Latvia

Individual - Significant developments

Last reviewed - 19 July 2022

Tax changes introduce new type of non-taxable income as of 1 July 2022

As of 1 July 2022 Latvia has introduced an exemption from individual taxation, specificallyPersonal Income Tax (PIT), the National Social Insurance Contributions (NSIC), and the Solidarity Tax (ST) of employer paid allowance due to childbirth of EUR 250 per child, excess being taxable for individual tax purposes

In order to mitigate the effects of the COVID-19 crisis, employer expenses (capped at 30 euros [EUR] on a monthly basis) related to remote work for equipping an employer’s home office with the necessary items are treated as non-taxable income of an individual as of 2021. Other tax reliefs (except for the available tax holidays) related to mitigation of the COVID-19 crisis have not been introduced for individual taxation as of 1 July 2022.

The main principles of taxation in 2022 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 EUR 20,004 a year.
      • A 23% PIT on EUR 20,004 to EUR 78,100 a year.
      • A 31% PIT on any income over and above EUR 78,100 a year.
    • The employer/trader is required to apply a differential personal allowance (DPA) between EUR 0 and EUR 350 until 30 June 2022, increasing to EUR 500 as of 1 July 2022, which the State Revenue Service (SRS) has forecast according to the employee’s income in the preceding period. The differential personal allowance is applied proportionally up to the income not exceeding EUR 1,800 on a monthly basis. The person may opt not to apply the differential 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.
    • A single PIT rate of 20% on all types of capital income and capital gains.
  • The NSIC and ST rates are split between employer and employee. In 2022, the applicable standard rates are 23.59% (employer part) and 10.5% (employee part). 
  • The NSIC income cap has increased in 2022 (i.e. from EUR 62,800 in 2021 to EUR 78,100 in 2022), with any excess gross taxable income attracting ST.
  • The ST on the slice of taxable gross income exceeding EUR 78,100 has been split between the health insurance budget, the PIT budget, and the state pension budget.