Back in 1995, the foundation of taxation in Latvia was laid, at that time the law “On Taxes and Duties” was introduced. This law complements the Latvian Customs Code, EU laws, Cabinet decrees, acts of local self-government, laws of the Seimas.
If we talk about the tax system, then in a simplified form it consists of 16 taxes, including direct and indirect. The system includes more than one hundred state duties. The stakes and the whole interaction mechanism are constantly changing.
Latvia has introduced a tax rule since 2018, which has been able to prove its effectiveness in Estonia. What is the essence of this rule? If in the current period there was no distribution of the company’s income, then all earned funds are not taxed. In the official language, the reinvestment profits of companies should not be subject to income tax.
By the size of the rates of fiscal payments and by their number, the Latvian system became one of the most optimal ones even before the introduction of this tax rule.
Income tax in Latvia is levied both from enterprises and individuals, that is, from employees, entrepreneurs, etc. How is the tax collected? Most often this happens according to the usual scheme: interest is withheld from accrued wages. But since 2018, the personal income tax rate in Latvia is considered progressive, therefore it is set according to the amount of annual income. If the amount is up to 20004 euros – 20%, in the range from 20004 euros to 55000 – 23%. If the amount is higher than 55,000 euros, then the percentage is 31.4.
If a citizen’s salary does not exceed the threshold of 440 euros per month, then income tax is calculated taking into account the non-taxable minimum of 200 euros.
The automatically reduced rate cannot be applied. The rate is reduced only after the declaration for the past year has been submitted. In this regard, citizens of Latvia who have a small income may often have an overpayment of income tax at the end of the year.
Those persons who receive income in the form of dividends from invested capital may be exempted from paying income tax. But this can only happen if the company paid the profit tax for them. It is worth considering that taxes will have to be paid if dividends were received from offshore or from abroad. But there are exceptions to every rule. Foreign companies will not pay tax if the company is registered in those countries with which Latvia has agreed on the inadmissibility of double taxation.
Value-added tax, that is, VAT, Latvia obliges to pay those who ultimately receive the product. It is taken into account at the level of business entities. The main principle for calculating VAT is the imposition of a trade margin, and in Latvia VAT is considered an indirect tax.
21% is the standard VAT rate. But for some groups of goods, a reduced rate applies, for example, the rate for baby food is 12%. For common Latvian products, the rate is 5%, for example, for berries, vegetables, and fruits. For deliveries of goods within the EU and export, a zero rate is set.
There are conditions that a taxpayer must take into account when submitting reports. An entrepreneur or an organization must register as a VAT payer if the turnover in the previous 12 months has exceeded EUR 40,000. When filling out the VAT reporting, the taxpayer should keep in mind that the criterion has been reduced, according to which it is necessary to decipher in detail each delivery, the amount of which was more than 150 euros.
Relatively recently, since 2017, the owners of new motorcycles and cars have received a bonus in the form of the abolition of the transport tax for the registration of vehicles for primary registration. But at the same time, the rates for operating the machine were increased by 7.4%, and this tax is paid every year. The emergence of such rules is based on the fact that rates have not increased since 2010.
Many officials and lawmakers believe that such a tax policy can help reduce harmful emissions into the atmosphere. Therefore, it is very important when choosing a car to pay attention to this indicator if you want to reduce the amount of taxes paid.
If a car was imported into the territory of Latvia but was not registered in the country, then you will need to pay a fee. The tax on a car with a foreign license plate is about 1000 euros. At the same time, tourists and business travelers do not have to worry about this. Such a fee will be paid only by citizens of Latvia or those who have a residence permit. If they decide not to pay the tax, then sooner or later they will have to pay a fine of 400 euros.
When buying real estate, as in other countries, you will need to take into account the costs of the initial acquisition. But the payment of taxes does not end there. You will need to pay 3% of the cadastral value of the property for the right to own this very property.
The state is allowed to approve real estate tax at the local government level. The only thing that sets the maximum and minimum rates (from 0.2% to 3%), which directly depends on the inventory data as of January 1 of the reporting year. Those who wish to purchase real estate in the Baltic country of Latvia should take this indicator into account.