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.
- Contributions to private pension funds and endowment insurance (the policy should mature in at least ten years) 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 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 July 2022, the DPA varies from EUR 0 to EUR 500 a month depending on the person’s total annual taxable income.
In 2023, the DPA is applied to all monthly income not exceeding EUR 1,800.
In 2023, 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 2023, by 1 August 2023, 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 2023, a monthly allowance of EUR 250 is available for each qualifying dependant.
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 fully deductible, provided that appropriate supporting documents are in place. The previous limitation providing for the expense usage restriction up to 80% of the individual’s total operating revenue is no longer in force following the Constitutional Court decision.