This Latvia tax guide covers the rules in force from 1 January 2026. Latvia charges no corporate income tax on retained or reinvested profit — tax falls due only on distribution, at 20% of the gross amount. Personal income tax runs at 25.5% up to €105,300 (~$123,200) and 33% above it, with a 3% surcharge over €200,000 (~$234,000). There is no wealth tax, no inheritance tax and no exit tax. From January 2026 individually-owned companies can elect a 15% corporate rate with 6% withholding at shareholder level.
Introduction
Latvia is a Baltic state of roughly 1.85 million people on the eastern edge of the European Union, bordered by Estonia, Lithuania, Russia and Belarus, with Riga — the largest city in the Baltics — as its capital and financial centre. It has been in the EU and NATO since 2004, Schengen since 2007, the eurozone since 2014 and the OECD since 2016, giving full single-market access and the euro. The legal system is continental civil law, built on the restored 1937 Civil Law; Latvian is the official language, Russian is widely spoken and English is standard in professional services. The climate is humid continental — cold winters, mild summers — and prices sit well below the EU average, with Riga among the cheaper EU capitals for housing and professional fees. Latvia has 64 double tax treaties in force.
This Latvia tax guide matters because the country runs one of Europe’s few genuinely deferred corporate tax systems: since 1 January 2018 profits are not taxed at all until they leave the company, which lets a trading or holding business compound retained earnings at a 0% annual cost. Against that, individuals face a heavier load — a 25.5%/33% progressive scale, a flat 25.5% on most capital income and social contributions of 34.09% on employment income. Two reforms shape the current position: the personal income tax overhaul in force from 1 January 2025, which replaced the old 20%/23%/31% bands and the sliding allowance, and the alternative corporate regime in force from 1 January 2026, under which a company owned solely by individuals may elect 15% corporate tax plus a 6% shareholder withholding instead of the standard 20%.
Direct Taxes
Latvian tax residents are taxed on worldwide income; non-residents only on Latvian-source income. An individual is resident if they have a declared (registered) place of residence in Latvia, spend 183 days or more in Latvia in any 12-month period, or are a Latvian citizen employed abroad by a Latvian-registered employer — the first limb catches people who register an address without ever hitting the day count. A company is resident if incorporated in Latvia; foreign companies are taxed on Latvian-source income and on profits attributable to a Latvian permanent establishment. The signature regime — and the key concept for any investor looking at Latvia — is the deferred corporate income tax: there is no annual taxable profit computation at all, and the tax point is distribution rather than earnings.
Personal income tax (2026 bands)
| Chargeable income (EUR, USD) | Rate |
|---|---|
| Up to €105,300 (~$123,200) per year — €8,775 (~$10,270) per month | 25.5% |
| Above €105,300 (~$123,200) per year | 33% |
| Total annual income above €200,000 (~$234,000) | +3% surcharge, settled on the annual return |
| Capital income — interest, capital gains, most dividends | 25.5% (flat, outside the scale) |
These bands took effect on 1 January 2025 and are unchanged for 2026; they replaced a three-band 20%/23%/31% structure and the old income-dependent personal allowance. The allowance is now a fixed non-taxable minimum of €550 (~$640) per month, or €6,600 (~$7,700) a year, up from €510 (~$600) monthly in 2025 and scheduled to rise to €570 (~$670) in 2027; pensioners get €12,000 (~$14,000) a year, and there is a dependant allowance of €250 (~$290) per month. The 3% surcharge is not withheld at source — it is assessed on the annual return for the previous year.
Corporate income tax
| Item | Rate |
|---|---|
| Retained or reinvested profit (since 1 January 2018) | 0% |
| Standard CIT on distributed profit — base grossed up ÷0.8 | 20% (25% of the net amount paid) |
| Elective regime for companies owned only by individuals (from 1 January 2026) — base grossed up ÷0.85 | 15% + 6% PIT on the shareholder |
| Surcharge on credit institutions and consumer lenders (from 1 January 2024) | 20% of pre-tax profit |
| Withholding — management and consultancy fees to non-residents | 20% (0% under most treaties) |
| Withholding — rent of Latvian immovable property | 5% |
| Withholding — disposal of Latvian immovable property | 3% |
| Withholding — payments to listed low-tax jurisdictions | 20% |
| Withholding — dividends, interest and royalties (ordinary cases) | 0% |
Because there is no annual profit computation, Latvia has no tax depreciation schedules and no loss carry-forward — there is nothing to carry. Tax is triggered by actual dividends and by conditionally distributed profits: non-business expenses above 5% of gross wages, doubtful debts, non-arm’s-length related-party loans, transfer pricing adjustments and liquidation quotas. Dividends received from Latvian or foreign companies are excluded from the base under a broad participation exemption — except from blacklisted jurisdictions or artificial arrangements — and gains on direct shareholdings held 36 months or more can be set against the distribution base. On Pillar Two, Latvia has implemented only the reporting obligations of Council Directive (EU) 2022/2523 and deferred the income inclusion rule and undertaxed profits rule until 31 December 2029, so groups below the €750 million (~$878m) revenue threshold are unaffected and in-scope groups face no Latvian top-up tax before 2030.
Social security and health contributions
| Contribution | Employee | Employer | Self-employed |
|---|---|---|---|
| Mandatory state social insurance (standard) | 10.50% | 23.59% | 31.07% on the chosen base |
| Combined employed rate | 34.09% | ||
| Reduced rate (person at retirement age) | 9.25% | 20.77% | 29.36% |
| Additional pension contribution on income above the chosen base | — | — | 10% |
| Solidarity tax on income above the ceiling | effective 25% |
The annual contribution ceiling is €105,300 (~$123,200) — the same figure as the top income tax band. Income above it does not escape: it attracts solidarity tax at an effective 25%, split one percentage point to healthcare, ten points routed through personal income tax and the balance to state pensions. Self-employed people choose their own base, but it cannot fall below the minimum wage — raised to €780 (~$910) a month for 2026 from €740 (~$870), i.e. €9,360 (~$10,950) a year — and they pay a further 10% pension contribution on income above that base. One percentage point of the headline rate funds state healthcare and gives access to the public system.
Indirect Taxes
Latvia applies the EU VAT Directive, administered by the State Revenue Service (VID). VAT is by far the largest indirect tax and the main compliance burden for any business selling into or from Latvia.
Value-added tax (VAT)
| Rate | Applies to (examples) |
|---|---|
| 21% (standard) | Most goods and services |
| 12% (reduced) | Medicines and medical devices, specialised infant food, public transport within Latvia, tourist accommodation, fresh fruit, berries and vegetables |
| 12% (temporary pilot, 1 July 2026 – 30 June 2027) | Bread, fresh milk, fresh chilled poultry meat and poultry eggs — previously 21% |
| 5% (reduced) | Books, press and educational publications — from 1 January 2026 only in Latvian, Latgalian, Livonian or an official language of the EU, EEA, Switzerland, an EU candidate country or an OECD member |
| 0% (zero) | Exports, intra-EU supplies, international transport |
The registration threshold is €50,000 (~$58,500) of taxable supplies in 12 months; non-established businesses register from their first taxable supply, and the EU-wide €10,000 (~$11,700) distance-selling threshold applies with One Stop Shop reporting. The narrowing of the 5% publications rate by language and the one-year food pilot are the only rate changes for 2026.
Excise and other indirect taxes
| Tax | Notes |
|---|---|
| Excise duties | Fuel, alcohol, tobacco, e-liquids, natural gas, coffee and non-alcoholic beverages, on a multi-year schedule of increases |
| State duty on property registration | 1.5% for transfers to individuals, 2% to legal entities, 3% on gifts — each capped at €50,000 (~$58,500) |
| Natural resources tax | Extraction, packaging, waste and emissions |
| Vehicle operation tax and company car tax | Annual, by CO₂ emissions, weight and engine capacity |
| Lottery and gambling tax | Operator-level, by machine, table and turnover |
Other Taxes Worth Knowing
| Tax | Latvia treatment |
|---|---|
| Capital gains tax | 25.5% flat on gains from shares, funds, crypto-assets and other capital assets |
| Dividends (resident individual) | 0% where Latvian corporate tax has been paid on the underlying profit; 6% under the 15% corporate election from 2026; 25.5% otherwise, including untaxed foreign dividends |
| Interest (resident individual) | 25.5%, with no general exemption for bank deposits or bonds |
| Rental income | 25.5%–33% under the ordinary scale with expenses deductible, or a flat 10% for landlords registered with the State Revenue Service who claim no expenses and forgo the capital gains deduction on sale |
| Real estate gains (individual) | Exempt if held 60+ months and the declared residence for 12 of the last 60 months; exempt if held 60+ months as the sole property; exempt if the sole property’s proceeds are reinvested in a similar property within 12 months; otherwise 25.5% |
| Wealth / net worth tax | None |
| Inheritance / estate tax | None |
| Gift tax | None between spouses and relatives to the third degree; other gifts exempt up to €1,425 (~$1,670) a year, taxed at 25.5% above; employer gifts exempt to €100 (~$117) |
| Immovable property tax (annual) | Housing: 0.2% of cadastral value to €56,915 (~$66,600), 0.4% from €56,915 to €106,715 (~$124,900), 0.6% above; land and commercial buildings 1.5%; municipalities may set rates from 0.2% to 3% |
| Exit tax (individuals) | None |
The absence of wealth, inheritance and exit taxes is the quiet advantage here — a Latvian holding company passes on without an estate tax event, and leaving Latvian tax residence triggers no deemed disposal. The trap is the flat 25.5% on interest and capital gains, which is high by regional standards and carries no participation-style relief for individuals: a private investor selling a listed portfolio pays materially more than in Cyprus or Malta. The efficient route is to hold assets through a Latvian company, where gains stay untaxed until distributed.
Disadvantages & Risks
The first-order risk is geographic. Latvia shares roughly 214 km of border with Russia and 172 km with Belarus, sits on NATO’s eastern flank, and has responded with a sharp rise in defence spending, reintroduced conscription and border fortification. Roughly a quarter of the population is ethnically Russian, and language, citizenship and schooling policy remain politically divisive. The small economy compounds it: nominal GDP is around €43 billion (~$50bn) with a shrinking, ageing population, growth has been weak since 2022, and the transit and logistics sector that once handled Russian cargo has lost most of that volume. Airspace incidents on the eastern flank have become routine, and insurance and financing decisions increasingly price that in.
The second is the banking sector and its reputational tail. The 2018 collapse of ABLV Bank, after a US FinCEN section 311 notice, ended Latvia’s non-resident banking model — non-resident deposits fell from roughly 40% of the system to under 10% — and the clean-up that followed was thorough enough that Latvia avoided the FATF grey list in February 2020 after its Moneyval assessment; ABLV was removed from the FinCEN list in September 2024. The practical consequence is that opening a Latvian bank account as a non-resident with no local operations is slow and frequently refused. Latvia is not on the EU list of non-cooperative jurisdictions or any OECD blacklist — it is an EU and OECD member and keeps its own list of low-tax jurisdictions, payments to which suffer 20% withholding. Substance requirements are real: ATAD controlled-foreign-company rules, transfer pricing documentation and permanent establishment risk all apply, and a company with no local management, staff or premises will not survive scrutiny. Finally, the advantage has eroded at the personal level — the 2025 reform lifted the top marginal rate to 33%, the surcharge and solidarity tax stack on top, and the 2026 corporate election is roughly rate-neutral rather than a cut.
Strategy & Ideal Profile
The structure that works is a Latvian SIA (limited company) used as a combined operating and holding vehicle. Trading profit is taxed at 0% while it stays in the company, so working capital and reinvested earnings compound gross; tax arises only when a dividend is declared, at 20% of the gross amount — 25% of the net sum paid out. Inbound dividends are excluded under the participation exemption and gains on direct shareholdings held 36 months or more can be offset against the distribution base, which makes a Latvian company a workable EU holding platform for a group with real operations. The 15%/6% election open from 1 January 2026 to companies with only individual shareholders is close to neutral — distributing 100 of pre-tax profit leaves about 80 either way — so model it rather than assume a saving; a non-resident shareholder in a treaty country may do better, and that interaction is worth confirming with a Latvian adviser.
It suits company owners who reinvest rather than extract, because deferral is worth most to a business that compounds; holding structures with genuine EU substance, given the participation exemption and 64 treaties; dividend earners taking profit out of a Latvian company at 0% personally where corporate tax has already been paid; and retirees, who face no wealth, inheritance or exit tax and get a €12,000 (~$14,000) annual pension allowance. On residency, either 183 days in any rolling 12-month period or simply registering a declared address in Latvia makes you resident on worldwide income — the address limb is the one people trip over, and it means you cannot hold a Latvian permit casually and stay outside the tax net. Investor migration has narrowed sharply: the real estate route at €250,000 (~$292,500) and the €280,000 (~$327,600) subordinated bank capital route are abolished under the new Immigration Law, leaving company equity of €50,000 (~$58,500) or €100,000 (~$117,000) plus a €10,000 (~$11,700) state payment, and a planned €150,000 (~$175,500) fund route — the Saeima passed the law on 11 June 2026 and the President returned it for review on 19 June 2026, so it had not entered into force at the time of writing.
It does not suit individual investors and traders holding assets personally: 25.5% flat on interest, capital gains and crypto disposals is uncompetitive, and there is no non-dom regime, no remittance basis and no participation relief for individuals. It does not suit high earners on employment income, where 33% plus the 3% surcharge plus 25% solidarity tax above €105,300 (~$123,200) produces a marginal burden well above most of the region. Nor does it suit anyone whose plan depends on residence by investment or easy non-resident banking. The deferral is a timing advantage, not an exemption: an owner who takes the cash out every year ends up at roughly 20% — an ordinary European rate, not a low one.
FAQ
Is Latvia a tax haven?
No. Latvia is an EU, eurozone and OECD member with a 20% tax on distributions, a 25.5%/33% personal scale and 34.09% social contributions, and appears on no EU or OECD blacklist. Its appeal is timing — profit left inside a company is untaxed — not a low headline rate.
What is the corporate tax rate in Latvia in 2026?
0% on retained or reinvested profit and 20% on distributed profit, applied to a base grossed up by dividing by 0.8, which equals 25% of the net dividend paid. From 1 January 2026 a company owned solely by individuals may instead elect 15% corporate tax (base divided by 0.85) plus a 6% personal income tax withholding on the shareholder. Credit institutions and consumer lenders pay an extra 20% surcharge on pre-tax profit.
How does Latvia’s deferred corporate tax work?
Since 1 January 2018 there is no annual taxable profit calculation. Tax is triggered only by distributions — dividends and “conditionally distributed profits” such as non-business expenses above 5% of gross wages, non-arm’s-length related-party loans, transfer pricing adjustments and liquidation quotas. There is no depreciation regime and no loss carry-forward, because there is no annual profit to relieve.
When do you become a tax resident of Latvia?
If you have a declared (registered) place of residence in Latvia, or you spend 183 days or more in Latvia in any 12-month period, or you are a Latvian citizen employed abroad by a Latvian-registered employer. Residents are taxed on worldwide income; non-residents only on Latvian-source income.
Does Latvia tax capital gains?
Yes — 25.5% flat on gains from shares, funds, crypto-assets and other capital assets. Real estate is exempt if held for at least 60 months and declared as your residence for 12 of the last 60, if held 60+ months as your sole property, or if the sole property’s proceeds are reinvested in a functionally similar property within 12 months.
Is there inheritance or wealth tax in Latvia?
None. Latvia levies no inheritance or estate tax, no net wealth tax and no exit tax. Gifts between spouses and relatives to the third degree are exempt; other gifts are exempt up to €1,425 (~$1,670) a year and taxed at 25.5% above that.
How are dividends taxed for a shareholder of a Latvian company?
At 0% where Latvian corporate tax has been paid on the underlying profit — the 20% company-level charge is the only tax. Under the 15% election from 2026 the shareholder pays 6%. Foreign dividends on which no comparable tax has been paid are taxed at 25.5%.
Sources
All figures should be checked against the primary government sources below.
- Valsts ieņēmumu dienests (State Revenue Service, VID) — personal income tax, corporate income tax, VAT, non-taxable minimum — vid.gov.lv
- Valsts sociālās apdrošināšanas aģentūra (State Social Insurance Agency, VSAA) — contribution rates, contribution base ceiling, solidarity tax — vsaa.gov.lv
- Finanšu ministrija (Ministry of Finance) — corporate income tax framework, the 15% election, credit institution surcharge — fm.gov.lv
- Likumi.lv (Latvijas Vēstnesis official legal portal) — On Personal Income Tax, On Corporate Income Tax, VAT Law, Immigration Law and amendments — likumi.lv
- Pilsonības un migrācijas lietu pārvalde (Office of Citizenship and Migration Affairs, PMLP) — residence permits and investment routes — pmlp.gov.lv
- Iekšlietu ministrija (Ministry of the Interior) — Immigration Law reform and investor permit changes — iem.gov.lv
- European Central Bank — euro reference exchange rate used for USD conversions — ecb.europa.eu
USD figures are indicative conversions at ~1 EUR = 1.17 USD (ECB euro reference rate, 21 August 2026) and rounded.
Last verified: 23 August 2026.
This is general information, not personal tax or legal advice. Tax outcomes depend on your specific facts; consult a qualified Latvian tax adviser before acting.
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