Latvia

From January 1, 2025, a package of changes to the application of personal income tax (PIT) has been implemented in Latvia. The main changes include revised PIT rates, a single fixed personal allowance replacing the income-differentiated personal allowance, and an additional 3% PIT rate on the portion of total annual income exceeding EUR 200,000, among other relevant adjustments. 

The special royalties regime has been extended until the end of 2027. Under this regime, individuals who are not registered as self-employed and receive payments classified as royalties will continue having 25% withheld from their gross royalties by the payer.

The main principles of taxation for individuals in 2025 can be divided into the following topics:

• Treatment of paid employees and traders:
  • Progressive PIT rates are applied as follows:
    • A 25.5% PIT on income of up to EUR 105,300 per year.
    • A 33% PIT on income above EUR 105,300 per year.
  • In 2025, the income-differentiated personal allowance is replaced by the fixed personal allowance (FPA) of EUR 510 which is applicable to taxpayers regardless of their income level. In 2026, the FPA will be increased to EUR 550 and to EUR 570 in 2027. 
  • Individuals receiving an age or disability pension are entitled to the FPA of EUR 1000. If such individuals are employed, there is the option to apply the FPA proportionally, allocating EUR 500 each to earned income and pension income separately. 

• 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 25.5% PIT on other dividends. Dividends from tax havens will attract a 25.5% PIT.
  • A single PIT rate of 25.5% on all types of capital income and capital gains.
• From 2025, an additional 3% PIT rate has been introduced for the portion of an individual's total income that exceeds EUR 200,000 per year. The tax base includes employment remuneration, income from capital and capital gains, dividends from domestic or foreign companies on which CIT or PIT (or relevant tax) has been withheld, and other sources of income. The additional rate will be applied at the time of submitting the annual tax return for the previous tax year.   
• The National Social Insurance Contributions (NSIC) and Solidarity Tax (ST) rates are split between employer and employee. In 2025, the applicable standard rates are 23.59% (employer part) and 10.5% (employee part).
• In 2025, the NSIC income cap has been increased from EUR 78,100 to EUR 105,300, with any excess gross taxable income attracting ST.
• The ST on the slice of taxable gross income exceeding EUR 105,300 has been split between the health insurance budget, the PIT budget, and the state pension budget.