Latvian residents are liable to Latvian income tax on their worldwide income.
Non-residents are liable to income tax on their Latvian-source income.
Personal income tax rates
Latvia has adopted a progressive PIT system from 1 January 2018. Unless the law provides for a different rate, the progressive rate is based on the level of annual income as follows:
- A rate of 20% applies to income up to EUR 20,004.
- Any portion of income between EUR 20,004 and EUR 62,800 attracts a rate of 23%.
- Any income over EUR 62,800 attracts a rate of 31.4%.
PIT on dividends is 20%. However, where a company has already charged its profits to CIT, there will be no PIT to pay. This applies to Latvian companies, European Union (EU)/European Economic Area (EEA) companies, and others, except for companies from tax havens and MBT payers. To zero-rate dividends for PIT, evidence of PIT or CIT paid abroad should be presented.
Before 31 December 2017, dividends attracted a 10% PIT. dividends were paid out of profits already charged to a 15% CIT, thus dividends were first charged to CIT and then to PIT.
The current regime allows a two-year period of transition, during which dividends paid out of profits appearing on the balance sheet as at 31 December 2017 may be distributed at a 10% PIT (applicable for dividends calculated until 31 December 2019). In case the dividends from the profits accumulated till 31 December 2017 are distributed on 2020 and later, the PIT at a 20% rate is applicable.
Other income from capital, including interest, also attracts a fixed PIT rate of 20%. No period of transition applies.
From 1 January 2018, the rate on income from capital gains is 20%. The methods for calculating income from capital gains remain unchanged, but the deadlines for filing the capital gains tax return have been changed.
As of 2019, the Latvian PIT Act defines cryptocurrency as a capital asset subject to the general capital gains tax rules. The only difference is the requirement to match capital gain with the capital loss from cryptocurrency to assess annual total gain or loss from the trading in cryptocurrency. Other capital assets should not be matched and can be set off against each other.
Latvian tax resident recipients of royalties are subject to progressive PIT rates, while Latvian taxpayers need to withhold a fixed rate of 20% on resident's royalties. Non-residents attract a fixed rate of 23%.
A controlled foreign company (CFC) regime has been operative in Latvia since 1 January 2013. Income from substantial participation in a CFC located in a tax haven attracts a progressive rate of PIT.
Micro-business tax (MBT)
Sole traders may apply for MBT payer status. See the Taxes on corporate income section in the Corporate tax summary for more information on MBT.
Local income taxes
There are no local taxes on income, such as municipal taxes.