Payroll taxes from an employer in Latvia
The taxation of personal income is regulated by the Personal Income Tax Law (Par iedzīvotāju ienākuma nodokli, 11.05.1993, hereinafter referred to as the Law). Under the general taxation system, a personal income tax (PIT) is levied.
The procedure for paying personal income tax on income under an employment contract depends on three main factors:
- place of employment (in the territory of Latvia or abroad);
- the status of the employer (whether the employer is recognized as a tax agent);
- the tax status of the employee (whether an individual - the recipient of income is recognized as a tax resident in Latvia).
Compensation for performing work duties in Latvia is income from sources in Latvia. And remuneration for performing work duties outside Latvia is income from sources outside Latvia. At the same time, the place of performance of labor duties is determined not at the location of the employer, but at the place of work of the employee himself, taking into account the terms of his employment contract.
Recognition of wages as income from sources in Latvia or income from sources outside Latvia affects the procedure for taxation of personal income tax.
As a general rule, regardless of the place of employment, a Latvian employer is recognized as a tax agent in relation to the income of employees - both tax residents and non-residents. The tax agent must calculate, withhold and pay personal income tax to the budget (clause 1, article 4 of the Law).
At the same time, a foreign organization that has a separate subdivision in Latvia may also be recognized as a tax agent.
Procedure for declaring and paying tax
The tax period for personal income tax is a calendar year, while tax agents - employers calculate and withhold tax monthly (Articles 2, 3 of the Law).
As a general rule, if there is only income from work for a Latvian employer, if there are no tax deductions, then filing a tax return is not required (clause 1, article 20 of the Law).
Withholding and payment of personal income tax is carried out by the employer, who must send a report to the tax authority by the 15th day of the next month and pay the withheld tax by the 23rd day of the month following the month of payment of income (clauses 1, 5, 12, article 17, clause 1 article 29 of the Law).
At the request of the employee, the employer, no later than 15 days after receiving the employee's request, provides him with a certificate of the amount of income paid, and also sends the certificate to the tax authority. Also, the employer sends a notification to the tax authority about the paid income no later than February 1 of the year following the reporting year, and if the employment relationship is terminated - before the 15th day of the next month (clauses 6, 7, article 17 of the Law).
In Latvia, it is prohibited to pay personal income tax at the expense of the employer without withholding tax from the employee (clause 2, article 29 of the Law).
Tax calculation
As a general rule, a reduction in income for tax exemptions, and tax deductions, applies only to tax residents (clause 1, article 9 of the Law). In addition, there is a non-taxable minimum income, as well as deductions, the application of which depends on the tax status of the employee (resident or non-resident). More details are described below in the corresponding section.
Income from employment in Latvia is taxed at a progressive rate, regardless of the tax status of both the employee and the employer (clause 3, article 15, clause 2, article 17 of the Law):
20% - for monthly income up to €1667;
23% - on the part of the monthly income exceeding €1667.
From the salary of employees in Latvia (both residents and non-residents), which is subject to personal income tax, the following are also withheld:
insurance premiums - 10.5% (Article 18, Clause 2, Article 21 of the Law on State Social Insurance, Law 2);
solidarity tax - 25% if the annual taxable income exceeds €78,100 (art. 6.1 of the Solidarity Tax Act).
The following describes the features of taxation of personal income tax on wages, depending on the tax status of an individual. A summary of the criteria for tax residency in Latvia is also provided.
The procedure for paying personal income tax on income under an employment contract depends on three main factors:
- place of employment (in the territory of Latvia or abroad);
- the status of the employer (whether the employer is recognized as a tax agent);
- the tax status of the employee (whether an individual - the recipient of income is recognized as a tax resident in Latvia).
Compensation for performing work duties in Latvia is income from sources in Latvia. And remuneration for performing work duties outside Latvia is income from sources outside Latvia. At the same time, the place of performance of labor duties is determined not at the location of the employer, but at the place of work of the employee himself, taking into account the terms of his employment contract.
Recognition of wages as income from sources in Latvia or income from sources outside Latvia affects the procedure for taxation of personal income tax.
As a general rule, regardless of the place of employment, a Latvian employer is recognized as a tax agent in relation to the income of employees - both tax residents and non-residents. The tax agent must calculate, withhold and pay personal income tax to the budget (clause 1, article 4 of the Law).
At the same time, a foreign organization that has a separate subdivision in Latvia may also be recognized as a tax agent.
Procedure for declaring and paying tax
The tax period for personal income tax is a calendar year, while tax agents - employers calculate and withhold tax monthly (Articles 2, 3 of the Law).
As a general rule, if there is only income from work for a Latvian employer, if there are no tax deductions, then filing a tax return is not required (clause 1, article 20 of the Law).
Withholding and payment of personal income tax is carried out by the employer, who must send a report to the tax authority by the 15th day of the next month and pay the withheld tax by the 23rd day of the month following the month of payment of income (clauses 1, 5, 12, article 17, clause 1 article 29 of the Law).
At the request of the employee, the employer, no later than 15 days after receiving the employee's request, provides him with a certificate of the amount of income paid, and also sends the certificate to the tax authority. Also, the employer sends a notification to the tax authority about the paid income no later than February 1 of the year following the reporting year, and if the employment relationship is terminated - before the 15th day of the next month (clauses 6, 7, article 17 of the Law).
In Latvia, it is prohibited to pay personal income tax at the expense of the employer without withholding tax from the employee (clause 2, article 29 of the Law).
Tax calculation
As a general rule, a reduction in income for tax exemptions, and tax deductions, applies only to tax residents (clause 1, article 9 of the Law). In addition, there is a non-taxable minimum income, as well as deductions, the application of which depends on the tax status of the employee (resident or non-resident). More details are described below in the corresponding section.
Income from employment in Latvia is taxed at a progressive rate, regardless of the tax status of both the employee and the employer (clause 3, article 15, clause 2, article 17 of the Law):
20% - for monthly income up to €1667;
23% - on the part of the monthly income exceeding €1667.
From the salary of employees in Latvia (both residents and non-residents), which is subject to personal income tax, the following are also withheld:
insurance premiums - 10.5% (Article 18, Clause 2, Article 21 of the Law on State Social Insurance, Law 2);
solidarity tax - 25% if the annual taxable income exceeds €78,100 (art. 6.1 of the Solidarity Tax Act).
The following describes the features of taxation of personal income tax on wages, depending on the tax status of an individual. A summary of the criteria for tax residency in Latvia is also provided.
Latvian tax residency criteria
As a general rule, tax residents of the Republic of Latvia are:
- an individual who was not recognized as a resident in the previous year will be considered a resident in the current year from the date of his first arrival in Latvia;
- an individual who will not be recognized as a resident in the following year will not be recognized as a resident in the tax year after the date on which he/she left Latvia, if in the period after that date this person has closer relations with another country than with Latvia (this person owns real estate abroad, his family lives there, or he makes social security contributions abroad).
- person, if the registered place of residence of this person is in Latvia or
- the person stays in Latvia for 183 days or more in any 12-month period beginning or ending in the tax year
- an individual who was not recognized as a resident in the previous year will be considered a resident in the current year from the date of his first arrival in Latvia;
- an individual who will not be recognized as a resident in the following year will not be recognized as a resident in the tax year after the date on which he/she left Latvia, if in the period after that date this person has closer relations with another country than with Latvia (this person owns real estate abroad, his family lives there, or he makes social security contributions abroad).
So, taking into account your actual tax status (the status of your employee), click on the appropriate button below to get detailed information on the procedure for paying personal income tax by a tax agent or employee, including when changing tax status (resident / non-resident) during the year.
You can also see the visual taxation scheme at the bottom of the page.
Taxation of remuneration of a tax resident of Latvia
Income under an employment contract of a Latvian tax resident is taxed when performing work duties both in Latvia and outside Latvia. If you perform work duties outside of Latvia, then your income will be taxed in Latvia only if you are recognized as a tax resident of Latvia.
Each tax resident of the Republic of Latvia has one tax book, which is issued by the tax authority. The book can be presented at one place of receipt of income at the choice of the taxpayer (Article 6 of the Law).
When determining the tax base, the following amounts are deducted from the employee's monthly income (clause 3, article 17 of the Law):
1) the amount of the monthly non-taxable minimum - €6000. Such a deduction is available only from the employer to whom the resident employee has presented a tax book. The procedure for calculating such a deduction is determined by the Cabinet of Ministers of Latvia and currently amounts to €500 per month with a monthly salary of no more than €1800;
2) the amount of expenses incurred by the employee, in particular (clause 1, article 10, article 14 of the Law):
3) the amount of deductions for resident workers, in particular, the deduction of € 250 for minor children, brother, sister, if they are pupils or students, then the deduction is granted until they reach the age of 24 years. Also, a deduction can be provided for a non-working spouse raising children (clause 1, article 13 of the Law). This deduction is provided only by the employer to whom the employee has provided a tax book.
In addition, the following incomes are not subject to taxation (Article 9 of the Law):
As a general rule, if there is only income from work for a Latvian employer, if there are no tax deductions other than standard deductions, then filing a tax return is not required (clauses 1, 2, article 20 of the Law). Otherwise, tax residents must submit a tax return between March 1 and June 1 of the following year. At the same time, a declaration should already be generated in the information system of the tax authorities based on the information received by the tax authorities. The taxpayer should make the necessary changes and additions (clause 5, article 19 of the Law).
There is a possibility of tax exemption for residents of Latvia who are sent to work in another state under a staff lease agreement (clause 7, article 24 of the Law).
Each tax resident of the Republic of Latvia has one tax book, which is issued by the tax authority. The book can be presented at one place of receipt of income at the choice of the taxpayer (Article 6 of the Law).
When determining the tax base, the following amounts are deducted from the employee's monthly income (clause 3, article 17 of the Law):
1) the amount of the monthly non-taxable minimum - €6000. Such a deduction is available only from the employer to whom the resident employee has presented a tax book. The procedure for calculating such a deduction is determined by the Cabinet of Ministers of Latvia and currently amounts to €500 per month with a monthly salary of no more than €1800;
2) the amount of expenses incurred by the employee, in particular (clause 1, article 10, article 14 of the Law):
- compulsory social insurance contributions, including those paid under the laws of another country of the European Union (EU) or a country of the European Economic Area (EEA);
- contributions to private pension funds, including those paid to a pension fund from another EU or EEA country or OECD country;
- premiums under life insurance contracts, including those paid to an insurance company from another EU country or an EEA country, or an OECD country;
- medical expenses and health insurance premiums;
- expenses for advanced training or education of an employee and his family members (including those living in another EU or EEA country);
3) the amount of deductions for resident workers, in particular, the deduction of € 250 for minor children, brother, sister, if they are pupils or students, then the deduction is granted until they reach the age of 24 years. Also, a deduction can be provided for a non-working spouse raising children (clause 1, article 13 of the Law). This deduction is provided only by the employer to whom the employee has provided a tax book.
In addition, the following incomes are not subject to taxation (Article 9 of the Law):
- a gift from an employer not exceeding €15 during the tax year;
- childbirth allowance up to €250 per child;
As a general rule, if there is only income from work for a Latvian employer, if there are no tax deductions other than standard deductions, then filing a tax return is not required (clauses 1, 2, article 20 of the Law). Otherwise, tax residents must submit a tax return between March 1 and June 1 of the following year. At the same time, a declaration should already be generated in the information system of the tax authorities based on the information received by the tax authorities. The taxpayer should make the necessary changes and additions (clause 5, article 19 of the Law).
There is a possibility of tax exemption for residents of Latvia who are sent to work in another state under a staff lease agreement (clause 7, article 24 of the Law).
If the tax was paid abroad
When performing labor functions abroad, an obligation to pay tax in the relevant foreign country may arise. In this case, the tax resident of Latvia, when submitting a tax return, has the right to reduce the Latvian personal income tax by the amount of tax paid abroad (Article 24 of the Law).
To apply such a deduction, a document on the amount of income received abroad and tax paid, approved by a foreign tax authority (Article 24 of the Law), will be required.
However, if the tax paid abroad exceeds the income tax liability in Latvia, the difference will not be refunded to the taxpayer.
It is necessary to take into account the provisions of double tax treaties (DTT) concluded by Latvia.
To apply such a deduction, a document on the amount of income received abroad and tax paid, approved by a foreign tax authority (Article 24 of the Law), will be required.
However, if the tax paid abroad exceeds the income tax liability in Latvia, the difference will not be refunded to the taxpayer.
It is necessary to take into account the provisions of double tax treaties (DTT) concluded by Latvia.
Taxation of remuneration of a tax non-resident of Latvia
Income under an employment contract of a tax non-resident of Latvia is taxed when carrying out labor activities in the territory of Latvia (Article 2 of the Law).
If you, while working for a Latvian company, perform your work duties remotely outside of Latvia, then your income will be taxed in Latvia only if you are a tax resident of Latvia.
A Latvian employer, including a permanent establishment of a foreign organization in Latvia, calculates and withholds personal income tax as a tax agent.
As a general rule, the non-taxable minimum does not apply when paying income to a non-resident. An exception is provided for non-residents who are residents of a Member State of the European Union or the European Economic Area, provided that more than 75% of the income of such a non-resident is earned in Latvia (Article 6.1, Clause 2, Article 12 of the Law).
Also, non-residents are not provided with tax deductions. An exception is provided for residents of the EU or EEA in case of receiving more than 75% of income in Latvia (clause 4, article 13 of the Law).
A similar rule applies when certain incomes are exempted from taxation (clause 3, article 9 of the Law).
Consequently, the procedure for calculating personal income tax on the remuneration of non-residents differs depending on which state the employee is a resident of (whether the country is in the EU, EEA).
All non-residents, including residents of countries outside the EU and EEA, are provided with deductions for the following expenses (clause 2, article 10, clause 3, article 17 of the Law):
If you, while working for a Latvian company, perform your work duties remotely outside of Latvia, then your income will be taxed in Latvia only if you are a tax resident of Latvia.
A Latvian employer, including a permanent establishment of a foreign organization in Latvia, calculates and withholds personal income tax as a tax agent.
As a general rule, the non-taxable minimum does not apply when paying income to a non-resident. An exception is provided for non-residents who are residents of a Member State of the European Union or the European Economic Area, provided that more than 75% of the income of such a non-resident is earned in Latvia (Article 6.1, Clause 2, Article 12 of the Law).
Also, non-residents are not provided with tax deductions. An exception is provided for residents of the EU or EEA in case of receiving more than 75% of income in Latvia (clause 4, article 13 of the Law).
A similar rule applies when certain incomes are exempted from taxation (clause 3, article 9 of the Law).
Consequently, the procedure for calculating personal income tax on the remuneration of non-residents differs depending on which state the employee is a resident of (whether the country is in the EU, EEA).
All non-residents, including residents of countries outside the EU and EEA, are provided with deductions for the following expenses (clause 2, article 10, clause 3, article 17 of the Law):
- compulsory social insurance contributions, including those paid under the laws of another country of the European Union (EU) or a country of the European Economic Area (EEA);
- contributions to private pension funds, including those paid to a pension fund from another EU or EEA country or OECD country;
- premiums under life insurance contracts, including those paid to an insurance company from another EU country or an EEA country or an OECD country.
Algorithm for paying personal income tax on income from an employer in Latvia
* regardless of the tax status of the employee (resident or non-resident)
**check tax liabilities in the country of tax residence
If tax status has changed during the year
Since tax residence is determined for any 12 consecutive months, tax status may change during the year. At the same time, since the tax rate and the procedure for paying tax by a tax agent do not depend on residence, and also since a tax agent calculates tax for each month, a change in tax residency will affect taxation only if the place of performance of labor duties changes.
Was a resident, became a non-resident
If an employee becomes a non-resident within a year, then his income is subject to income tax in Latvia only when performing labor functions in the territory of Latvia. Income of a non-resident working outside of Latvia is not subject to taxation in Latvia.
Was a non-resident, became a resident
If an employee was a non-resident, but became a resident of Latvia due to the time spent in Latvia or place of residence, then his income will be taxed in Latvia, regardless of the place of performance of labor functions.
Was a resident, became a non-resident
If an employee becomes a non-resident within a year, then his income is subject to income tax in Latvia only when performing labor functions in the territory of Latvia. Income of a non-resident working outside of Latvia is not subject to taxation in Latvia.
Was a non-resident, became a resident
If an employee was a non-resident, but became a resident of Latvia due to the time spent in Latvia or place of residence, then his income will be taxed in Latvia, regardless of the place of performance of labor functions.
IMPORTANT
In addition to personal income tax, insurance premiums are withheld from the salary of employees in Latvia (both residents and non-residents) - 10.5% (Article 18, paragraph 2 of Article 21 of the Law on State Social Insurance, Law 2).
The minimum basis for calculating the contribution, as a general rule, is equal to the minimum wage - €620. If the taxable income is less than the minimum wage, then the contributions from the amount equal to the difference between the actual income and the minimum wage are paid by the employer for the employee (Article 20.4 of Law 2). The maximum basis for calculating contributions is €78,100 per year (Art. 14, para. 5, Art. 21.2 of Law 2).
However, if the taxable annual income exceeds this amount, then the amount of such excess is additionally subject to solidarity tax at a rate of 25% (Article 6.1 of the Solidarity Tax Law).
The calculation and payment of contributions and solidarity tax has a number of features.
In addition to personal income tax, insurance premiums are withheld from the salary of employees in Latvia (both residents and non-residents) - 10.5% (Article 18, paragraph 2 of Article 21 of the Law on State Social Insurance, Law 2).
The minimum basis for calculating the contribution, as a general rule, is equal to the minimum wage - €620. If the taxable income is less than the minimum wage, then the contributions from the amount equal to the difference between the actual income and the minimum wage are paid by the employer for the employee (Article 20.4 of Law 2). The maximum basis for calculating contributions is €78,100 per year (Art. 14, para. 5, Art. 21.2 of Law 2).
However, if the taxable annual income exceeds this amount, then the amount of such excess is additionally subject to solidarity tax at a rate of 25% (Article 6.1 of the Solidarity Tax Law).
The calculation and payment of contributions and solidarity tax has a number of features.
For 2022, the following rules apply:
- minimum wage - €500;
- the minimum annual tax-free income is €5,100. At the same time, the monthly deduction was provided in the amount of €350 (the first half of the year) and €500 (the second half of the year).
In 2024, the minimum wage will be €700, according to changes in the Labor Law.
No other changes are expected.
No other changes are expected.
Using the buttons below, you can check whether the conditions for recognizing you as a tax resident are met in the country where you actually work remotely or from where you came to work in Latvia, and whether you have an obligation to pay tax on your salary in this country. Also find out whether Latvia has a double taxation treaty (DTT) and its conditions in relation to wages.