Taxes for legal entities are mainly formed from value-added tax, personal income tax, social tax and income tax of enterprise.
Taxes for legal entities of Latvia
Also, there are specific taxes that apply only to special subjects, for example, customs tax – to entities using customs services, real estate tax – to owners of real estate, tax on natural resources – to users of natural resources, etc.
Tax accounting is conducted in accordance with the national and European regulatory framework, using the principle of binary system (debit/credit).
Value Added Tax (VAT)
21%
The total tax rate is 21% of the value of the goods or services. The obligation to register in the VAT payer register occurs when an annual turnover of € 40,000 is exceeded.
A company that is registered in the Commercial Register of Latvia has the right at the same time, or whenever needed, to register in the register of VAT payers in the State Revenue Service (SRS).
The status of VAT payer gives the right to operate with tax, include VAT in accounts, retain tax from received payments, pay tax to the budget, including the right to calculate and deduct the withholding tax from the total amount of VAT paid to the budget, thereby reducing the actual payment of VAT paid to the budget.
Having the status of a VAT payer gives the right to make transactions with partners in other EU countries that are also VAT payers in their country. The taxation period is a month or a quarter. The taxation period can be changed, observing the conditions specified in the law. The tax declaration is filed by the tax payer according to the taxation period, regardless of whether there are taxable transactions during the taxation period.
Enterprise income tax (EIT)
On January 1, 2018, a new Law on an Enterprise Income Tax entered into force. The object of taxation is the enterprises income tax (EIT), which is the company’s profit aimed at distributing dividends and payments equivalent as dividends.
In other words, the company’s profit itself is not subject to taxation.
The tax is withheld at the time of payment of dividends and paid to the budget by the 20th day of the following month. Unapplied and unpaid profits are not taxed.
The taxation period is a month. The relevant declaration about the object of taxation is submitted monthly. If in the previous month there were no dividend payments and payments equal to them, then the declaration for that month is not submitted. Thus, the time of the tax payment is controlled by the moment of accrual and payment of dividends.
It is necessary to pay serious attention to the payments that the law equates to the distribution of profits, and to which the State Revenue Service (SRS) for the year also charges the EIT at a rate of 20%. These costs include:
- Expenses that are not connected to the company’s economic activity;
- Unsecured receivables;
- Payment of overpriced interest;
- Issuance of loans to related parties;
- Lost profits from transactions with related parties;
- Payment of the liquidation quota.
A big advantage is considered to be the cancelation of the practice of charging advance payments to the EIT for future periods, which significantly simplifies the tax burden and the possibility of obtaining legal dividends.
Microenterprise tax in 2018
15%
In Latvia there is a special tax status - microenterprise. Persons registered in the SRS as micro-enterprises pay one fixed turnover tax, which replaces all salary taxes and enterprises income tax combined.
The tax status of a microenterprise can be obtained by an individual or legal person who meets the following requirements:
- The turnover is not higher than € 40,000 per year;
- All company owners are individuals;
- No more than five employees, including participants;
- An employee’s salary is not higher than € 720 per month gross, which is also a net salary.
From 2019, an employee will be able to work only on one micro-enterprise. The law allows for the simultaneous operation of a microenterprise and in a normal mode. Those who now work in several microenterprises, during 2018, should decide where they will remain.
Personal Income Tax (PIT)
Salary payments and other wages equivalent to salary are subject to personal income tax (PIT) and compulsory social deductions (CSD), which are retained by the employer before being paid to the employee.
The internal minimum wage in Latvia is € 430 (until January 2019). This amount is indexed once a year.
The minimum salary for persons receiving a TRP on the basis of an employment contract is € 926 (until April 2019). This amount is indexed once a year.
For tax residents of Latvia, a non-taxable minimum is applied:
- For salaries of less than € 440 – € 200 per month;
- For salaries from € 440 to € 1,000 – a gradually decreasing amount from € 200 to 0;
- A salary of more than € 1,000 – a non-taxable minimum since 2018 is not taken into account.
Non-taxable minimum does not apply:
- For non-residents, with the exception of residents of EU countries, who received more than 75% of their total revenues in Latvia;
- For capital income.
Capital income is income from interest loans, income from deposits, from cumulative differences as a result of life insurance, income from private pension funds, from management of financial instruments, etc.
Income from capital, including capital gains, is taxed at 20%.
In some cases, income from a household, from the sale of lumber grown and forest cut into lumber, and from renting an apartment (rent) is taxed at 10%.
Taxes on the minimum salary for a member of the board of a non-resident of Latvia: social tax – € 150.89; income tax – € 88.02.
Social Tax
All individuals who receive a salary in the territory of Latvia are subject to compulsory state social insurance and therefore pay compulsory social insurance contribution payments.
The rate is 35.09% per month, of which:
- 11% withheld from the salary of the tax payers
- 24.09% are paid by the employer.
