Latvia Personal Income Tax

Residents are subject to Latvian personal income tax on their worldwide income. Nonresidents are subject to tax on their Latvia-source income.

Under the Latvian law, an individual is considered to be a resi­dent of Latvia if any of the following conditions are satisfied:

  • The individual’s registered (declared) place of residence is located in Latvia.
  • The individual stays in Latvia for 183 days or longer in a 12-month period beginning or ending during the tax year.
  • The person is a citizen of Latvia and is employed abroad by the government of Latvia.

In general, individuals who do not meet the above requirements are considered to be nonresidents of Latvia for tax purposes. In determining residency for tax purposes, the provisions in Latvia’s double tax treaties must be considered.

Income subject to tax. The taxation of various types of income is described below.

Employment income. Income derived from employment is taxed at a rate of 23%. Fringe benefits, including employer-provided lodging and car usage, are also taxable.

Self-employment and business income. The income of individuals engaged in self-employment activities is subject to income tax at a rate of 23%.

For purposes of determining income tax on self-employment income, taxable income equals gross income minus eligible expenses.

Beginning on 1 January 2016, the option to pay fixed personal income tax will be abolished.

Individuals performing business activities in certain specified areas (for example, florists and beauty and hair-care services) may choose to pay the fixed patent fee instead of paying per­sonal income tax and social security contributions based on the amount of income. Pensioners are allowed to pay a reduced pat­ent tax on their economic activity. The option of paying a fixed patent fee and reduced patent fee is available if certain conditions specified by the law are satisfied. The amount of the patent fee varies from EUR43 to EUR100 per month, depending on the type of business activities performed and the place where these activities are carried out. The amount of the reduced patent fee is EUR17 per year or EUR9 per half year.

Investment income. For residents and nonresidents, the following investment income is taxed at a rate of 10% as income from capital other than capital gains:

  • Dividends and income related to dividends
  • Interest income and income related to interest
  • Income from contributions in private pension funds
  • Income from concluded life insurance contracts with the accu­mulation of funds
  • Income from individual management of financial instruments according to the investor’s mandate

Directors’fees. Board members of resident and nonresident com­panies are subject to personal income tax at a rate of 23% on their directors’ fees, regardless of whether the fees are paid by Latvian-registered companies or foreign companies.

Rental income. Income from rent of own property is subject to personal income tax at a rate of 10% if the individual registers the rent agreement with the tax authorities and does not incur a sub­stantial amount of business-related expenses.

Taxation of employer-provided stock options. Under Latvian laws, employee income from employer-provided stock options is exempt from tax if the following conditions are met:

  • The holding period of the stock options is 36 months or longer.
  • During the period of holding the stock options, the employee is employed by the company (or an affiliated company) that issued the stock options.
  • The employer submits certain information required by the per­sonal income tax law to the tax authorities.

If the above-mentioned conditions are not met, income derived from the exercise of employer-provided stock options is subject to income tax at a rate of 23% (social security contributions also need to be paid). Income derived from the exercise of employer-provided stock options is calculated as the difference between the market value at the time of exercise and the acquisition value.

Income from a substantial participation in a foreign entity. Income from a substantial participation in a foreign entity that is regis­tered in a low-tax country is subject to income tax, regardless of whether the profit is distributed to the individual.

Benefit from use of company’s car. The use of an employer’s car for private purposes is considered to be a benefit to the employee that is subject to personal income tax, unless the employer has paid tax on the use of its vehicles. The amount of tax for the use of vehicles ranges from EUR29 to EUR62, depending on the vehicle’s engine capacity.

Capital gains. Capital gains are taxed at a rate of 15% in Latvia.

Capital gains equal the difference between the disposal price of a capital asset and the acquisition price of that capital asset. In the event of the liquidation of a company, the capital gains on invest­ments in share capital equal the difference between the liquida­tion quota and the investment value.

The following are considered to be capital assets:

  • Shares, investments in partnerships and other financial instruments
  • Investment fund certificates and other transferable securities
  • Debt securities (promissory notes, certificates of deposit and short-term debt instruments issued by companies) and other money instruments
  • Real estate (with certain exceptions)
  • A company within the meaning of the commercial law
  • Intellectual property
  • Investment gold and other precious metals, and transaction objects in currency trading exchanges or goods’ exchanges

Capital gains derived from the sale of real estate are not taxable if any of the following circumstances exist:

  • The individual has owned the real estate for more than 60 months, and the address of the real estate had been the per­son’s declared place of residence for at least 12 months before the sale.
  • The individual has owned the real estate since it was registered in the Land Register for more than 60 months, and the real estate had been the only real estate possessed by the individual.
  • The individual had owned only the real estate declared in the Land Register and the income from the property sale is invested in functionally similar property within 12 months after the sale of the real estate.

Sales of other types of personal property in one-off transactions that are not part of a commercial activity are not subject to per­sonal income tax.

Income, including sales income, from government promissory notes is not subject to personal income tax.

Deductions

Deductible expenses. Individuals may deduct the employees’ por­tion of social security contributions from the income reported on their tax returns. They also may deduct the employees’ portion of payments in other European Union (EU)/European Economic Area (EEA) member states that are essentially similar to social security contributions and that are determined by legislative acts of such states if the respective payments have not been deducted in the other state.

Personal deductions and allowances. Individuals may deduct the following expenses from the income reported on their tax returns:

  • Contributions to private pension funds and to life insurance schemes with the accumulation of contributions. However, the deduction for the sum of both types of contributions is limited to 10% of annual taxable income.
  • Contributions to life insurance schemes without the accumula­tion of contributions and to health or accident schemes. How­ever, both types of contributions are limited to 10% of annual taxable income but not more than EUR426.86 per year.
  • Medical expenses.
  • Expenses for professional education (together with medical expenses up to the limit of EUR215).
  • Donations to acceptable charitable organizations and govern­mental institutions of up to 20% of annual taxable income.

The total deduction for the sum of contributions to private pen­sion funds and contributions to life insurance schemes is limited to 10% of annual taxable income. The total deduction for dona­tions is limited to 20% of annual taxable income.

The current non-taxable amount is EUR75 per month. A parent may deduct EUR175 per child per month.

Beginning on 1 January 2016, the tax allowance in the amount of EUR175 cannot be applied for unemployed spouses, parents, grandparents and other family members, unless these persons have a disability status and do not receive a state pension.

Income tax paid abroad may be credited against tax payable in Latvia, up to 23% of the foreign income. The amount of the credit is limited to the amount of the tax paid on the income in Latvia.

If a Latvian resident earns employment income for work in the EU, EEA or in a country with which Latvia has entered into a double tax treaty, and if the respective income is subject to income tax in the work country, the income is non-taxable in Latvia. However, the respective individual (tax resident) must declare the foreign employment income in his or her annual per­sonal income tax return in Latvia and must attach a document issued by the foreign tax administration stating the type, amount of income received and amount of tax paid.

Personal deductions for medical and educational expenses may not be claimed by nonresidents, except for nonresidents who are residents of another EU/EEA member state and have derived more than 75% of their total income from Latvia in the tax year.

Business deductions. Costs for materials, goods, fuel and energy, salaries, rent and leases, repairs and depreciation on fixed assets, and other costs may be deducted from the taxable income of a self-employed individual.

Expenses incurred to obtain intellectual property rights are deduct­ible, subject to limits set forth in rules of the Cabinet of Ministers.

Rate. Income tax at a basic rate of 23% of taxable income applies to residents and nonresidents.

Relief for losses. Self-employed individuals may carry losses for­ward for three years.

Other taxes

Property tax. Property tax is imposed on individuals, legal enti­ties and nonresidents that possess or hold Latvian land, buildings and engineering constructions. The property tax rate, which is set by the municipalities, ranges from 0.2% to 3% of the cadastral value of land, buildings and constructions (however, see below the rates for houses and flats not used for commercial purposes). A municipality can apply a rate exceeding 1.5% of the cadastral value only if the property is not maintained in accordance with the required standards. Agricultural land that is not cultivated (except for land that has an area not exceeding one hectare and land subject to limitations on its use for agricultural activities), collapsed buildings that are environment-degrading and build­ings hazardous to personal safety are subject to 3% real estate tax. Engineering constructions that are owned by natural persons and that are not used for commercial activities and ancillary buildings (if certain conditions are met) are exempt from prop­erty tax.

The following are the property tax rates for houses and flats not used for commercial purposes:

  • 2% of the cadastral value below EUR56,915
  • 4% of the cadastral value exceeding EUR56,915 but below EUR106,715
  • 6% of the cadastral value exceeding EUR106,715

For immovable property located in Riga, the owner of the prop­erty must pay property tax at a rate of 1.5% to the municipality if no person is registered (declared) for the immovable property.

Estate and gift taxes. Estate and inheritance taxes are not imposed in Latvia. Gifts above EUR1,425 received from non-relatives are taxed as personal income. Royalties received by legal successors of deceased persons are taxable as personal income. State author­ities may impose duties on the value of inheritances at rates rang­ing from 0.125% to 7.5%.

Microenterprise tax. On meeting certain requirements, a company may apply for the microenterprise tax payment procedure. Under this procedure, the company pays microenterprise tax at a rate of 9% of turnover if the turnover is EUR100,000 or less. Effective from 1 January 2015, beginning with the fourth tax year of a company having the status of microenterprise, a 12% tax rate applies to microenterprise’s turnover if the turnover is from EUR7,000.01 to EUR100,000. The rate is increased to 20% if the turnover exceeds EUR100,000. If a turnover or the applicable tax amount does not exceed EUR50, the microenterprise must pay a tax of EUR50. The microenterprise tax payment includes corpo­rate income tax, state social insurance contributions, personal income tax and the state corporate risk duty for the employees of a microenterprise.

Effective from 1 January 2016, companies pay microenterprise tax at a rate of 13% of turnover if the turnover is from EUR7,000.01 to EUR100,000. Effective from 1 January 2017, companies pays microenterprise tax at a rate of 15% of turnover if the turnover is from EUR7,000.01 to EUR100,000.

Regarding the above rates, if amendments are introduced to the Law on State Social Insurance as of 1 January 2016, the 12% tax rate will remain. If not, the 13% and 15% tax rates will apply.

Effective from 1 January 2016, taxpayers in specified sectors of the economy cannot be treated as microenterprise taxpayers. These sectors include, but are not limited to, the following:

  • Forestry
  • Manufacturing of tobacco products
  • Manufacturing of coke and refined petroleum products
  • Manufacturing of basic pharmaceutical products and pharma­ceutical preparations
  • Manufacturing of basic metals
  • Construction of buildings
  • Civil engineering
  • Wholesale
  • Taxi services
  • Air transport
  • Telecommunications
  • Information services
  • Financial services
  • Insurance
  • Reinsurance and pension funding
  • Legal and accounting services
  • Advertising and market research services
  • Residential care

Social security

Employers and employees make social security contributions on monthly salaries at general rates of 23.59% and 10.5%, respec­tively. Foreign employees, who do not have a permanent place of residence in Latvia, but who remain in Latvia for more than 183 days in any 12-month period and who are employed by a non-EU company, pay quarterly social security contributions at a rate of 32%.

If a company from an EU/EEA member state employs citizens of Latvia, it must register with the State Revenue Service in Latvia for the purpose of social security contributions or the employee can register as a social security contribution payer. Regulation (EC) No. 883/2004 of the European Parliament and of the Council of 29 April 2004 on the coordination of social security systems applies to nationals of a member state, stateless persons and refugees residing in an EU member state who are or have been subject to the legislation of one or more of the EU member states, as well as to the members of their families and to their survivors.

Tax filing and payment procedures The tax year in Latvia is the calendar year.

Employers must withhold taxes and social security contributions on personal salary and then remit the withheld amounts to the fiscal authorities monthly on the same day the salary is paid.

Every taxpayer receives a tax code number from the fiscal author­ities. Individual taxpayers must submit an annual tax return, but they may authorize a certified auditor to submit the return on their behalf. For income received after 1 January 2015, the tax return must be filed during a period from 1 March to 1 June of the year following the tax year. If the tax payable exceeds EUR640, the tax may be paid in three equal installments, which are due on 16 June, 16 July and 16 August.

A person must declare capital gains on an annual basis (capital gains up to EUR142.30), monthly basis (capital gains exceeding EUR142.30 but not exceeding EUR711.44) or quarterly basis (capital gains exceeding EUR711.44).

Capital asset transactions beginning, but not completed, during the tax year must be declared by 1 June of the year following the tax year.

A nonresident who permanently leaves Latvia before year-end must file an annual tax declaration within 30 days after he or she stops receiving income.

Double tax relief and tax treaties

Foreign taxes paid may be credited against Latvian tax liability on the same income. The exemption method applies to income derived in Lithuania.

Latvia has entered into double tax treaties with the following jurisdictions.

Albania                        Ireland                             Qatar

Armenia                       Israel                               Romania

Austria                         India                                Russian

Azerbaijan                    Italy                                 Federation

Belarus                         Kazakhstan                      Serbia

Belgium                       Korea (South)                  Singapore

Bulgaria                       Kuwait                             Slovak Republic

Canada                         Kyrgyzstan                      Slovenia

China                           Lithuania                         Spain

Croatia                         Luxembourg                    Sweden

Czech Republic            Macedonia                       Switzerland

Denmark                      Malta                               Tajikistan

Estonia                         Mexico                            Turkey

Finland                         Moldova                          Turkmenistan

France                          Montenegro                     Ukraine

Georgia                        Morocco                          United Arab

Germany                      Netherlands                     Emirates

Greece                          Norway                           United Kingdom

Hungary                       Poland                             United States

Iceland                         Portugal                           Uzbekistan

Latvia is currently negotiating double tax treaties with Japan and South Africa.

Latvia has initialed but not yet signed tax treaties with Bosnia and Herzegovina, Cyprus, Egypt, the Hong Kong Special Administrative Region (SAR), Mongolia, Pakistan, Tunisia and Vietnam.

Latvia is negotiating with Norway regarding changes to the double tax treaty between the countries.

Entry visas

All member states of the Schengen Agreement have unified pro­cedures and conditions for issuing Schengen visas. The Schengen visa is a visa that provides to a foreigner the right to stay in Latvia and in other Schengen member states for a period indicated in the visa sticker.

Types of visas. The types of Schengen visas are described below.

Airport transit visa (Category A). An airport transit visa (Category A) may be issued for a stay in an international transit zone at the airport of a Schengen member state. An airport transit visa is required for nationals of certain countries who need to change an airplane at the airport of a Schengen member state or whose airplane lands in the airport of a Schengen member state on the way from one non-Schengen member state to another non­Schengen member state.

Short-term visa (Category C). A short-term visa (Category C) is issued for a short-term visit to Schengen member states or for transit through such states. Depending on the purpose of the visit, it may be issued for one, two or multiple entries. An entry means crossing the border between a Schengen member state and a non­Schengen member state. A foreigner holding a C visa may stay in Schengen member states for up to 90 days in a half-year period after the first crossing of the border between a Schengen member state and a non-Schengen member state.

Long-term visa (Category D). Depending on the circumstances, a foreigner who needs to stay in Latvia more than 90 days in a half-year period can apply for a long-stay visa (or a residence permit).

Visa with a limited territorial validity. If a third-country national needs to enter a Schengen member state, but circumstances for­bid such person from having a uniform visa that is valid in all Schengen member states, he or she may be granted a visa with a limited territorial validity. This means that visa is valid for enter­ing only those Schengen member states that are indicated on the visa. If a visa states that it is valid only for Latvia, a foreigner is barred from entering other Schengen member states.

Visas with limited territorial validity may be issued for transit or a short-term visit in a Schengen member state that does not exceed 90 days in a half-year period.

Rules applicable to citizens of various countries. Citizens of EU/ EEA member states and Switzerland must obtain a residence card if their stay in Latvia exceeds 90 days in a half-year period, counting from the date of entry. The following is a list of these countries.

Austria                              Greece                        Norway

Belgium                            Hungary                     Poland

Bulgaria                            Iceland                        Portugal

Cyprus                              Ireland                        Romania

Czech Republic                 Italy                            Slovak Republic

Denmark                         Liechtenstein              Slovenia

Estonia                            Lithuania                    Spain

Finland                            Luxemburg                 Sweden

France                             Malta                          Switzerland

Germany                         Netherlands                United Kingdom

Citizens of the following jurisdictions may enter and stay in Latvia for 90 days within a 180-day period without visas.

Albania (a)                      El Salvador                 Northern

Andorra                           Guatemala                  Mariana

Antigua and                     Honduras                   Islands

Barbuda                           Hong Kong                Panama

Argentina                        SAR                           Paraguay

Australia                          Israel (c)                     St. Kitts and

Bahamas                          Japan                          Nevis

Barbados                         Korea (South)             San Marino

Bosnia and                      Macau SAR               Serbia (a)

Herzegovina (a)               Macedonia (a)            Seychelles

Brazil                               Malaysia                     Singapore

Brunei                             Mauritius                    Taiwan (b)

Darussalam                     Mexico                       United States

Canada                            Monaco                      Uruguay

Chile                                Montenegro (a)          Vatican City

Costa Rica                       New Zealand              Venezuela

Croatia                             Nicaragua

a) Only for holders of biometric passports.

b) Only for holders of passports with personal identification number.

c) Does not apply to holders of a Travel Document in Lieu of National Passport.

Work and residence permits

A residence permit is required if a foreigner wants to reside in Latvia for a time period exceeding 90 days within a half year, beginning from the date of first entry. EU citizens are not required to obtain a residence permit. However, they must regis­ter and obtain a residence card or permanent residence card (with the exception of an EU citizen who works in Latvia but travels back to his or her residence country on a weekly basis).

Residency permit for non-EU citizens. Non-EU citizens can obtain five-year residency permits in Latvia, which allow unre­stricted travel within the territory of Schengen member states. An individual can apply for a residency permit if he or she makes the following investments in Latvia and complies with certain crite­ria provided by law:

  • Investment in a company
  • Purchase of real estate
  • Investing in a bank’s subordinate capital (deposit)

Family and personal considerations

Family members. Spouses and dependents of expatriates may apply jointly with the expatriate for residence permits as well as work permits. They must provide legalized copies of marriage and birth certificates to obtain Latvian visas or residence permits.

Marital property regime. The default marital property regime in Latvia is one of community property. Spouses may establish, alter or terminate their property rights by marital contract before or during the marriage. Under the community property regime, prop­erty owned by a spouse prior to marriage and property ac quired during the marriage is community property, unless specifically reserved as separate property by contract.

Forced heirship. Forced heirs in Latvia include a surviving spouse and any descendants, or the most closely related ascendants. The amount of their legal portion varies, according to the number of forced heirs surviving.

Driver’s permits. Latvia recognizes foreign driver’s licenses in accordance with the European Convention on Road Transport, including international driver’s licenses. In other cases, if a for­eign national resides in Latvia longer than 12 months, he or she must exchange the foreign driver’s license for a Latvian driver’s license. To obtain a Latvian license, the foreign national must take a driving test. Licenses issued by EU-member countries are valid in Latvia.