Latvia Tax Regime

Latvia operates a distribution-based corporate income tax modelled on the Estonian system: since 1 January 2018, undistributed corporate profits are exempt from tax, and corporate income tax is charged only when profits are distributed as dividends or are deemed to be distributed. The statutory rate is 20% applied to a taxable base grossed up by dividing by 0.8, producing an effective charge of 25% on the net distribution. Personal taxation is a two-bracket progressive system with flat rates on capital income, and the regime is aligned with EU directives — Parent-Subsidiary, Interest-Royalties and the Anti-Tax-Avoidance Directives — as well as OECD treaty and transfer-pricing standards. Latvia has elected the EU deferral for the Pillar Two charging rules, so no domestic income inclusion or undertaxed profits rule applies for 2026. Administration is fully electronic through the State Revenue Service.

1.1 Sources

Primary legislation includes the Corporate Income Tax Act (Uzņēmumu ienākuma nodokļa likums), the Personal Income Tax Act, the VAT Act, the Micro-business Tax Act, the State Social Insurance Act and the Taxes and Duties Act.

1.2 Recent developments

From 1 January 2024, credit institutions and consumer-credit providers pay an annual 20% corporate tax surcharge irrespective of distributions, computed on prior-year financial results and creditable against tax on subsequent distributions. From 2025 through 2027, Latvian banks and branches of foreign banks additionally pay quarterly solidarity contributions of 60% on the portion of net interest income exceeding 150% of the 2018–2022 average, with relief of up to 100% linked to credit-issuance growth. From 1 January 2026, companies whose direct shareholders are exclusively individuals may opt into an alternative distribution regime: distributable profits are divided by 0.85 and taxed at 15% corporate income tax, with 6% personal income tax withheld from the amount paid — designed so foreign individual shareholders can credit the personal tax at home. Personal income tax was consolidated from 2025 into two brackets (25.5% and 33%) with an additional 3% charge on very high incomes, and the capital-income rate moved to 25.5%.

Headline statutory corporate income tax rate for a resident company. Where sub-national (state, provincial, cantonal or municipal) corporate taxes apply, the combined rate reported by the OECD is shown. Projected 2026–2028 rates carry the current rate forward unless a change is already enacted or officially scheduled. As-of 2026.

Top marginal statutory personal income tax rate on employment income for a resident individual. Where sub-national (state, provincial, cantonal or municipal) income taxes are a standard part of the system, the combined top rate is shown. Projected 2026–2028 rates carry the current rate forward unless a change is already enacted or officially scheduled. As-of 2026.

2.1 Rates and residence

Companies are Latvian tax residents if they are incorporated (registered) in Latvia; residents are taxable on distributed profits from worldwide income, while Latvian-registered permanent establishments of non-residents are taxed on distributed profits from Latvian-source income. Retained profits — active income, passive income and capital gains alike (other than gains of non-residents on Latvian immovable property) — bear no current tax. On distribution, corporate income tax of 20% applies to the taxable base after dividing the net amount by a coefficient of 0.8, i.e. an effective 25% on the net dividend (equivalently 20% of the grossed-up amount). The tax period is the calendar month, and tax is self-assessed through monthly returns filed only when a taxable object arises.

Distributions embrace dividends (including interim dividends), payments equivalent to dividends by cooperatives, sole traders, partnerships and permanent establishments, and deemed dividends such as reductions of share capital previously increased out of retained earnings. From a Latvian perspective the charge is a corporate income tax rather than a withholding tax, so it is not reduced by double tax treaties.

2.2 Dividends and participation exemption

The distribution model has a built-in pass-through: dividends received by a Latvian company from a payer that has itself borne Latvian corporate income tax, or from a foreign company that has paid income tax in its residence state (or suffered withholding), can be on-distributed without a further Latvian charge. The exemption does not apply to dividends received from entities in listed low-tax or no-tax jurisdictions. Because undistributed capital gains — including gains on shares — are simply outside the charge, Latvia functions as an attractive holding location; gains on shares held for at least 36 months can also reduce the taxable base on distribution.

2.3 Income determination and deemed distributions

Because retained profits are exempt, the tax base is defined by distributions and by a catalogue of deemed distributions that police the border between business and non-business use of corporate funds. Deemed distributions include non-business expenses, bad debts, excess interest payments, loans to related parties (with exclusions), transfer-pricing adjustments, surplus assets on liquidation, benefits given by a non-resident to employees of its Latvian permanent establishment, assets transferred abroad and hybrid-mismatch outcomes. Representation and staff-sustainability costs are tax-free within a cap of 5% of the prior year's gross wage bill. Bad debts must generally be recovered within 36 months of provisioning (60 months for certain insolvency cases and IFRS 9 provisions with audit and traceability safeguards) or added to the base. Related-party loans are taxed as distributions unless an exclusion applies — for example parent-to-subsidiary loans, loans of up to 12 months, or loans within retained-earnings and capital limits; 'related party' includes a 20% shareholding.

2.4 Interest limitation

Excess interest is a deemed distribution. For interest of up to EUR 3 million per year only a debt-to-equity test applies: interest on debt exceeding a 4:1 debt-equity ratio is added to the tax base. Where interest payments exceed EUR 3 million, a second, ATAD-style test also applies, adding interest above 30% of tax EBITDA. Credit institutions and certain financial-sector borrowers are outside parts of the rules, and borrowings from credit institutions in the EEA and treaty states benefit from exclusions.

2.5 Losses

The distribution model has no annual taxable-profit computation, so there is no loss carryforward or carryback in the conventional sense: losses simply reduce the pool of profits available for future distribution, deferring tax automatically and indefinitely. The transitional credit that allowed pre-2018 accumulated losses to offset up to 15% of tax on dividends expired for tax periods after 2022. Provisions made before 2018 continue to unwind under transitional rules that reduce the taxable base when they are used or reversed.

2.6 Group taxation

There is no fiscal consolidation or group relief — each company is taxed stand-alone on its own distributions. In practice the dividend pass-through performs much of the work of a group regime: profits can move up a Latvian chain without additional tax, and losses of one group company naturally defer that company's own distribution charge. Related-party status (20% common shareholding and other criteria) matters chiefly for the deemed-distribution rules on loans and for transfer pricing.

2.7 Controlled foreign companies

ATAD-based CFC rules attribute to a Latvian taxpayer the profits of a controlled foreign entity or permanent establishment that arise from non-genuine arrangements put in place essentially to obtain a tax advantage, where the Latvian company performs the significant people functions. Attribution is not required for CFCs with modest profits and non-trading income below de-minimis thresholds, except that income of entities in listed low-tax or no-tax jurisdictions is attributed without those reliefs. Attributed amounts enter the taxable base as a deemed distribution.

2.8 Transfer pricing

Latvia follows the arm's-length principle in line with OECD Transfer Pricing Guidelines, and transfer-pricing adjustments are taxed as deemed distributions. Three-tier documentation applies: a country-by-country report for groups with consolidated revenue of EUR 750 million or more, and master file and local file obligations scaled to the Latvian entity's turnover and the volume of related-party transactions — broadly, documentation must be prepared, and in the larger tiers filed with the State Revenue Service within 12 months of year-end, once controlled transactions exceed statutory thresholds (local-file duties begin in the hundreds of thousands of euros of annual related-party flows). Advance pricing agreements are available for significant related-party transactions, and penalties apply for missing or non-compliant documentation.

2.9 Incentives

Special economic zones (Liepāja and Rēzekne) and the free ports of Riga and Ventspils offer licensed companies rebates of up to 80% of corporate income tax on distributed profits and of real estate tax, within EU regional-aid intensity ceilings tied to qualifying investment. A tonnage-tax regime is available for shipping. Start-ups meeting venture-capital funding criteria can elect a flat payroll-tax regime with relief from employer contributions. Beyond these, the headline incentive is structural: indefinite deferral of tax on reinvested profits, which operates as a full reinvestment relief for growing businesses. Donations to public-benefit organisations attract limited relief against the distribution charge.

2.10 Pillar Two

Latvia transposed the EU global minimum taxation directive using the derogation for member states with few in-scope parent entities: the income inclusion rule and undertaxed profits rule are deferred (broadly until end-2029), and Latvia has not introduced a domestic top-up tax for 2026. Latvian constituent entities of groups with consolidated revenue of EUR 750 million or more remain within the scope of foreign charging rules, so a Latvian subsidiary's low effective rate — a natural feature of the distribution model when profits are retained — can generate top-up tax collected by parent jurisdictions applying the income inclusion rule. In-scope Latvian entities have notification and information-exchange obligations, and groups should model the interaction between retention-driven deferral and parent-level top-up.

2.11 Branch income and reorganisations

A registered Latvian permanent establishment of a foreign company applies the same distribution model to Latvian-source profits: tax arises when profits are transferred to, or benefits are provided for, the head office or its employees, at the same 20%/0.8 mechanics, and there is no separate branch remittance tax. Cross-border mergers, divisions and contributions within the EU benefit from Merger Directive relief so that qualifying reorganisations do not of themselves trigger the distribution charge, provided assets remain connected with a Latvian taxable presence; assets transferred abroad outside such protection are deemed distributions, operating as the exit-tax mechanism.

3.1 Residence and rates

Individuals are Latvian tax residents if their declared place of residence is in Latvia, they are present for 183 days or more in any 12-month period, or they are Latvian citizens employed abroad by the state. Residents are taxed on worldwide income, non-residents on Latvian-source income. From 2025 employment and other general income is taxed in two brackets: 25.5% on annual income up to EUR 105,300 and 33% on the excess, with an additional 3% assessed through the annual return on total income above EUR 200,000 (including otherwise flat-taxed capital income). A fixed non-taxable minimum (EUR 510 per month in 2025, indexed thereafter) applies at source for all employees, alongside allowances for dependants and pensioners.

3.2 Capital income and real estate

Capital income — dividends, interest and gains on the disposal of capital assets including shares, securities and real estate — is taxed at a flat 25.5% from 2025. Dividends from Latvian companies that have borne the distribution-based corporate tax, and from foreign companies that have paid income tax or withholding abroad, are exempt in the individual's hands, so corporate profits are generally taxed only once. Gains on a primary residence held and registered as such for the statutory period are exempt, as are certain reinvested proceeds. Rental income can be taxed at a reduced flat rate on gross receipts (10%, without deductions) where the activity is registered under the simplified regime, or at general rates net of expenses.

3.3 Social security and payroll

Mandatory state social insurance contributions total 34.09% of gross salary in the standard case — 23.59% employer and 10.50% employee — up to the annual cap aligned with the top of the first income tax bracket (EUR 105,300). Above the cap, a solidarity tax applies at an effective 25%, collected through the contribution mechanism and partly recharacterised toward pensions and the personal income tax system. Employers withhold wage tax and contributions monthly and remit them through the unified tax account by the 23rd of the following month. The 25% micro-business tax can cover an owner-operator's tax and contributions on small turnover, but employees of a micro-business are taxed under the standard payroll rules.

3.4 Inbound individuals and other charges

Latvia levies no net wealth tax and no inheritance or gift tax as such, although gifts from non-relatives above thresholds are taxable as income and real estate transfers bear stamp duty. Non-residents are taxed on Latvian employment, director and property income, with EU-resident individuals able to claim allowances where most of their income is Latvian. Board members can face deemed-salary rules where an active company pays no remuneration. Cross-border teleworkers and posted employees are governed by EU social security coordination and treaty tie-breakers; relief for foreign tax is available by credit under domestic law and treaties.

Because the corporate charge attaches to the distributing company, Latvia levies no withholding tax on dividends, interest or royalties paid to non-resident companies in the ordinary case — the significant exceptions being payments to persons in listed low-tax and no-tax jurisdictions, which attract 20%. Withholding applies to management and consulting fees paid to non-residents at 20% (typically eliminated under treaties), to proceeds from the disposal of Latvian real estate — and of shares in real-estate-rich companies — at 3%, and to rentals of property in Latvia at 5%. Latvia's network of some 60 income tax treaties and its ratification of the multilateral instrument (with the principal-purpose test) frame relief; residence certificates are required for treaty rates at source.

The 20% charge on payments to listed jurisdictions is a genuine anti-avoidance backstop and applies broadly to payments of dividends, interest, royalties and most other remittances to entities in the listed territories, subject to advance clearance in bona fide commercial cases. Because ordinary outbound flows are withholding-free, structuring attention shifts to the payer side: deductibility is not the operative concept, but excess interest, non-arm's-length pricing and related-party loans all convert into deemed distributions taxed at the corporate level, so payment flows must be analysed under the distribution rules rather than a withholding matrix.

5.1 General anti-abuse and hybrids

The Taxes and Duties Act contains a substance-over-form general anti-abuse rule, reinforced by the ATAD GAAR disregarding non-genuine arrangements whose main purpose is a tax advantage. Hybrid-mismatch rules neutralise deduction/non-inclusion and double-deduction outcomes by adding the mismatch amount to the corporate tax base as a deemed distribution, covering hybrid instruments, hybrid entities, permanent-establishment mismatches and imported mismatches. Treaty benefits are subject to the principal-purpose test under the multilateral instrument, and the State Revenue Service scrutinises beneficial ownership and substance before granting relief at source.

5.2 Exit taxation and disclosure

Exit taxation operates through the deemed-distribution rules: assets transferred abroad from a Latvian company or permanent establishment without remaining connected to the Latvian tax net are taxed as distributions at fair value, with EU/EEA instalment options consistent with ATAD. DAC6 mandatory disclosure applies to cross-border arrangements bearing the prescribed hallmarks, DAC7 imposes digital-platform reporting, and public country-by-country reporting applies to large multinationals under the EU directive as transposed. Latvia participates in CRS/DAC2 automatic exchange, and the listed-jurisdiction rules track the EU list of non-cooperative jurisdictions.

6.1 VAT

VAT follows the EU VAT Directive with a standard rate of 21% and reduced rates of 12% (pharmaceuticals, medical devices, domestic heating, accommodation, domestic passenger transport and basic foodstuffs, including fresh fruit, berries and vegetables and, from 1 July 2026, bread, milk, poultry meat and eggs) and 5% (books and press publications, in printed and electronic form, including subscriptions). Registration is mandatory once domestic taxable turnover exceeds EUR 50,000 in a calendar year, with voluntary registration below. Returns are filed monthly (quarterly for the smallest taxpayers) through the electronic declaration system by the 23rd of the following month, with payment by the same date; intra-EU trade, reverse charges — including domestic reverse charges for construction, timber, scrap metal and electronics — and the OSS/IOSS schemes follow the EU framework. Input VAT is recoverable for taxed activities, with capital-goods adjustment periods of up to ten years for immovable property.

6.2 Transaction, payroll and other taxes

Real estate tax is levied annually by municipalities at 0.2%–3% of cadastral value (the standard band for commercial property is 1.5%, residential 0.2%–0.6%, with higher rates for derelict buildings and municipal discretion within limits). Registering title to real estate attracts state (stamp) duty of up to 2% of the higher of price or cadastral value, capped for corporate acquirers. Excise duties apply to fuel, alcohol, tobacco, e-liquids and natural gas; a natural resources tax prices extraction, packaging and environmentally harmful goods; vehicle operation and company-car taxes apply, the latter covering private use of employer vehicles in lieu of a benefit-in-kind charge. A lottery and gambling tax, bank levies described in section 1.2, and electricity tax complete the picture. There is no net wealth tax.

7.1 Filing, assessment and audit

The corporate tax period is the calendar month: a return is filed through the State Revenue Service's electronic declaration system (EDS) by the 23rd of the following month whenever a taxable object (distribution or deemed distribution) arises, with tax payable into the unified tax account by the same date; a return for the final month of the financial year is filed in any case, effecting annual true-ups such as the representation-expense cap. There are no advance corporate tax payments. Audits are risk-scored and data-driven — Latvia makes extensive use of e-invoicing, cash-register data and the wage-reporting system — and the general assessment window is three years from the statutory payment date, extended to five years for transfer-pricing matters.

7.2 Rulings, appeals and penalties

Taxpayers can obtain binding advance rulings on the application of tax law to specific facts, and advance pricing agreements for major related-party transactions. Disputes are first appealed to the Director-General of the State Revenue Service within 30 days, then to the administrative courts (district court, regional court and the Supreme Court's Administrative Cases Division); EU-law questions may be referred to the Court of Justice. Late payment attracts interest of 0.05% per day; penalties scale with the underpayment and culpability, and can double for repeated or obstructive conduct, while cooperative disclosure and the taxpayer-rating system materially mitigate. Mutual agreement procedures and EU arbitration are available for treaty double taxation.

Because the unified tax account consolidates almost all taxes into a single monthly payment date, cash-flow planning is simple but unforgiving: a single missed 23rd-of-month payment covers several taxes at once and immediately starts late-payment interest. Companies distributing dividends late in a month should note that the corporate tax falls due within weeks, whereas retained profits generate no liability at all.

9.1 Entity choice

The SIA (limited liability company) is the standard vehicle, with minimum share capital of EUR 2,800 and a low-capital variant available from EUR 1 for small founders; the AS (joint-stock company) with EUR 35,000 minimum capital suits capital-markets ambitions. Both are taxed identically under the distribution model. Partnerships are transparent, with profit shares taxed as distributions or personal income depending on the partner. A registered branch (permanent establishment) of a foreign company enjoys the same retention exemption on Latvian profits with no remittance tax, making branch and subsidiary broadly equivalent in ongoing tax terms; micro-business tax status (25% on turnover) suits only the smallest owner-operated activities.

9.2 Structuring and incentives

The central planning lever is timing: tax arises only on distribution, so reinvested profits compound gross, and groups can bank profits in Latvia tax-free until shareholders need cash. Holding structures benefit from the dividend pass-through, the exemption of retained capital gains and the absence of outbound withholding, though the 20% charge on payments to listed jurisdictions and the CFC and hybrid rules police the edges. Debt funding must respect the 4:1 debt-equity ratio and, above EUR 3 million of interest, the 30% EBITDA test, and related-party loans need to fit an exclusion or they are taxed as distributions. Zone operators should layer the up-to-80% SEZ/free-port rebate; from 2026, wholly individual-owned companies should model the alternative 15% + 6% regime against the standard 20%/0.8 charge, particularly for non-resident shareholders seeking home-state credits.

9.3 Worked effective-rate illustration

A Latvian SIA earns pre-tax profit of EUR 1,000,000 in its 2026 financial year. If the profit is retained, corporate income tax is EUR 0 and the full EUR 1,000,000 is reinvested. If the company instead applies its entire EUR 1,000,000 to a distribution under the standard regime, the net dividend D satisfies D + 0.25 × D = 1,000,000, so D = EUR 800,000 and corporate tax is 800,000 / 0.8 × 20% = EUR 200,000 — an effective 20% of pre-tax profit (25% of the net dividend). A resident individual shareholder pays no further tax, since taxed distributions are exempt from personal income tax. Under the 2026 alternative regime for wholly individual-owned companies, the same EUR 1,000,000 supports a declared dividend of EUR 850,000: corporate tax is 850,000 / 0.85 × 15% = EUR 150,000, personal income tax withheld is 6% × 850,000 = EUR 51,000, and the shareholder receives 850,000 − 51,000 = EUR 799,000. Total tax of 150,000 + 51,000 = EUR 201,000 (20.1%) is almost identical to the standard regime's EUR 200,000, but EUR 51,000 of it is a creditable personal tax — the regime's point for cross-border shareholders.

9.4 Compliance

Expect fully electronic administration through EDS, monthly payroll and VAT cycles, and structured e-invoicing obligations being phased in for business-to-business transactions. Annual financial statements are filed electronically and shared automatically with the tax authority; transfer-pricing documentation applies above the thresholds in section 2.8; DAC6 monitoring is needed for cross-border arrangements; and the beneficial-ownership register requires up-to-date filings. Groups within Pillar Two scope face notification duties in Latvia and data requests from parent jurisdictions applying the income inclusion rule, notwithstanding Latvia's deferral of the charging rules.