Company formation and accounting in Latvia
Last updated: 2017-12-24
After company formation one of questions, you must decide, is employment and payroll.



Does a company need to employ employees (conclude employment agreements)?

If a company carries out economic activities (is doing business), that usually means that some natural person does certain activities on behalf of company (for the company). For example, the natural person contacts with business partners of a company, signs documents (contracts), makes payments, etc.

To avoid possible questions and problems from governmental authorities (State revenue service and State Labour Inspectorate) in such cases would need to conclude employment agreement and calculate salary for the worked time (hours).

If the only person doing some activities on behalf of a company is a member of board of directors, then must check net turnover of the company per month. If net turnover per month exceeds certain limit (for example, for 2018 the limit is 2150 euro per month), then the company must pay social contributions mandatory payments and personal income tax from the minimum salary, defined in legislation (for 2018, the minimum salary is 430 euro per month).
Exception, when no obligation to pay minimum salary is the first year (year, when a company is registered).

Minimum salary in Latvia

Minimum salary is defined in the rules of the Cabinet of Ministers.

In usual cases if an employee works normal working time (8 hours per working day), then for 2017 minimum salary is 380 euro per month and for Year, 2018 minimum salary is 430 euro per month.
If an employee works less than 8 hours per working day, then parties may agree to calculate salary, based on hourly rate. And minimum hourly rate in usual cases for Year, 2018 is in range from 2.3370 euro to 2.6875 euro.
Starting from 2016, to calculate minimum hourly rate, minimum monthly salary must divide with number of working days per month (in normal working regime). Minimum hourly rate is published on the website of the Ministry of Welfare.

Reporting about employees

Company must submit certain reports to the State revenue service.
  • The report about starting and termination of employment. If a company submits the report online, then regarding start of employment, a company must submit the report not latter than one hour before start. Regarding termination of employment, must submit report not latter than 3 working days after termination. In the report must write date of start or termination and special code (for example, for start the code is either 11 or 16). In the report regarding start of employment also must write profession (special profession code) of an employee.
  • Each month a company must submit report about salaries and related taxes (the state mandatory social contributions, persona income tax and business risk duty).
  • Once a year a company must submit cumulative report about all employees that are in employment relationships at the end of the year. In the report must write total salary and taxes for a year.

What need to take into account if Latvian company plan to employ foreigners (citizens of other countries)?

Citizens of the European Union countries and Liechtenstein, Iceland, Norway and The Swiss Confederation have rights to work in Latvia and they do not need to obtain a work permit.

If citizens of so called third countries (countries not mentioned above) want to work in Latvia, then before starting of employment must receive work permit.

What employment related documents a company (an employer) must prepare and keep at a company?

An employer must have at least following documents:
  • Employment agreements and other related agreements;
  • The time sheets;
  • The payroll (salary) calculations;
  • Internal instructions (rules) and instruction journals related with work safety;
  • Documents related with leave and disability of employees.

Working time, vacation, sickness (incapacity for work).

For employees older than 18 years normal (standard) working time must be not longer than 8 hours per day and 40 hours per week.
However if a job involves special risks, then standard working time must not increase 7 hours per day and 35 hours per week.
Before holidays duration of a working day must reduce at least for one hour.
Employees usually works 5 days per week.
An employee and an employer can agree that an employee works less hours (so called part-time job).
In certain limited cases (defined in legislation) an employer has rights to employ an employer for overtime work. The overtime work must be less than 145 hours during any 4 months and an employer must pay premium for the overtime.
If an employee works more than 2 hours in period between 22:00 and 06:00, then an employer must pay special premium for night work. Latvian legislation defines additional restrictions related with the night work.
Usually employees does not work in holidays (an employer usually has no rights to require employees to work in holidays).

An employee each year has rights to use payable vacation. Duration of a vacation must be at least 4 weeks, excluding holidays (a vacation must be extended for holidays). For the payable vacation an employer must pay to an employee the average earnings.

If an employee is sick then for the first 10 days of the sickness an employer must pay so called sick payments.

Holidays in Latvia

Holidays are defined in the legislation.
In Latvia holidays are:
  • January 1,
  • Good Friday, Easter Sunday and Easter Monday day,
  • May 1,
  • May 4,
  • the second Sunday in May,
  • Pentecost,
  • 23 June,
  • 24 June,
  • 18 November,
  • 24, 25 and 26 December and
  • 31 December.

Basis for termination of employment relationships

Legislation defines no conditions for an employee to terminate and employment agreement. An employee just need to inform an employer one month before the termination.

But an employer has rights to terminate an employment agreement only in cases defined in legislation.
Some of the most common cases are:
  • an employee without good reason significantly violated the employment contract or employment regulations;
  • an employee, when performing work, has acted illegally and therefore has lost the trust of an employer;
  • an employee, when performing work, has acted contrary to good morals, and such action is inconsistent with the continuation of employment relationships;
  • an employee, when performing work, is alcohol, drugs or toxic intoxicated;
  • an employee grossly violated labor protection rules and endangered the safety and health of other persons;
  • an employee does not have sufficient professional ability to perform the contracted work;
  • an employee is unable to perform the contracted work due to health reasons, and it is confirmed by a doctor's opinion.
To terminate an employment contract an employer must follow certain procedure.
Need to note that an employer and an employee can agree about testing time (not longer than 3 months). During the testing time and employer has rights to terminate an employment agreement without any reasons.

What additional payments a company must pay to an employee in case of termination (breach) of employment relationships. Compensation in case of termination of employment relationships.

If an employee has not used vacation then an employer must pay to an employee compensation for unused vacation.
In certain cases upon termination of an employment agreement an employer must pay the termination compensation to an employee.
The cases are:
  • an employee does not have sufficient professional ability to perform the contracted work;
  • an employee is unable to perform the contracted work due to health reasons, and it is confirmed by a doctor's opinion;
  • an employee who previously performed the work has reinstated;
  • an employer reduces the number of employees;
  • an employer liquidates.

Amount of the termination compensation equals to:
  • one month average earnings if an employee worked less than 5 years for the employer;
  • two months average earnings if an employee worked more than 5 years and less than 10 years for the employer;
  • three months average earnings if an employee worked more than 10 years and less than 20 years for the employer;
  • four months average earnings if an employee worked more than 20 years for the employer.



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