Company formation and accounting in Latvia
Last updated: 2018-03-03

Corporate income tax (tax on company profit)

Starting from Year, 2018 effective tax rate is 25%, but company can work paying zero company income tax.
If company does not distribute profit and company has not certain types of expenses, then the company has no obligation to pay corporate income tax.
Payers are legal entities: limited liability company, joint stock company.
Taxation period is one month. If a taxpayer has taxable object (dividends, certain expenses etc.), the taxpayer submits declaration and pays the tax.
Starting from July, 2018 no advance payments.

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

Value added tax.

Standard rate - since 01/07/2012 rate is 21% (until 01/07/2012 rate was 22%)
Reduced rate - 12%
Export - 0%.

In case of delivering goods and providing services to a person registered in another EU country, the value added tax (VAT) usually must be paid by the receiver of the goods and services (VAT reverse charge).

That means, the seller (or the person providing services) does not charge VAT and does not indicate it in the tax bill (invoice).

The buyer (or recipient of services) for (on) the amount of goods (services), calculates VAT at the rate that is applicable in the buyer's (recipient of services) country.
If the received goods and services are used for transactions subject to VAT (VAT applicable transactions), then in the same VAT return, the calculated VAT at the same time is subtracted from the amount of tax payable to the governmental budget.
As a result for the transaction VAT is not payable.

But if, for example, the buyer resells the goods inside of the buyer’s country, then the buyer is obliged to charge VAT on the amount of resale.

VAT payers usually are persons that are registered in a special VAT register.

Taxation period depends on the type and the amount of transactions. In Latvia, the taxation period may be a month or three months.

Mandatory State Social Insurance Contributions

Payers are employees, employers and individuals conducting business activities ("self - employed"). The employer withholds the tax from the employee's salary and pays the tax to the governmental budget. "The self-employed" persons themselves calculates the tax from the taxable amount.

Starting from Year, 2018 the most common rate is 35.09% (during Year, 2017 the most common rate was 34.09%). Tax is applied to the salary of an employee. Smaller part of the tax must be withheld from a salary and larger part of the tax additionally pays an employer. For the "self - employed," and certain other categories of employees a different rate is applicable.

The taxable amount. In the case of salary a taxable amount is the calculated salary before taxes (gross salary). In the case of "self - employed" in most cases taxable amount is monthly profit, if it exceeds the minimum monthly salary. The minimum taxable amount in such case is at least the minimum monthly salary.

The taxation period. In the case of a salary the taxation period is a month. For the "self - employed" the taxation period is three months.

Personal income tax

Tax rates.
Starting from Year, 2018 three rates exists (20%, 23% and 31.4%). Rate in general depends on amount of income.
Tax rate for dividends (if natural person receives dividends from Latvian company) is 25% (effective rate of company income tax). A payer of dividends must pay the tax and this is the total tax payable. In comparison before Year, 2018, a company at first had to pay 15% tax for profit, then 10% tax on dividends.

The taxable amount. Starting from Year, 2018 at first from gross salary must calculate PIT according to corresponding rate. From the result must subtract 20% from social contribution payments and exemptions (privilegies). The result is PIT for payment.
In the case of economic activities the taxable amount is profit.
In the case of income from capital, the taxable amount is the sale price, minus the purchase price and minus the costs related to the income from capital.

Payers are the individuals that received the taxable income (salary, profit).

The taxation period. In the case of a salary the taxation period is a month. In the case of economic activities the taxation period is one year (but there is an obligation to pay advance payments in case of profit).

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

Immovable property tax (tax on real estate)

The tax rate is from 0.2% to 3%. In relation to housing (flats, apartments) the tax rate is from 0.2% to 0.6% depending on the cadastral value of a flat.
If a flat (house) is used for economic activities (for example, rented to some company), then tax rate is 1.5%.
In relation to a land the standard tax rate is 1.5%. The tax rate of 3% is mainly applied to agricultural land if the land is uncultivated.

Taxable amount is the cadastral value.

Tax payers are owners (legal possessors) of real estate.

Taxation period is one year. Municipality sends a notice that contains the amount and terms for tax payments.

Microenterprise Tax (micro company tax)

Starting from Year, 2018, tax rate is 15%.
Taxable object is the net turnover.
Taxpayers are persons (natural and legal persons) that are doing economic activities and are registered as payer of the microenterprise tax.
Taxation period is calendar year. But the tax must be paid every three months.

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

Comments, questions

You might be interested in:
More about company formation and taxes in Latvia