Company formation and accounting in Latvia
Last updated: 2018-03-03
Personal income tax (PIT) is a direct tax. Natural (physical) persons must pay PIT from received income.

Structure of PIT.

Tax consists of:
  • The tax on wages (salaries). The tax is applied to income, received by an employee. Employers must calculate, withhold and pay the tax to government budget.
  • The tax from income from commercial activities, if the income is not taxed with corporate (company) income tax, and the tax from other types of income. For example, a person, registered in tax authority as doing economic activities, must pay PIT.
  • The tax from income from capital, including the tax from capital gains (increase of capital). For example, in certain cases must pay PIT from income from sale of immovable property.
  • Patent (license) payments for certain types of economic activities.
  • Part of the micro - enterprise tax.
  • PIT for seasonal agricultural workers.

Who must pay PIT?

Payers of PIT are natural (physical) persons:
  • That are tax residents of the Republic of Latvia and during taxation year have received income in Latvia and/or outside Latvia.
  • That are non-residents of the Republic of Latvia and during taxation year have received income in Latvia.
  • Owners of individual enterprises, including peasant and fishermen's farms, if owners during taxation (calendar) year have received an income, that is not subject to corporate income tax.
  • Owners of companies that are registered as micro-enterprise tax payers. 30% from paid micro-enterprise tax "goes" to PIT account.

According to part 2 of article 14 of the law "On taxes and duties", a natural (physical) person is tax resident of the Republic of Latvia, if:
  • declared address is in the Republic of Latvia, or
  • a person resides in Latvia 183 days or more during any period of 12 months, if the period starts or ends in taxation (calendar) year, or
  • a person is a citizen of the Republic of Latvia and outside Latvia is employed by Latvian government.

PIT rates.

Tax rate from economic activities depends on amount of income.
  • If annual income is not higher than 20 004 euro, then tax rate is 20%.
  • If annual income is higher than 20 004, but not higher than 55 000 euro, then tax rate is 23%.
  • If annual income is higher than 55 000 euro, then tax rate is 31.4%.

Tax rate for wages, salaries.
  • 20% for monthly income that is not more than 1667 euro and employee has submitted salary book to employer.
  • 23% to part of monthly income that is more than 1667 euro. If employee has not submitted salary book to employer, then 23% must apply to total amount of monthly income.
  • If to an employee applies social insurance system of another country, then to monthly income increasing 4583 euro, must apply 31.4% rate.

For income from capital (including increase of capital) (for example, sale of immovable property etc.) must apply 20% tax rate. If Latvian company pays dividends to natural person, then Latvian company must pay company income tax 25% and in such case no obligation to pay personal income tax (so for dividends total tax rate is 25%).

If person rents some property (for example, real estate), then the person can either register in tax authority as doing economic activities, or not to register in tax authority (just inform tax authority, that rent agreement is concluded).
If a person registers in tax authority, then must apply corresponding rate (20%, 23% or 31.4%) to profit (received money, less expenses).
If a person decided not to register in tax authority, then the income from rent (less immovable property tax) is taxed by 10% rate. In such case to calculate taxable amount from income can subtract only immovable property tax.

If non-resident sales immovable property (and certain other capital) to Latvian company of natural person doing economic activities, then the company or the natural person has obligation to withhold 3% from total amount of payment for the property (capital).

Payment for intellectual property:
  • For royalty, paid to authors or performers for creation of scientific, literary and artistic works, discoveries, inventions and industrial samples - 20%.
  • For other intellectual property - 5%.

For period, that ends on 31st December, 2017.

Assets of capital. Income from capital, capital gains.

Assets of capital are:
  • Stock, capital shares, contributions in personal society and other financial instruments.
  • Certificates of contribution in investment funds and other transferable securities that confirm participation in investment funds or in certain enterprises.
  • Debt instruments (bonds, certificates of deposit, short-term debt instruments issued by commercial companies) and other financial instruments that are traded in the money markets.
  • Real estate, including the right to receive (purchase) real estate.
  • An enterprise (organizationally economic structure). An enterprise includes corporeal and incorporeal things, as well as other economic values that a merchant uses to operate the business.
  • Objects of intellectual property. For example, industrial property (inventions, trademarks, industrial design and model), works of art, protected by copyright, commercial strategy.
  • Investment gold and other precious metals, objects of transactions in the currency exchange and commodity exchange.

In relation with assets of capital there are two meanings:
  • Income from capital if the income is not capital gains. Tax rate is 10%. Some of income from capital that is not capital gains: dividends, interest, income equated dividends and interest income from payments to private pension funds.
  • Capital gains. Tax rate is 15%.

To calculate the amount of capital gains, from the amount of alienation (sale, change) of an asset of capital, must subtract purchase price and amount of all contributions (expenditures) in the asset of capital during the holding (ownership) of the asset.

How often do you have to pay the tax?

Tax from salaries (wages) an employer must pay each month, during payment salaries.
Tax on economic activities need to pay once a year (during the period from 15 March to 15 July). And also must pay advance payments (once every 3 months).
Tax from most of other incomes must pay at a certain time after the payment of the income.

Reports related to the PIT.

An employer submits a monthly report that indicates the PIT withheld from each employee.
Also an employer once a year submits a general report for the year for all employees, which on the last day of the year are in the employment relationships with the employer. In the report must specify the amount of PIT withheld for the year.
If an employer pays salary to an employee that is non-resident of Latvia, then each month must submit special report, specifying PIT for particular month.
If a natural (physical) person engages in business activities, then the person must submit annual declaration.
Merchants and some other persons, who pays certain income (for example, royalties) to individuals, must submit special report to the State revenue service.

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