Tax system in Latvia
The Ministry of Finance shall develop state tax and customs policy, as well as prepare recommendations for institutions responsible for tax and customs administration on implementation of tax and customs policy activities.
Taxes and fees system in Latvia consists of:
- state taxes, object and rate of which shall be set by the Saeima;
- state fees which shall be applicable according to Law "On Taxes and Fees" (LV) specific other laws and regulations of the Cabinet of Ministers;
- local government fees which shall be applicable according to Law "On Taxes and Fees" (LV) and binding regulations issued by the council of local government;
- directly applicable taxes and other obligatory payments set in the European Union regulatory enactments.
Enterprise Income Tax
Shall be paid by legal entities and non-resident permanent establishments for their income. Tax rate is 15%.
Personal Income Tax
Shall be paid by natural persons for their income. Tax rate is 23%.
State Social Insurance Mandatory Contributions
Shall be paid by insured persons and their employers.Total rate is 34,09% which varies for different categories of insured persons.
As of 1 January 2017 a microenterprise tax rate is 12% if a turnover of a microenterprise is up to 7000 euro, in turn, a microenterprise tax rate is 15%, if a turnover of a microenterprise is from 7000,01 until 100 000 euro. Microenterprise tax includes:
- state social insurance mandatory contributions, personal income tax and State fee of the business risk for micro-enterprise employees,
- enterprise income tax, if the micro-enterprise conforms to the features of the enterprise income taxpayer,
- personal income tax of the micro-enterprise owner for the part of the micro-enterprise revenue from the economic activity.
The information on the registration of the microenterprise tax payers is available at the State Revenue Service homepage in section Nodokļi/ Mikrouzņēmumu nodoklis.
The following entities may become a microenterprise tax payer:
- an individual merchant,
- an individual undertaking,
- a farm or fishing enterprise,
- a natural person registered at the State Revenue Service as performing economic activities,
- limited liability company.
In order an entity would be entitled to pay a microenterprise tax, a microenterprise shall comply with the following criteria:
- The participants (if any) are natural persons.
- The turnover does not exceed 100 000 euros in a calendar year.
- The number of employees does not exceed five at any time. An employee who is absent during employment relationship and who does not receive income from the micro-enterprise for the period of time, as well as employees suspended from work shall not be included in the number of employees.
- Members of the board of directors of a limited liability company may only be employees of the micro-enterprise.
- The natural or legal person referred to in this Clause is not a member of a partnership.
Pursuant to the Microenterprise tax law a micro-enterprise is entitled to opt for payment of the micro-enterprise tax, if the income of a micro-enterprise employee from the taxpaying micro-enterprise does not exceed 720 euros per month.
Within the meaning of the Microenterprise tax law a term microenterprise employee shall mean a natural person employed by a micro-enterprise on the basis of an employment contract and the micro-enterprise owner, as well as a procuration holder.
Real Estate Tax
Currently the real estate taxation system includes 2 taxes:
- land tax
- tax on immovable property
Real estate tax shall not be imposed on:
- upon immovable property of a local government, which are financed from the resources of the local government budget;
- immovable property owned by a foreign state, which is utilised for the needs of its diplomatic or consular offices,
- from 1 January 2007 – on public waters and land beneath common use highways, roads, underground roads, tunnels, streets, railway tracks, city rail tracks, bridges and trestles;
- engineering structures in the ownership or lawful possession of state, local governments, state or local government capital companies or capital companies that provide regulated public services (for example, railways, airport runways, power station buildings, trunk electricity transmission lines);
- immovable property owned by religious organizations , not used in commercial activities;
- land, located in specially protected nature areas, where by law commercial activities are prohibited, as well as in such territories located buildings and engineering constructions, used for nature protection;
- immovable property that is declared as a state protected cultural monument, but excluding residential buildings and immovable property used in commercial activities;
- land, occupied by renewed or cultivated forest, according to the rules stated by the Cabinet of Ministers;
- National sport centres and land for maintaining of the sport centres;
- buildings and engineering constructions, used for only agriculture;
- auxiliary buildings of residential houses, if the area of the auxiliary building does not exceed 25 m2, or auxiliary buildings of residential houses, if the area of the auxiliary building exceeds 25 m2 and the local government has determined exemption from a tax with its binding regulations, excluding garages;
- land of the cemetery territories, buildings for funeral ceremonies, crematoria and land for the maintenance thereof;
- immovable property under the jurisdiction of the State and local governments, which has not been transferred for use or leased;
- buildings and engineering structures which are used only for the agricultural production
- buildings or their parts (group of premises) and engineering structures in the ownership of the State, which are used for ensuring the fulfilment of the functions of the National Armed Forces, penal institutions, police, border guards and the fire-fighting and rescue service, as well as State security institutions;
- buildings or their parts (groups of premises), which are used by institutions financed from the State budget
- buildings (or parts of buildings), that are used for education, health, social care needs;
- buildings (or parts of buildings) and engineering constructions, that are used for environmental purposes;
- certain buildings and engineering constructions, owned by society's and foundations, according to rules stated by the Cabinet of Ministers
- the immovable property of the ATHENA mechanism in the Republic of Latvia established for the financial management of the total costs of military or defence operations of the European Union;
- buildings (groups of premises) that are constantly being used by the accredited museums, the accredited libraries, the Latvian National Opera, the State limited liability company Riga Circus and theatres, as well as buildings that are constantly being used by concert organisations which carry out the State delegated functions in the field of culture or the professional creative organisations registered in the Ministry of Culture for the needs of art galleries;
- buildings (groups of premises) that are corroborated in the Land Register in the name of the Free Trade Union Confederation of Latvia and are permanently used for the implementation of the functions laid down in laws and regulations, except the buildings (groups of premises) used in economic activities and residential buildings.
The tax base is a cadastral value.
- land – 1,5% of the cadastral value;
- buildings used for economic activity, engineering structures – 1.5% of the cadastral value;
- residential buildings, apartments – 0,2% - 0,6%:
- 0.2% of the cadastral value not exceeding 56 915 euro;
- 0.4% of the part of the cadastral value exceeding 56 915 euro, but less than 106 715 euro;
- 0.6% of the cadastral value exceeding 106 715 euro.
An additional 1.5% tax rate is applicable for uncultivated agricultural land, excluding land that has an area less than one hectare.
Special 3% tax rate is applicable for collapsed constructions, constructions degrading the environment or threatening the safety of individuals, if it is determined by the municipality in its binding regulations. The tax base for collapsed object is the highest value of the building or the land, on which the building is located (because the market value for ruins are “0”).
The minimum tax payment for each taxpayer in each local municipality shall be 7 euro.
Local municipalities are entitled (by adopting binding regulations) to determine tax rates within 0.2% up to 3% limits. Tax rate exceeding 1.5% shall be determined by a local municipality only in case, if a real estate is not maintained in accordance with laws and regulations
The Law on Real Estate Tax provides the following reliefs:
- for politically repressed persons (regarding land and residential property) 50%,
- for poor persons – 90%,
- for low income persons – up to 90%,
- for families (which have 3 and more children) regarding the residential building or apartment with the land annexed thereto owned by them – 50 %, but not more than ~426 EUR
Local municipalities may issue binding regulations, which provide reliefs for separate categories of taxpayers (specific groups of population (pensioners, disables, performers of economic activities etc.) – 25%, 50%, 75% or 90%.
By adopting binding regulations, a local municipality, after assessing the taxpayer’s social status and solvency, is entitled to defer a tax payment for the residential building, where a taxpayer has declared his/her place of residence, and its land annexed thereto until the transfer of title to the immovable property to another person.
Number of Real Estate Tax payments per year - 1 (in taxable year) or 4 (in taxable year)
Real Estate Tax Payment dates:
1) until 31 March in advance;
2) split payment – until March 31, May 15, August 15, and November 15.
Value Added Tax
Shall be paid by legal entities and natural persons. Standard tax rate is 21%, reduced tax rate – 12%. On 1 January 2013 new Value Added Tax Law has entered into force. Value Added Tax Law replaces the Law On Value Added Tax, which was into force from 1995 till 2012.
Shall be applied to oil products, natural gas, alcoholic drinks, beer, tobacco products, coffee and non-alcoholic drinks (except natural juices and mineral water).
Shall be paid by persons supplying electricity to the end-users and self-governing producers. Tax rate shall be set in lats per megawatt-hour.
Shall be paid by legal entities and natural persons who own, possess or hold a vehicle, which is registered or is going to be registered in Latvia, or whose owned, possessed or held vehicle is given transit number plates or person who has declared in Latvia and use car which has registered outside of Latvia.
Company Car Tax
Shall be paid by merchant, foreign merchant branch and farm which own or hold passenger vehicle or truck with the total weight up to 3000 kg and which have more than three seats (included driver seat) and which is used also for personal needs of employees and/or proprietaries.
Shall be paid by natural persons and legal entities when importing goods into the EU.
Shall be paid by legal entities and natural persons if extracting natural resources, distributing or importing environmentally unfriendly goods or which are allowed to perform such activities.
Lottery and Gambling Tax
Shall be paid by lottery and gambling providers.