Taxes and Tax Schemes in Latvia | What You Need to Know in 2025

Latvia, a European Union member state known for its digital innovation and growing startup ecosystem, operates a streamlined tax system that affects both residents and non-residents. Located in Northern Europe along the Baltic Sea, Latvia combines EU membership benefits with competitive tax rates, making it increasingly attractive for international professionals and businesses.

The country's economy, driven by services, IT, and manufacturing sectors, has shown robust growth in recent years. Latvia's tax system balances social welfare funding with maintaining competitiveness. Recent reforms have focused on enhancing digital tax administration and simplifying procedures for foreign investors.

The expat community in Latvia is growing, with many professionals drawn to sectors like IT, fintech, and shared services centers. The tax system, while comprehensive, offers various benefits and exemptions that can significantly impact an expat's financial planning.

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Latvian Income Tax

Latvia employs a progressive income tax system with rates depending on annual income. Tax residents face the following income tax brackets (as of 2025):

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Social insurance contributions are substantial, with employees contributing 10.5% and employers 23.59% of gross salary.

If you want to have a better understanding of the taxes you should pay on personal income in Latvia, you can use the personal tax calculator in the Taxation section of the Latvia page.

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Latvian Tax on Overseas Income

Latvia's treatment of foreign income follows the worldwide income principle:

• Tax Residents: Taxed on worldwide income
• Non-residents: Taxed only on Latvian-source income
• EU Income: Special provisions for income earned within the EU

The system includes various exemptions and credits for foreign-source income, particularly within the EU.

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Latvian Tax on Investments

Investment income in Latvia receives specific treatment under tax law:

• Capital Gains: 20% flat rate
• Dividends: 0% for corporate shareholders, 20% for individuals
• Interest Income: 20% withholding tax
• Rental Income: Can be taxed under special rental income regime at 10%

The system includes special provisions for investment in qualified startup companies and innovation sectors.

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Latvian Corporate Taxation

Corporate taxation in Latvia is unique:

• Corporate Income Tax: 20% on distributed profits only
• Value Added Tax (VAT): 21% standard rate, 12% and 5% reduced rates
• Microenterprise Tax: Special regime for small businesses
• Real Estate Tax: 0.2% to 3% of cadastral value

The system encourages reinvestment of profits with tax-free treatment of retained earnings.

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Special Tax Regimes

Latvia offers several special tax arrangements beneficial to international business:

Startup Tax Regime: Special social tax and employee option treatment for qualified startups.

Microenterprise Tax: Simplified regime for small businesses with turnover up to €40,000.

Special Economic Zones: Tax benefits for companies in designated areas.

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Regional Comparison

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Tax Planning for Latvia

Effective tax planning in Latvia requires attention to several key areas:

Business Structure: Choosing between standard corporate regime and microenterprise tax.

Investment Planning: Utilizing tax-efficient investment vehicles and startup benefits.

Employment Structure: Optimizing the balance between salary and other benefits.