Business Taxation & Microenterprises – Latvia

Revolutionary system: 0% tax on undistributed profits. Can reinvest indefinitely tax-free. Only pay when distributing dividends or certain transactions. Most competitive in EU for growth companies.

When distributing profits: 20% standard rate (effectively 25% for non-EU shareholders due to calculation method). Tax paid when dividend declared, not when profit earned. Strategic timing possible.

Tax calculated on gross amount before distribution. If distributing €80, must pay €20 tax, total €100. Effectively 20% of distributed amount becomes 25% of net profit. Complex but manageable.

Annual revenue must not exceed €40,000. Maximum 5 employees. Cannot engage in certain restricted activities (financial services, gambling, etc.). Ideal for freelancers, consultants, small shops.

Flat 25% on gross revenue (not profit). Includes ALL taxes: income tax, social contributions, everything. Extremely simplified - no expense tracking needed. Popular with >30,000 microenterprises.

Minimal bookkeeping - just track revenue. No separate social payments. Quarterly declarations. Can switch to standard regime anytime if growing. Many accountants handle for €50-100/month.

25% on revenue means if profit margin 40%, effective tax on profit is 62.5%. Only beneficial if low profit margins or valuing simplicity over optimization. Calculate carefully before choosing.