Corporate Taxation in Latvia in 2026: Complete Guide for Business Entities
Everything you need to know about Latvian corporate taxes: 20% CIT on distributed profits (0% on retained), alternative 15%+6% regime, business structure comparison, 21% VAT, and 23.59% employer contributions.
Corporate Income Tax System
Unique Deferred Tax Model
Latvia's corporate tax system, introduced in 2018, fundamentally changed how companies are taxed. Corporate profits are not taxed when earned but only when distributed as dividends or deemed distributions. All undistributed profits remain tax-free at the corporate level, encouraging reinvestment and business growth.
Effective Rate Calculation:The 20% CIT rate is applied to the taxable base divided by coefficient 0.8. This means the effective tax rate is 25% on the net distributed amount (20/0.8 = 25%).
What Triggers Corporate Tax
Corporate income tax in Latvia is payable on distributed profits and deemed distributions. Understanding what constitutes a taxable distribution is critical for tax planning.
Calculated dividends (including interim and extraordinary dividends)
Payments equal to dividends (profit distributions by cooperatives, partnerships, PEs)
Deemed dividends (share capital reductions from retained earnings after 2018)
Non-operating expenses not related to business development
Excessive interest payments to related parties (thin capitalization rules)
Loans to shareholders and related party transactions at non-market rates
Benefits granted to non-resident employees or board members from PE operations
Alternative Dividend Tax Regime (New 2026)
CIT plus PIT on dividends
Business Structures and Tax Treatment
SIA (Sabiedrība ar Ierobežotu Atbildību) - Limited Liability Company
Corporate Tax Rate
20%/25% eff
on distributed profits only
Minimum Capital
€2,800
standard SIA requirement
Most common business structure in Latvia for domestic and foreign investors
Limited liability protection - shareholders liable only to extent of capital contribution
0% tax on retained/reinvested profits encourages business growth
Dividends to shareholders taxed at 20% CIT (25% effective) or alternative 15%+6%
100% foreign ownership permitted with no residency requirements
Can be registered remotely through Enterprise Register in 1-3 business days
Micro-Capital SIA (Reduced Share Capital)
Tax Rate
20%/25% eff
same as standard SIA
Capital Range
€1-€2,799
fully paid before registration
Suitable for start-ups and small businesses with limited initial capital
Only individuals can be shareholders (maximum 5 natural persons)
Shareholders cannot own shares in other micro-capital SIA companies
Must create minimum reserve of 25% of annual net profit each year
Limited liability protection like standard SIA
Same tax treatment as standard SIA despite lower capital requirement
IK (Individuālais komersants) - Sole Proprietorship
Tax Rate
25.5-33%
taxed as personal income + 3% surtax
Capital
None
no minimum requirement
Simplest business structure with quick and inexpensive registration
No minimum capital requirement or share capital needed
Income taxed through personal income tax system (25.5-33% progressive rates)
No limited liability - owner personally liable for all business debts
Operating expenses fully deductible when calculating taxable income
Suitable for freelancers, consultants, and small service providers
Branch (Filiāle) - Foreign Company Branch
Tax Rate
20%/25% eff
on Latvian-source distributed profits
Repatriation WHT
0% / 20%
0% standard, 20% to tax havens
Extension of foreign parent company - not separate legal entity
Taxed only on distributed profits from Latvian-source income
Parent company fully liable for all branch obligations
Simplified registration compared to establishing subsidiary
No minimum capital required but parent guarantees liabilities
Must appoint resident legal representative for operations
AS (Akciju sabiedrība) - Joint Stock Company
Tax Rate
20%/25% eff
standard CIT rate
Minimum Capital
€35,000
fully paid at incorporation
Suitable for large companies seeking to raise capital publicly
Can issue shares to public and be listed on stock exchanges
More complex governance structure and reporting requirements
Annual financial statements must be audited by certified accountant
Shares can be registered (nominal) or bearer shares (deposited with state)
Higher setup and maintenance costs compared to SIA structure
VAT and Indirect Taxes
VAT Rates in Latvia for 2026
| Category | VAT Rate | Application |
|---|---|---|
| Standard rate | 21% | Most goods and services, professional services, electronics |
| Reduced rate | 12% | Pharmaceuticals, medical equipment, children's products, hotel accommodation, public transport |
| Super-reduced rate | 5% | Books/media in Latvian/EU/OECD languages, fruits/vegetables, certain food products |
| Temporary reduced rate (Jul 2026-Jun 2027) | 12% | Essential foods: bread, milk, eggs, fresh poultry (pilot program) |
| Zero rate | 0% | Exports, intra-EU supplies, international transport |
| Exempt | N/A | Financial services, insurance, education, healthcare, postal services |
Important: From July 1, 2026 to June 30, 2027, a pilot program reduces VAT to 12% on essential foods (bread, milk, poultry, eggs) to combat inflation.
VAT Registration and Compliance
Registration Threshold
Resident businesses must register for VAT when annual turnover exceeds €50,000 from taxable activities. Non-resident businesses must register immediately upon starting taxable activities in Latvia regardless of turnover. EU distance selling threshold is €10,000 for cross-border e-commerce. Voluntary registration available below threshold.
Filing Frequency and Deadlines
Monthly filing for businesses with intra-EU trade. Quarterly filing for annual turnover €14,228.72-€50,000. Bi-annual filing for turnover below €14,228.72. VAT returns must be filed electronically by the 23rd of the month following the reporting period. Payment due same date as filing deadline.
Intrastat Reporting
Mandatory for EU traders exceeding thresholds: €350,000 annually for arrivals (goods coming into Latvia) and €200,000 annually for dispatches (goods leaving Latvia). Declarations due by 10th of following month. Penalties apply for late submission. Electronic filing through State Revenue Service system.
E-Invoicing Timeline
B2G (business-to-government) e-invoicing mandatory from January 1, 2025. Voluntary B2B e-invoicing starts January 1, 2026. Mandatory B2B e-invoicing postponed to January 1, 2028 (previously 2026) to give SMEs more preparation time. XML format required through VID system. B2C transactions exempt.
Employer Social Contributions
Mandatory NSIC Contributions
Employer Portion
23.59%
of gross salary (uncapped)
Employee Portion
10.5%
withheld from salary
Employers in Latvia must pay National Social Insurance Contributions (NSIC) on employee salaries. The employer contribution of 23.59% is paid on top of gross salary (not deducted from employee), while the employee portion of 10.5% is withheld from gross salary before calculating personal income tax.
Employer pays 23.59% NSIC on top of employee gross salary
Employee pays 10.5% NSIC deducted from gross salary (reduces PIT base)
Combined total: 34.09% social insurance contributions
Contributions capped at €105,300 annual income; Solidarity Tax applies above
Monthly reporting and payment through payroll declaration system
Tax Deductions and Incentives
Corporate Tax Deductions
Operating Expenses
All ordinary and necessary business expenses are deductible for accounting purposes, though they don't reduce current tax liability since profits are only taxed when distributed. Deductible expenses include salaries, rent, utilities, professional services, marketing, and insurance premiums.
R&D and Innovation Support
Government grants and EU funding available for research and development activities. Enhanced deductions for qualifying R&D expenses. Innovation support programs particularly for technology companies and SMEs. Latvia ranks highly for ease of doing business and digital infrastructure.
Donation Relief
CIT payment can be reduced by donating to public benefit organizations, budget institutions, state capital companies providing cultural services, or qualifying EU/EEA NGOs. Donations can reduce CIT liability by up to 85%. Must be to organizations with proper status under Latvian law or equivalent foreign status.
Capital Gains Exemption
Income from sale of shares held for at least 36 months can reduce dividends included in tax base by amount of capital gain. Exemption applies to direct participation shares with 36+ month holding period. Does not apply to real estate company shares or companies in tax havens. Favorable for long-term investors.
Special Economic Zones and Incentives
SEZ Benefits
Latvia offers three Special Economic Zones (SEZ) providing significant tax advantages for qualifying businesses. These zones support manufacturing, logistics, and export-oriented activities.
CIT reduction up to 80% for qualifying investments and job creation
Property tax exemptions for buildings and land in SEZ territory
Streamlined customs procedures and VAT deferral options
Access to modern infrastructure and logistics facilities
Free ports in Riga and Ventspils with additional benefits
Withholding Taxes
Withholding Tax Rates
| Payment Type | Rate | Notes |
|---|---|---|
| Dividends to non-residents | 0% | Standard rate for most countries (CIT paid at company level) |
| Dividends to tax haven entities | 20% | Higher rate for payments to blacklisted jurisdictions |
| Interest to non-residents | 0% | Generally no WHT if not deemed profit distribution |
| Royalties to non-residents | 0% | Generally no WHT if not deemed profit distribution |
| Branch profit repatriation | 0% / 20% | 0% standard; 20% if paid to tax haven jurisdiction |
| Services to non-residents | 0% | No WHT on service payments unless deemed distribution |
Important: Latvia has double taxation treaties with over 60 countries. Since CIT is paid at company level when profits are distributed, there is generally no additional WHT on dividends to foreign shareholders (except tax havens).
Tax Filing and Compliance
CIT Declaration and Payment
Monthly Filing
By 20th
of following month
Payment Deadline
By 23rd
of following month
Companies must file monthly CIT declarations if taxable objects arise during the month. If no taxable distribution occurs, no declaration is required except for the last month of the reporting year (annual declaration mandatory).
Monthly CIT declaration due by 20th of following month if distributions made
Tax payment due by 23rd of month following taxation period
Annual declaration mandatory for last month of reporting year
Electronic filing through State Revenue Service EDS system required
No declaration required for months without taxable distributions
Special Tax Regimes
Latvia offers specialized tax regimes for certain business types and activities beyond the standard corporate tax system.
Micro-Enterprise Tax (MET): 25% flat rate on turnover for eligible small businesses
Tonnage Tax: Available for companies operating ships in international transport
Credit institution surcharge: Additional 20% tax for banks and consumer lenders
Solidarity contributions: Banks pay quarterly contributions 2025-2027 period
Company Registration Process
Registering a SIA in Latvia
The process to register a limited liability company (SIA) in Latvia is streamlined and can be completed in 1-3 business days when all documents are properly prepared. Registration can be done remotely or in person.
Choose unique company name (check availability in Enterprise Register)
Draft Articles of Association and Memorandum of Association
Open temporary bank account and deposit minimum share capital
For standard SIA: deposit €2,800 (or at least €1,400 before registration)
For micro-capital SIA: deposit full amount €1-€2,799 before registration
Submit application to Enterprise Register (Uzņēmumu reģistrs)
Obtain company registration certificate (1-3 business days)
Register with State Revenue Service for tax purposes (TIN)
Registration Requirements and Costs
State Registration Fee
Approximately €150-200 for standard SIA registration with Enterprise Register. Lower fees for micro-capital SIA. Additional fees for certified copies of registration documents. Express processing available for higher fee (1 business day vs 3-5 days standard).
Notarization Requirements
Founders' signatures on incorporation documents must be notarized or signed with secure e-signature. Documents in foreign languages require certified translation into Latvian. Foreign documents may need apostille (except from EU/EEA countries). Notary fees typically €50-150.
Banking and Capital
Temporary business account required to deposit share capital. Banks require same documentation as permanent accounts including beneficial owner details. Standard SIA requires €2,800 minimum capital (€1,400 before registration, remainder within one year). Micro-capital SIA: €1-€2,799 fully paid before registration.
Professional Services
Legal and accounting setup fees typically €500-1,500 for SIA formation. Ongoing accounting services from €100-300/month depending on transaction volume. Professional assistance recommended for foreign investors to ensure compliance. Total initial setup costs typically €1,000-3,000 for standard SIA.
2026 Updates and Changes
Alternative Dividend Tax Regime
From January 1, 2026, companies whose shareholders are exclusively natural persons can opt for alternative tax regime: 15% CIT (calculated on gross profit divided by 0.85 coefficient) plus 6% PIT withheld from actual dividend paid. This regime helps non-resident shareholders claim foreign tax credit in their home countries. Companies choose which regime to apply per distribution.
Essential Food VAT Reduction
From July 1, 2026 to June 30, 2027, pilot program reduces VAT from 21% to 12% on essential food items: bread (all types), milk (fresh/sterilized/pasteurized), fresh poultry meat, and fresh eggs in shell. Designed to combat inflation and reduce household costs. Permanent 12% rate continues for fresh fruits and vegetables.
Books and Media VAT Language Restrictions
From January 1, 2026, the 5% reduced VAT rate on books, press, and media applies only to publications in Latvian, Latgalian, Livonian, or official languages of EU/EEA/OECD member states. Publications in other languages (including Russian) subject to standard 21% VAT. Aims to strengthen domestic cultural space and language policy.
B2B E-Invoicing Postponed to 2028
Mandatory B2B e-invoicing originally planned for January 1, 2026 has been postponed to January 1, 2028, giving businesses more time to prepare. B2G e-invoicing remains mandatory from 2025. Voluntary B2B e-invoicing available from 2026. XML format required through VID system. Postponement particularly benefits SMEs.
Interest Payment Exemption Expansion
From January 1, 2028, scope of exemptions in CIT Law will be expanded regarding excess interest payments included in taxable base. New exemptions will apply to: public-private partnership project financing, publicly traded securities financing, and financing from multiple alternative (non-bank) sources. Reduces thin capitalization impact.
New Natural Resource Tax Objects
Starting 2027, new Natural Resource Tax (NRT) objects introduced: peat (€3.50 per tonne), roundwood exports (€75 per cubic meter for unprocessed wood exported outside EU), and increased rates for sand and gravel (25% increase). Environmental measure to discourage raw material exports and encourage local processing.
Frequently Asked Questions
What is the corporate income tax rate in Latvia for 2026?
Latvia applies a 20% CIT rate to distributed profits, but due to the 0.8 coefficient calculation method, the effective rate is 25% on the net distributed amount. However, retained and reinvested profits are taxed at 0%, making Latvia highly attractive for companies focused on growth. From 2026, companies wholly owned by individuals can opt for an alternative 15% CIT plus 6% PIT regime on dividends.
How does Latvia's deferred corporate tax system work?
Since 2018, Latvia taxes corporate profits only when they are distributed as dividends or deemed distributions, not when earned. All undistributed profits retained in the business are taxed at 0%, regardless of whether they come from active trading or passive income. This encourages reinvestment and provides significant cash flow advantages for growing businesses. Tax is only paid when profits are distributed to shareholders or used for non-business purposes.
What is the minimum share capital required to register a SIA in Latvia?
A standard SIA requires €2,800 minimum share capital, with at least €1,400 (50%) paid before registration and the remainder within one year. A micro-capital SIA can be formed with €1-€2,799 capital, but must be fully paid before registration. Micro-capital SIA is only available for individual shareholders (maximum 5 natural persons) who don't own shares in other micro-capital companies.
What are the VAT rates in Latvia for 2026?
Latvia has multiple VAT rates: 21% standard rate for most goods and services, 12% reduced rate for pharmaceuticals, medical equipment, hotel accommodation, and public transport, and 5% super-reduced rate for books/media in specified languages and fruits/vegetables. A temporary pilot program from July 2026 to June 2027 applies 12% VAT to essential foods (bread, milk, eggs, fresh poultry). Exports and intra-EU supplies are zero-rated.
What social contributions do employers pay in Latvia?
Employers pay 23.59% National Social Insurance Contributions (NSIC) on employee gross salaries, paid on top of salary (not deducted from employee). Employees pay 10.5% NSIC withheld from their gross salary. Combined total is 34.09%. Contributions are capped at €105,300 annual income, with Solidarity Tax applying at same rates above this threshold. Total employer cost is approximately 123.59% of gross salary.
What is the alternative dividend tax regime introduced in 2026?
From January 1, 2026, companies whose shareholders are exclusively natural persons (individuals only) can opt for an alternative tax regime when distributing dividends. Profits are divided by coefficient 0.85 and taxed at 15% CIT (calculated on gross), with 6% PIT withheld from the actual dividend amount paid to shareholders. This regime was introduced to help non-resident individuals claim foreign tax credits in their home countries.
How long does it take to register a company in Latvia?
The company registration process in Latvia typically takes 1-3 business days when all documents are properly prepared. Standard processing is 3-5 business days, with expedited 1-day processing available for additional fee. The process can be completed remotely through the Enterprise Register using e-signatures, or in person. Time depends on document preparation, bank account opening, and notarization requirements.
What is the VAT registration threshold in Latvia?
Resident businesses must register for VAT when annual turnover exceeds €50,000 from taxable activities. Non-resident businesses must register immediately upon starting taxable activities in Latvia regardless of turnover level. The EU-wide distance selling threshold is €10,000 for cross-border e-commerce. Voluntary registration is available for businesses below the mandatory threshold.
Can foreigners own 100% of a Latvian company?
Yes, 100% foreign ownership is permitted for Latvian companies including SIA and AS structures. There are no nationality or residency restrictions on shareholders or directors. Foreign investors can establish and own companies without needing to reside in Latvia. The registration process can be completed remotely using powers of attorney and e-signatures. EU citizens have same rights as Latvian nationals for business establishment.
What is the difference between SIA and IK in Latvia?
SIA (limited liability company) offers limited liability protection, requires €2,800 minimum capital (or €1-€2,799 for micro-capital SIA), and pays 20% CIT only on distributed profits (0% on retained profits). IK (sole proprietorship) has no minimum capital but provides no liability protection - the owner is personally liable for all business debts. IK income is taxed as personal income at progressive rates (25.5-33% plus potential 3% surtax). SIA is preferred for serious businesses and foreign investors, while IK suits small freelancers.
Calculate Your Corporate Tax in Latvia
Use our comprehensive calculator to estimate your corporate income tax on distributions, VAT obligations, and employer contributions. Compare different business structures and optimize your tax position.
Sources and Further Reading
Official Source
Official Source
Official Source
Official Source
Official Source