Residents may deduct the following non-business expenses:
- Compulsory NSIC (employee part) paid on income subject to Latvian PIT. NSIC is payable in Latvia and EU/EEA/Organisation for Economic Co-operation and Development (OECD) countries.
- Spending on education and medical services (including dental services and scheduled operations), donations to public benefit organisations, and donations to political parties of up to 50% of the person’s annual taxable income, capped at EUR 600 a year for each family member.
- Amounts paid by the individual during the year to an insurance company registered in Latvia or the EU/EEA of up to 10% of their total gross taxable income for the tax year are not subject to payroll taxes. The policy should mature in at least ten years.
- Contributions to private pension funds and endowment insurance at 10% of taxable income, capped at EUR 4,000.
A person planning to deduct expenses for completing their children’s interest-related programmes should consider the following factors:
- These expenses do not apply to any income a micro-business employee and owner derives from the micro-business, any borrowing treated as income, any income from capital (other than capital gains), any income from property, seasonal farm workers’ income, or any business income for which so-called 'patent fees' are paid.
- These expenses are not deductible if covered out of funds received from public benefit organisations or as a gift.
Residents and non-residents (who are residents of EU/EEA member states and earn at least 75% of their worldwide income in Latvia) can deduct these expenses from their total taxable income, except for income from capital and capital gains.
A differential personal allowance (DPA) has been in place since 1 January 2016. From 1 January 2019, the DPA varies from EUR 0 to EUR 230 a month depending on the person’s total annual taxable income.
In 2019, a EUR 2,760 DPA applies to annual incomes of up to EUR 5,280, with a EUR 0 DPA on incomes exceeding EUR 13,200. Incomes between EUR 5,280 and EUR 13,200 enjoy a DPA based on the level of income.
In 2019, the employer is required to apply a DPA forecast by the SRS to employees that have filed their wage tax book. The SRS will notify employers via the EDS twice a year (i.e. by 1 January 2019, by 1 August 2019, etc.) about forecast DPAs applicable during the next period of seven or five months. The same timing will be used for calculating and reporting the SRS’s DPA forecast in subsequent tax years.
The employer is required to apply the SRS DPA forecast for the relevant period to employees that have filed their wage tax book unless the employee has chosen to not apply the personal allowance.
In 2019, a monthly allowance of EUR 230 is available for each qualifying dependant.
From 1 July 2018, a dependant allowance is also available for a non-working spouse taking care of a minor child, subject to certain conditions.
If a person is registered as a sole trader, business expenses are deductible, provided that appropriate supporting documents are in place and the expenses do not exceed 80% of the individual’s total operating revenue.