Latvia has a structured tax system based on residency and income level. Employers are responsible for withholding personal income tax and social security contributions from employees’ salaries and submitting them to the State Revenue Service.
Individuals are generally considered tax residents if they spend 183+ days in Latvia within a 12-month period, have their primary residence or centre of vital interest in the country, or are employed by the Latvian civil service. Residents are taxed on their worldwide income, while non-residents are taxed only on Latvian-sourced income.
Personal income tax: Progressive tax rates apply depending on income level:
- 25.5% on annual income up to €105,300.
- 33% on annual income above €105,300.
- Additional 3% applies to total annual income exceeding €200,000.
Withholding and contributions: In Latvia, the standard withholding rules include:
- Dividends: 0% tax if distributed from profits already subject to corporate income tax; otherwise taxed at 25.5%.
- Interest: Typically taxed at 25.5%, often withheld at source (exceptions apply).
- Capital gains: 25.5% tax rate, generally declared via annual return.
Tax allowances and non-taxable benefits:
- Employer gifts: Tax-free up to €100 per year.
- Childbirth allowance: Tax-free up to €500 per child.
- Funeral allowance: Tax-free up to €500.
- Personal vehicle use: Tax-free compensation up to €0.04/km, capped at €57 per month.
Deductions and tax reliefs:
- Personal allowance: €550 per month (€6,600 annually).
- Allowance for dependants: €250 per month per dependant.
- Non-taxable minimum for pensioners: €1,000 per month.
- Additional disability allowances: Additional annual relief depending on disability category.
