Company formation and accounting in Latvia
Last updated: 2016-01-23
In December 2015, the Parliament of the Republic of Latvia adopted the various changes related to taxes. This page contains information about the most common taxes.

Personal income tax.

Unfortunately, despite promises, the tax rate remains the same - 23%.

In 2016 a differentiated non-taxable minimum is introduced, and the non-taxable minimum depends on income (the greater income, the less not taxable minimum). However, calculating the salary, the amount of non-taxable minimum is the same as in 2015, that is 75 euro per month.
Employee - natural person has the right to submit the annual declaration to the State revenue service and to apply appropriate not taxable minimum.
If an employer during a year from salary has withheld greater amount of tax than tax, calculated in annual declaration, then government will return the overpaid tax.
The maximum amount of non-taxable minimum is 100 euro per month. The maximum non-taxable minimum is applicable if salary is less than 380 euros per month.
The minimum non-taxable minimum is applicable if salary exceeds 1,000 euros per month.
How much an employee with salary of 380 euros per month "win" of taxes, to compare to an employee with salary 1,001 euros per month? Answer is 69 euros per year:) Maximum annual non-taxable minimum is 1,200 euros per year, and the minimum, - 900 euros per year. The difference is 300 euros. And 23% percent (income tax rate) from EUR 300, is 69 euros.

The amount of allowance for dependents increased up to 175 euros per month. However, allowance for dependents will be used only:
  • For minors.
  • For children that receive professional, higher and special education, but not longer than until 24 years.
  • For children and grandchildren taken on breeding if it is not possible to recover alimony from their parents. But it is possible to apply the allowance only until children and grandchildren receive professional, higher and special education, but not longer than until 24 years.
  • In certain cases, for a brother and sister.
  • For the person in custody and guardianship.
  • In certain cases, for the spouse, parents, grandparents and children with disabilities.

The state social insurance mandatory contributions (the social tax).

The basic rate (35.09%) remains the same. Taxable object is salary before taxes. And employer deducts 10.50% from the employee's salary and 23.59% an employer must pay additionally.

Starting from 2016 year the parliament adopted the so-called solidarity tax. The tax applies to those employees whose salary is greater than 48,600 euros per year.

Until 2016, employees with higher salaries, could receive from the government a certain amount overpaid social tax. Starting from 2016, employees loose such rights.
Part of the social tax is used for old-age pensions. But amount of the social tax for salary exceeding 48,600 euros per year will not increase the pension capital of an employee. This amount will increase the basic budget of Latvia and will be used for other purposes.

Value added tax (VAT)

VAT rate remains the same (the basic rate - 21% reduced rate - 12%).
Some of legislation changes are following:
  • Since 01 January, 2016 the parliament has expanded the list of transactions with lumber, to which applies the special tax regime. The special tax regime applies also to transactions with firewood, wood chips, sawdust and wood waste.
    The special regime works in the following way. If a seller (service provider) sells goods or provides services to person without VAT number, then must add VAT to the price.
    If a buyer (service receiver) has Latvian VAT number, then a seller (service provider) does not add VAT to the price. A buyer (service receiver) in the VAT declaration charges (calculates) VAT on the price and in the same VAT declaration reduces payable VAT amount, if the transaction is necessary to ensure other transactions, subject to VAT.
    The above mentioned regime is also called "the reverse charge of VAT".
  • Starting from 01 April, 2016 the reverse charge of VAT also must apply to sales of mobile phones, tablet computers, laptops, and devices of an integrated circuit (including a microprocessor and a central processing unit).
  • Starting from 01 July, 2016 need to apply VAT to costs of maintenance of residential buildings.
  • Only by 50% from VAT for expenses can reduce payable VAT in case if expenses are related with majority of cars. There are some exceptions from the rule. For example, a company can reduce payable VAT by 100% from VAT for expenses if a car is used only for transactions subject to VAT.

Taxes related to vehicles.

The parliament increased the tax for the operation of trucks with a gross weight up to 12 tons.
For example, if total weight of a truck is from 2601 to 3500 kg., then amount of the tax for 2016 is 219 euros (increases by 116.55 euros).

The parliament also increased the tax on cars used in enterprises.
Enterprises must pay the tax for passenger cabs.
But the tax is reduced for electro cars.

The tax on micro enterprises.

In 2016, the tax rate does not change, and is 9% of net turnover.

The excise tax.

The parliament increased tax rates on gasoline, diesel fuel, alcoholic beverages and tobacco.

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