Taxes in Latvia on salary from a foreign employer
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. In this case, the foreign organization is recognized as having a "permanent establishment" in Latvia and is subject to tax registration. The duties of a tax agent in such a case are performed by such a foreign employer in a manner similar to that applicable to an employer from Latvia.
If the employer is a foreign organization that is not tax registered in Latvia, then it is not recognized as a tax agent. In this case, the employee declares income and pays personal income tax on his own.
Procedure for declaring and paying tax
The tax period for personal income tax is a calendar year (Art. 2, 3 of the Law).
When receiving income from employment for a foreign employer who is not registered in Latvia and is not a tax agent, tax resident individuals must submit a declaration between March 1 and June 1 of the following year (clause 5, article 19 of the Law). If there is a tax payable, it is payable within the time limits that depend on the amount of taxable income (clause 3, article 19 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 the absence of a tax agent is taxed at a progressive rate, regardless of the tax status of the employee (clause 2, article 15, clause 3, article 19 of the Law):
The salary of employees in Latvia (both residents and non-residents), which is subject to personal income tax, are also subject to payment:
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 the taxation of the PIT of 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. In this case, the foreign organization is recognized as having a "permanent establishment" in Latvia and is subject to tax registration. The duties of a tax agent in such a case are performed by such a foreign employer in a manner similar to that applicable to an employer from Latvia.
If the employer is a foreign organization that is not tax registered in Latvia, then it is not recognized as a tax agent. In this case, the employee declares income and pays personal income tax on his own.
Procedure for declaring and paying tax
The tax period for personal income tax is a calendar year (Art. 2, 3 of the Law).
When receiving income from employment for a foreign employer who is not registered in Latvia and is not a tax agent, tax resident individuals must submit a declaration between March 1 and June 1 of the following year (clause 5, article 19 of the Law). If there is a tax payable, it is payable within the time limits that depend on the amount of taxable income (clause 3, article 19 of the Law):
- if the annual income does not exceed €78,100 - by June 23 of the following year. Moreover, if the amount of personal income tax exceeds €640, then the tax can be paid in three installments of 1/3, respectively, before June 23, July 23, August 23;
- if the annual income exceeds €78,100 - by July 23 of the following year. Moreover, if the amount of personal income tax exceeds €640, then the tax can be paid in three installments of 1/3, respectively, before July 23, August 23, September 23.
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 the absence of a tax agent is taxed at a progressive rate, regardless of the tax status of the employee (clause 2, article 15, clause 3, article 19 of the Law):
- 20% - for annual income up to €20,004;
- 23% - on the part of the annual income ranging from €20,004 to €78,100;
- 31% - on the part of the annual income exceeding €78,100.
The salary of employees in Latvia (both residents and non-residents), which is subject to personal income tax, are also subject to payment:
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 the taxation of the PIT of 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, 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.
When determining the tax base, the amounts are deducted (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, in particular (clause 1, article 10, article 14 of the Law):
Since there is no tax agent when working for an employer not registered in Latvia, tax resident individuals must submit a tax return between March 1 and June 1 of the following year (clause 5, article 19 of the Law).
Moreover, if the taxpayer works in the territory of another EU country and the corresponding income tax was paid from the income received in such a country, then such a taxpayer has the right not to file a declaration (clause 1, article 20 of the Law). Consequently, the avoidance of double taxation in this case is carried out by not taxing such income in Latvia, and not by offsetting the tax paid abroad.
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.
When determining the tax base, the amounts are deducted (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, 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);
- solidarity tax.
Since there is no tax agent when working for an employer not registered in Latvia, tax resident individuals must submit a tax return between March 1 and June 1 of the following year (clause 5, article 19 of the Law).
Moreover, if the taxpayer works in the territory of another EU country and the corresponding income tax was paid from the income received in such a country, then such a taxpayer has the right not to file a declaration (clause 1, article 20 of the Law). Consequently, the avoidance of double taxation in this case is carried out by not taxing such income in Latvia, and not by offsetting the tax paid abroad.
If the tax was paid abroad
When working abroad, you may be liable to pay tax in the relevant foreign country. At the same time, as mentioned above, if, when working in another EU country, the income of a tax resident of Latvia is subject to income tax in the corresponding country, then the taxpayer may be exempt from taxation in Latvia. If the conditions for such an exemption do not apply, then a 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).
That is, if you, working for a foreign company, perform labor duties outside Latvia, then your income will be taxed in Latvia only if you are a tax resident of Latvia.
As was abolished above, a Latvian employer, including a permanent establishment of a foreign organization, calculates and withholds personal income tax as a tax agent. Among other things, the obligations of a tax agent arise if such a Latvian employer attracts labor according to the so-called. staff lease agreement (Article 17.1 of the Law).
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 (Art. 6.1, Clause 2, Art. 12 of Law 1).
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 Law 1).
A similar rule applies when certain incomes are exempted from taxation (clause 3, article 9 of Law 1).
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 Law 1):
In the case of employment outside Latvia, tax non-residents do not pay personal income tax on the income received.
That is, if you, working for a foreign company, perform labor duties outside Latvia, then your income will be taxed in Latvia only if you are a tax resident of Latvia.
As was abolished above, a Latvian employer, including a permanent establishment of a foreign organization, calculates and withholds personal income tax as a tax agent. Among other things, the obligations of a tax agent arise if such a Latvian employer attracts labor according to the so-called. staff lease agreement (Article 17.1 of the Law).
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 (Art. 6.1, Clause 2, Art. 12 of Law 1).
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 Law 1).
A similar rule applies when certain incomes are exempted from taxation (clause 3, article 9 of Law 1).
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 Law 1):
- 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.
In the case of employment outside Latvia, tax non-residents do not pay personal income tax on the income received.
Algorithm for paying personal income tax on income from a foreign employer
* regardless of the tax status of the employee (resident or non-resident)
**check tax liabilities in the country where you work
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 in the absence of a tax agent, personal income tax is paid at the end of the year, and the tax rate does not depend on residence, a change in tax residence 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. 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. 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).
Otherwise, the procedure described above is relevant both for the current tax period and for previous years.
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).
Otherwise, the procedure described above is relevant both for the current tax period and for previous years.
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.