Individual - Significant developments

Last reviewed - 10 January 2020

Tax reform effective from 1 January 2018

As of 1 January 2018, significant changes have been made to the overall taxation of individuals, including Personal Income Tax (PIT), the National Social Insurance (NSI), and the Solidarity Tax (ST). The 2020 tax year did not bring major changes in field of individual taxation.

The main principles of taxation in 2020 can be divided into the following topics:

  • Treatment of paid employees and traders:
    • Progressive PIT rates are applied as follows:
      • A 20% PIT on income of up to 20,004 euros (EUR) a year.
      • A 23% PIT on EUR 20,004 to EUR 62,800 a year.
      • A 31.4% PIT on any income over and above EUR 62,800 a year.
    • The employer/trader is required to apply a differential personal allowance (DPA) between EUR 0 and EUR 230 in 2019, which the State Revenue Service (SRS) has forecast according to the employee’s income in the preceding period. The person may opt not to apply personal allowance on a monthly basis.
  • Income from capital and capital gains:

    • A 0% PIT on dividends from income generated after 2017 on which corporate income tax (CIT) or PIT has been withheld, while a 20% PIT on other dividends. Dividends from tax havens and micro-business tax (MBT) payers will attract a 20% PIT.
    • During a two-year period of transition, dividends paid out of profits arising before 2018 will attract a 10% PIT. From 2020 onwards, all dividends will attract a 20% PIT.
    • A single PIT rate of 20% on all types of capital income and capital gains.
  • The NSI and ST rates are divided in half between employer and employee. In 2020, the applicable standard rates are 24.09% (employer part) and 11% (employee part). Other categories of socially insured persons are also facing an increase of one percentage point as a government health tax.
  • The NSI income cap has been raised to EUR 62,800 (in 2019), with any excess gross taxable income attracting ST.
  • The ST on the slice of taxable gross income exceeding EUR 62,800 has been split between the health insurance budget, the PIT budget, and the state pension budget. This is the split as follows:
    • 1 percentage point to finance healthcare services, with 0.5 points coming from the employee’s part of ST and 0.5 points from the employer’s part of ST
    • 10.5 percentage points become PIT, and
    • the rest goes into the special budget for state pensions.
  • An additional 5% NSI should be contributed by self-employed individuals and payers of royalties:
    • The self-employed should contribute an additional 5% NSIC on the difference between their actual monthly income and NSI income (i.e. the excess).
    • A 5% NSI is payable in addition by a payer of royalty to Latvian-resident individuals (living in Latvia).