed more fairly in relation to labor income.

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Corporate Income Tax Innovations in 2026

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Corporate income tax will also undergo significant transformations. Latvia will continue to apply the dividend taxation principle, which means that tax is paid only when profits are withdrawn from the enterprise. However, in 2026, additional rules and exceptions will be introduced that will affect different types of enterprises.

For micro-enterprises with turnover up to 40000 euros per year, a simplified tax system will apply with a fixed rate of 25 percent of turnover. This system will be particularly beneficial for small entrepreneurs as it will reduce administrative burden and simplify accounting requirements. Medium-sized enterprises with turnover from 40001 to 7000000 euros will be able to choose between the dividend taxation model and the traditional profit taxation model.

Large enterprises with turnover exceeding 7000000 euros per year will be subject to additional supervision and reporting requirements. The government will also introduce a minimum tax rate of 15 percent on profits for all enterprises, which corresponds to the new international standards of the Organisation for Economic Co-operation and Development. Investment deductions will be reduced from 80 to 60 percent, which may affect companies' plans regarding capital investments.

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Value Added Tax Changes and Their Impact

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Value added tax is one of the most important taxes in the economy, and in 2026 it will undergo several changes. The standard VAT rate will remain at 21 percent, but the reduced rate will increase from 12 to 13 percent. This change will affect many goods and services, including food products, medicines, books and public transport.

For digital services provided from abroad, mandatory VAT registration in Latvia will be introduced if annual turnover exceeds 10000 euros. This rule complies with European Union directives on fair taxation of digital services. Enterprises providing services in other European Union countries will need to use the electronic One Stop Shop system for VAT declaration.

In the construction industry, a reverse VAT mechanism will be introduced, which means that the tax will be paid not by the service provider but by the recipient. This measure is aimed at preventing fraud in the construction industry, which has been one of the most problematic areas in VAT collection. Enterprises will need to adapt their accounting systems to comply with these new rules and avoid penalties.

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Real Estate Tax Reform in 2026

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The real estate tax will be significantly reformed to make it fairer and more effective. The government plans to review the cadastral value determination system so that it better reflects the real market situation. The tax rate will be differentiated depending on the type of property and its location.

For residential houses and apartments, the tax rate will be from 0.2 to 0.6 percent of the cadastral value depending on the value. For commercial properties, the rate will be higher, from 1.0 to 1.5 percent. For undeveloped land plots in cities, the rate will be even higher, up to 3.0 percent, to stimulate land use and prevent speculation.

For pensioners and low-income persons, exemptions or reductions will apply if the value of their property does not exceed 100000 euros and it is their only home. Municipalities will have greater autonomy to set specific rates within their territory within the specified limits. Owners will be able to challenge the cadastral value if it differs significantly from the real market value.

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Excise Tax Changes and Their Impact on Consumers

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Excise taxes on alcoholic beverages, tobacco products and fuel will be gradually increased. For alcoholic beverages, the excise tax will increase by an average of 10 percent, which means that the price of beer in stores could increase by approximately 0.15 to 0.25 euros per liter. For strong alcoholic beverages, the price increase will be even greater, approximately 1.50 to 3.00 euros per liter.

For tobacco products, the excise tax will increase by 15 percent, which means that a pack of cigarettes could become more expensive by approximately 0.80 to 1.20 euros. These measures are aimed at improving public health and comply with World Health Organization recommendations for reducing tobacco consumption. The government also plans to introduce an excise tax on electronic cigarettes and their refill liquids.

For fuel, the excise tax will increase by 5 percent, which means an increase in gasoline prices by approximately 0.04 to 0.06 euros per liter. This measure is related to environmental protection goals and the implementation of European Union climate policy. Electric vehicle owners will be offered tax incentives to encourage the transition to environmentally friendly vehicles.

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Social Insurance Contribution Changes

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Mandatory social insurance contributions will undergo several changes that will affect both employers and employees. The total social insurance contribution rate will remain at 34.09 percent, but the distribution between the employer's and employee's shares will change. The employer's share will decrease from 23.59 to 22.00 percent, while the employee's share will increase from 10.50 to 12.09 percent.

This change means that employees will see a slight decrease in net wages, but employers will see reduced labor costs. The government hopes this will incentivize employers to increase wages and hire more people. The minimum social insurance contribution base will be increased from 500 to 700 euros per month, which means that self-employed persons and micro-enterprise owners will have to pay higher contributions.

The maximum contribution base will increase from 78000 to 85000 euros per year, which will affect highly paid employees and managers. Self-employed persons will be able to choose a reduced contribution rate of 20 percent if their annual income does not exceed 20000 euros. Additional health insurance premiums paid by the employer will be exempt from social contributions up to 500 euros per year.

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Digital Services and Platform Economy Taxes

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The digital economy is growing rapidly, and the Latvian government has developed new rules to ensure fair tax collection in this area. The digital services tax will apply to enterprises whose global turnover exceeds 750000000 euros and revenues earned in Latvia exceed 1000000 euros per year. The tax rate will be 3 percent of digital services revenues.

Platform economy participants, such as Airbnb or Uber service providers, will need to register as taxpayers and declare all income. The platforms themselves will be responsible for providing information to the State Revenue Service about their users if their income exceeds 2000 euros per year. This rule complies with the European Union directive on cooperation between digital platforms and tax authorities.

Cryptocurrency transactions will be subject to special tax rules. Profits from cryptocurrency investments will be taxed with a capital gains tax of 20 percent if annual profit exceeds 1000 euros. Cryptocurrency exchange platforms operating in Latvia will need to register and submit regular reports on user transactions. Blockchain technology companies will be offered tax incentives if they conduct research and development in Latvia.

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Environmental Taxes and Green Reform

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Environmental protection has become one of the government's priorities, and several new environmental taxes will come into force in 2026. A CO2 emissions tax will be introduced for enterprises exceeding specified emission limits. Enterprises producing more than 25000 tonnes of CO2 equivalent per year will pay 30 euros for each tonne exceeding this threshold.

A plastic packaging tax will be introduced for all enterprises producing or importing products in plastic packaging. The tax rate will be 0.80 euros per kilogram of non-recyclable plastic packaging. Enterprises using recycled plastic will receive discounts of up to 50 percent on this tax. This measure is aimed at reducing plastic waste and promoting the circular economy.

The water resources tax will be increased by 20 percent for enterprises consuming more than 50000 cubic meters of water per year. The forest resources tax will be reformed to better protect Latvia's forests and promote sustainable forestry. For the use of renewable energy sources, enterprises will receive tax incentives of up to 40 percent of the amounts invested in installing solar panels, wind generators or biomass boilers.

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Documents Required for Tax Declaration

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To properly declare taxes under the new rules, individuals and enterprises will need the following documents:

1. Copy of identity document or enterprise registration certificate.
2. Taxpayer registration number or enterprise registration number.
3. All salary certificates and income confirmation documents for the year.
4. Bank account statements confirming received and made payments.
5. Invoices and delivery notes for all commercial transactions over 150 euros.
6. Investment confirmations, including share purchase and sale documents.
7. Real estate tax payment confirmations.
8. Vehicle registration documents and operating expense records.
9. Expense documents related to professional activities, maximum 50 percent of income.
10. Charity donation receipts allowing tax deductions up to 600 euros per year.
11. Medical expense receipts exceeding 600 euros per year and deductible.
12. Education expense documents for higher education fees for yourself or dependents.

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Practical Recommendations for Tax Planning

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To effectively prepare for the 2026 tax changes, it is important to start planning now. Individuals are advised to create a detailed budget taking into account the expected decrease in net income due to higher tax rates. If annual income exceeds 78000 euros, you may consider the possibility of spreading income over several years or using pension fund contributions to reduce the tax base.

Enterprises need to assess whether it would be more beneficial to switch to micro-enterprise status if turnover allows. This simplified system can significantly reduce administrative burden and accounting costs. Larger enterprises should consider the possibility of creating reserve capital to reduce the tax base and defer tax payments to a later period.

Real estate owners are advised to check their cadastral values and, if necessary, submit an application for their revision. If the property is rented out, make sure that all income is properly declared, as the State Revenue Service will strengthen control in this area. Platform economy participants need to start accounting for all income and expenses to avoid problems with tax authorities.

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Most Common Mistakes and How to Avoid Them

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One of the most common mistakes is incomplete income declaration. Many taxpayers forget to declare additional income from voluntary work, rental fees or gifts. The State Revenue Service is increasingly using automated systems to compare declared income with bank transactions, so it is essential to declare all income.

The second common mistake is incorrect expense classification. Not all expenses are deductible, and each expense category has specific rules. For example, entertainment expenses are deductible only up to 50 percent, while business travel expenses are fully deductible with appropriate supporting documents. Enterprises must keep all receipts and invoices for at least 5 years.

The third mistake is non-compliance with deadlines. Tax return filing deadlines are strictly set, and delays result in penalties. The personal income tax return must be filed by July 1 of the year for the previous year. VAT payers must file returns every month or quarter depending on turnover. Enterprise annual reports must be filed by June 30 of the year.

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How to Prepare for Changes Today

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Despite the fact that the changes will only come into force in 2026, there are several steps that can be taken now. First, review existing accounting systems and software. Make sure they will be able to process new tax rates and declaration formats. Many enterprises will need to update their accounting programs or even switch to new systems.

Second, attend seminars and training sessions organized by the State Revenue Service on the new rules. These seminars are usually free and provide valuable information directly from tax administration representatives. Also consider the possibility of consulting with a tax consultant or accountant specializing in your industry. Professional help can help avoid costly mistakes.

Third, start collecting documents and organizing financial records now. Create a system that allows convenient storage of all receipts, invoices and payment confirmations. Digital solutions such as cloud accounting programs can significantly simplify this process. Regularly check bank account movements and compare them with declared income.

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Tax changes in Latvia from 2026 represent a large-scale reform that will affect almost every taxpayer in the country. Progressive personal income tax rates will become more differentiated, the corporate tax system will be modernized, and new environmental taxes will be introduced. Although these changes may seem complex, their main goal is to create a fairer and more efficient tax system.

The main thing is to start preparing for these changes now. Assess your financial situation, review documents and, if necessary, consult with professionals. Remember that proper tax planning can not only help avoid penalties but also save significant amounts through legal means. The State Revenue Service offers many resources and support mechanisms for taxpayers.

Regardless of whether you are an individual receiving a salary, a business owner or self-employed, these changes will require adaptation. However, with proper preparation and understanding of the new rules, you will be able to successfully navigate this transition period. Follow official announcements from the Ministry of Finance and the State Revenue Service to stay informed about all the latest guidelines and clarifications.

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How Lex&Finance Can Help

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The complexity and scope of tax changes can be overwhelming for both individuals and businesses. That is why the Lex&Finance team is ready to provide professional support on all issues related to tax planning and administration. Our experienced tax consultants and accountants closely monitor all legislative changes and can help adapt your tax strategy to the new requirements.

We offer a full range of services, including preparation and filing of tax returns, accounting services, tax optimization consulting and representation in communication with the State Revenue Service. Lex&Finance specialists can help assess which tax system is most beneficial in your situation, how to properly document expenses and how to legally reduce the tax burden.

Our company serves both individual clients and small and medium-sized enterprises, as well as larger corporate clients. We understand that each situation is unique, so we offer a personalized approach to each client. With Lex&Finance, you can be confident that your tax matters are in professional hands and that you are fully compliant with all legislative requirements.

To learn more about how we can help you specifically, contact our team for a consultation. We are ready to answer all your questions and develop a solution that meets your needs and financial goals.

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Frequently Asked Questions

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Will I have to pay more taxes in 2026 if my salary is 1500 euros per month?

If your monthly salary is 1500 euros, which amounts to 18000 euros per year, you will still be in the first tax bracket with a 20 percent rate. However, the distribution of social insurance contributions will change, and your share will increase from 10.50 to 12.09 percent. This means your net salary will decrease by approximately 24 euros per month.

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How will the new rules affect my small business with a turnover of 35000 euros per year?

If your business turnover is 35000 euros per year, you can choose the simplified tax system for micro-enterprises. In this case, you would have to pay 25 percent of turnover, which would amount to 8750 euros per year. Compare this with the existing system and assess which is more beneficial in your situation.

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Can I receive a tax deduction for installing solar panels at my home?

Yes, tax incentives will be offered for the use of renewable energy sources up to 40 percent of the amounts invested. If you install solar panels on your property, you will be able to deduct 40 percent of the expenses in your income tax return, but no more than 10000 euros per year.

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What documents do I need to keep for tax purposes and for how long?

You must keep all documents related to income and expenses, including salary certificates, invoices, receipts, bank statements and contracts. The law requires keeping these documents for at least 5 years from the end of the relevant tax year. It is recommended to store them both in physical and digital form.

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When do I need to file a tax return for 2026?

The personal income tax return for 2026 must be filed by July 1, 2027. If you are a VAT payer, returns must be filed every month or quarter depending on your turnover. Enterprise annual reports for 2026 must be filed by June 30, 2027.