Latvia

Employment income

Monthly application of PIT by the employer

Employers are required to apply PIT rates according to monthly income thresholds, calculated by dividing the annual income thresholds by 12 as follows:

Application of PIT by individuals annually

A person whose annual income exceeds EUR 105,300 (in 2025) is required to file the annual income tax return. Mandatory filing also applies to individuals who are self-employed or need to pay additional PIT. An individual may voluntarily file a tax return to request a refund of overpaid taxes. Latvian tax authorities have introduced an automated solution for refund of overpaid PIT that came into effect on 1 January 2023 for individuals who have not filed their tax returns if certain criteria are met. Automated refund of overpaid PIT will occur only in specific cases.

Individuals are required to apply progressive PIT rates on their taxable income. In assessing the applicable rates, the entire taxable income, including applicable flat tax rates, should be counted.

From 2025, the portion of individuals’ total annual income that exceeds EUR 200,000 is subject to an additional 3% PIT rate. The rate is applicable at the time of submitting the annual tax return for the previous tax year (e.g. starting from 2026 for 2025 etc.) (for more information see section Personal income tax rates). 

For persons who pay Latvian NSIC and ST on their full income, applying the rate of 33% through the annual income tax return is a formal procedure to compensate them for the additional PIT charge at the expense of ST already paid. Consequently, the effective rate of PIT for persons paying ST on their full income is still 25.5%. Otherwise, individuals not paying NSIC and ST on their entire income are affected, since they are required to pay additional tax.

Allowances and a fixed personal allowance (FPA)

In 2025, an income-differentiated personal allowance is cancelled, and the employer is required to apply a fixed personal allowance (FPA) of 510 EUR regardless of their income level. 

For PIT purposes, the employer is still permitted to deduct the employee part of NSIC.

If a wage tax book is submitted via the Electronic Declaration System (EDS), a monthly dependent allowance of EUR 250 can be claimed for each dependent in 2025. 

In addition, a person with a recognized disability is entitled to additional tax relief as follows: 

• EUR 1,848 per year or EUR 154 per month for individuals classified under disability groups I or II; 

• EUR 1,440 per year or EUR 120 per month for individuals classified under disability group III. 

A person recognized as politically repressed or as a member of the national resistance movement is entitled to additional tax relief of EUR 1,848 per year or EUR 154 per month. 

Equity compensation

The PIT Act exempts any income arising on the exercise of stock options, provided the criteria below are met. 

• The employee has an employment contract with the company or a related company during the minimum vesting period.
• The stock option plan has a minimum one-year holding (vesting) period.
• The employer has provided the SRS with statutory information on the terms of the stock option plan within two months after the award date as required by the PIT Act.
• The company has not issued loans to the employee that have not been paid until the time of exercising the stock options.

The exercise of stock options must take place no later than six months after the termination of the employment relationship between the employee and the company in order to apply the beneficial regime.

If, at the time of exercising stock options, the individual does not have an employment contract with the entity that granted them or with a related entity (e.g. the individual is a leaver), the employer should pay NSIC out of their own pocket at the rate applicable when the employment ended.

Business income

When calculating taxable operating income, business expenses can be written off as operating expenses. 

The taxpayer’s operating loss can be offset in chronological order against taxable operating income in the next three tax years.

Capital gains

Capital gains arising from the disposal of capital assets are taxed at 25.5%. Capital assets include real estate, shares, investment fund certificates, debentures, and intellectual property.

However, income from transactions with capital assets that have been initiated but not completed by December 31, 2024, will be subject to the PIT rate of 20% in 2025, 2026, and 2027 (it required submission of the special notification form to the SRS by the end of 2024).

Real estate

Latvian tax residents (individuals) and non-residents can apply an exemption on income arising on the disposal of real estate in Latvia if:

• the real estate is held for at least 60 months and registered as the seller's primary residence for at least 12 months before the sale during a period of 60 months
• the real estate is held for at least 60 months and has been the sole real estate of the taxpayer over the 60 months before the sale, or
• income arising on the disposal of the sole real estate has been reinvested during the 12-month period after the sale into another real estate of the same function.

Dividend and interest income

Dividend income, interest income, alienation of bonds, and income from life insurance contracts and private pension funds is taxed at 25.5%. This type of income should still be reported and charged to PIT through the annual income tax return unless such income is paid by a Latvian taxpayer who has already withheld PIT at source.

A 0% PIT applies on dividends paid by a Latvian/EU/EEA company or one from any other country if there is evidence that CIT or PIT has been withheld at source. 

In any case, dividends received from tax havens will attract a 25.5% PIT. Dividends that are paid by MBT payers from profit that has been subject to CIT after 1 January 2021 would be subject to 0% PIT; otherwise, 25.5%.

From 2025, dividends would still be included in the tax base for the additional 3% PIT rate if an individual’s total income exceeds EUR 200,000 per year. 

Income from substantial participation in controlled foreign entities

Income from a substantial participation in controlled foreign entities is subject to a progressive PIT rate. This applies to Latvian tax residents that directly or indirectly hold at least 25% of a foreign entity’s equity, stock, or voting power, or are in any other manner (e.g. by contract) entitled to a substantial proportion of distributed profits or in a position to influence decisions about the foreign entity’s profit distribution policy. An exception applies to a participation in such foreign entities through a public company that is listed on an EU/EEA regulated market.