Published on and written by Cyril Jarnias
Settling in Latvia, working there, or purchasing real estate means facing a highly structured tax system that can sometimes be confusing for a foreigner. The tax system is generally competitive, especially for businesses and investors, but remains demanding for individuals in terms of paperwork and proof required. For an expat, two topics consistently come up: income tax and property tax on real estate.
This article details the tax rules applicable to non-residents and foreign residents in Latvia, presenting the most recent figures and legal provisions for practical understanding.
Understanding Tax Residency and Its Impact
The first question an expat must resolve is that of tax residency. In Latvia, the status of resident or non‑resident determines the entire tax burden.
A person is considered a tax resident if their declared domicile is in Latvia or if they are physically present in Latvia for at least 183 days in any 12‑month consecutive period. The authorities apply the OECD presence test: all days of arrival, departure, weekends, public holidays, and vacations spent in the country are counted. Only transit stays of less than 24 hours between two foreign countries are disregarded.
Residency can also be attributed if the “center of vital interests” is in Latvia: family, primary home, main professional activity, social affiliations, etc. Conversely, a person may cease to be a resident from the date of departure if they demonstrate closer ties to another country—for example, a family home, social security contributions, or primary income abroad.
Finally, some cases are automatic: a Latvian citizen employed abroad by the Government of the Republic of Latvia is treated as a tax resident, even without significant physical presence in the country.
A Latvian tax resident is taxed on their worldwide income, regardless of geographical source. Conversely, a non-resident is only subject to Latvian tax on their Latvian-source income, such as salaries for work performed in Latvia, rental income from property located in the country, or capital gains realized on such properties.
This distinction is complemented by the network of double taxation treaties. Latvia has over 60 treaties, covering notably all EU member states, the United States, Canada, Australia, Switzerland, and Japan. In cases of residency conflicts, or income taxable in two countries, these treaties allocate taxing rights and provide exemption or tax credit mechanisms.
Personal Income Tax: A Progressive but Structured System
Latvia applies a progressive income tax, with rates that rise quickly for high incomes, supplemented by a surcharge for very high incomes. The system remains relatively simple, with no local income tax or separate solidarity tax (the latter is integrated via the Solidarity Tax mechanism on social contributions).
Tax Brackets and High-Income Surcharge
For an expat who becomes a tax resident, or a non-resident already heavily taxed in Latvia, the following brackets apply to annual taxable income, excluding certain capital income:
| Annual Taxable Income Bracket | Personal Income Tax (PIT) Rate |
|---|---|
| Up to €105,300 | 25.5% |
| Over €105,300 | 33% |
In addition to this bracket, a 3% surcharge applies to the portion of total annual income exceeding €200,000. This surcharge is calculated at the time of the annual return, and the base is broad: it includes employment income, capital income (interest, dividends, capital gains), royalties, and certain categories normally exempt, such as some dividends benefiting from a 0% regime.
Withholding tax rate generally applied monthly by employers on salaries.
There is no local or municipal income tax: all income tax is collected at the state level, even though a large portion is subsequently redistributed to municipal budgets.
Employment Income, Bonuses, and Fringe Benefits
For an expatriate employee, all compensation related to work physically performed in Latvia is included in the tax base: salaries, bonuses, premiums, allowances, fringe benefits (housing, car, plane tickets, school fees paid by the employer, etc.). The basic rule is the physical location of the work: if the work is performed in Latvia, the income is considered Latvian-source.
Board member fees or remuneration for members of the board of directors of a Latvian company are also taxable in Latvia, even if the recipient is a non‑resident.
In Latvia, employers are required to withhold and remit income tax and social contributions from their employees’ salaries each month. However, if the employer is foreign and not established in Latvia, it is the resident employee themselves who must calculate and pay monthly income tax advances.
Non‑Residents: Withholding Tax and Options
A non-resident is generally taxed at the same rates as residents on their Latvian income, but in practice, many types of income are subject to final withholding taxes. Thus, a non-resident receiving rental income, certain remuneration, or real estate capital gains is subject to a fixed rate at source, with the possibility in some cases of opting for taxation at the progressive rate on the actual gain (especially for real estate sales).
Non‑residents generally do not have access to the tax-free allowance or deductions, with one important exception: residents of an EU or EEA state who derive more than 75% of their annual income from Latvia may apply for the same allowances as a resident by filing an annual tax return.
Allowances, Deductions, and Optimization for Expats
The Latvian system is generous with family allowances and deductible expenses, but requires excellent document management. For an expat who becomes a resident, optimization involves making good use of these provisions.
Tax-Free Allowance and Pensioner Allowances
Latvia applies a fixed tax-free allowance, identical for all taxpayers, regardless of income level. For recent years, this allowance is as follows:
| Type of Taxpayer | Monthly Tax-Free Allowance | Annual Tax-Free Allowance |
|---|---|---|
| Standard taxpayer | €550 | €6,600 |
| Recipient of old‑age or disability pension | €1,000 | €12,000 |
Pensioners who work can split this special allowance: €500 applied to the pension and €500 to the salary. This allowance, like those for dependents, is applied each month only if the employee has submitted their “tax booklet” to their main employer.
Dependents and Special Situations
The allowance for dependents is particularly advantageous for expat families. It is set at €250 per month, i.e., €3,000 per year, per dependent. The following are considered dependents:
Categories of individuals who can be claimed as dependents for certain procedures or benefits.
Children under 18.
Young people aged 18–24 in full‑time education.
Certain adults with disabilities.
Parents or grandparents living in the same household.
For an expat whose children reside in another country, it is still possible to declare them as dependents, but the procedure is more burdensome. You must obtain a tax booklet from the State Revenue Service (SRS/VID), provide copies of identity documents and birth certificates, and a certificate from the foreign tax authority confirming that comparable tax benefits are not already being received in that country.
Additional relief exists for disabled persons or those recognized as politically repressed or members of the national resistance movement. These provisions can add more than €1,400 to €1,800 in annual allowances.
Deductions for Health, Education, and Pension Savings
Beyond allowances, certain personal expenses qualify for deductions, subject to an overall cap.
The following are deductible (subject to conditions):
– education expenses: tuition fees, extracurricular activities (sports, music, clubs, language courses) for the taxpayer or family members;
– medical expenses: dental care, hospitalization, scheduled procedures, exams, medications, health insurance;
– donations to public benefit organizations and Latvian political parties;
– contributions to a private pension fund and premiums for life insurance with a savings component, for contracts of at least 10 years.
The framework is strict, however.
| Type of Deduction (per person) | Annual Overall Cap | Main Conditions |
|---|---|---|
| Education + health + donations (taxpayer) | €600 | Not exceeding 50% of annual taxable income |
| Education + health (per family member) | €600 | Per person, excluding donations |
| Private pension contributions + savings life insurance | 10% of taxable income (max €4,000) | Contract ≥ 10 years, excluding public donation funding |
Excess expenses can be carried forward to subsequent years. To claim them, you must keep and submit supporting documents (invoices, receipts, proof of payment) to the SRS, often in scanned form via the EDS electronic system.
For non‑residents from the EU/EEA who meet the 75% Latvian income threshold, these same deductions become accessible, provided they file an annual tax return.
Social Contributions and Solidarity Tax: A Significant Cost
The cost of labor in Latvia is significantly increased by social security contributions (National Social Insurance Contributions, NSIC). They fund pensions, healthcare, unemployment insurance, and other social benefits.
The burden is shared between employer and employee:
| Contributor | Rate on Gross Salary |
|---|---|
| Employer | 23.59% |
| Employee | 10.5% |
| Total | 34.09% |
These contributions apply on a base ranging from the minimum wage (€780 monthly for recent years, higher in some sectors like construction) up to an annual cap of €105,300. Above that, the Solidarity Tax mechanism applies, levied at the same nominal rates but whose economic effect results in an effective rate of 25%, with the employer recovering part of the contribution.
Self-employed individuals must register and pay both the employee and employer shares, i.e., 34.09% on a minimum quarterly base of €2,340. Reduced rules exist for very low incomes. An alternative is the Microenterprise Tax (MET) regime, a simplified 25% tax on turnover (including income tax and social contributions), available to small businesses with annual revenue not exceeding €40,000.
Capital Income, Crypto‑Assets, and Dividends
For an expatriate investor or holder of financial wealth, Latvia offers a relatively clear environment, but with notable subtleties, especially regarding dividends and real estate.
Capital Gains and Reporting Obligations
Generally, capital gains on assets (shares, equity interests, certain financial instruments) are subject to a rate of 20% or 25.5% depending on the category and interpretation of applicable rules. In practice, recent legislation converges toward a rate of 25.5% for ordinary capital gains.
For capital disposal transactions, reporting obligations are specific. If, in a calendar quarter, total capital gains exceed €1,000, the taxpayer must file a capital gains return by the 15th of the month following the end of the quarter. If this threshold is not exceeded, the return can be deferred until January 15 of the following year.
To determine the acquisition cost, the taxpayer may choose between the FIFO method (first-in, first-out) and the weighted average cost method. This choice must then be maintained for at least ten years, ensuring accounting consistency.
Losses on disposals may be offset against gains of the same nature, and an “annual capital gain adjustment return” mechanism allows recovery of overpayments if losses are subsequently identified.
Cryptocurrencies: A Taxable Capital Asset
Crypto‑assets are treated as capital assets. Profits realized upon their disposal are taxed at the same rate as other capital gains (20% under certain provisions, 25.5% under more recent ones), and losses can only be offset against crypto gains from the same tax year. Companies engaged in cryptocurrency trading, on the other hand, fall under the Corporate Income Tax (CIT) regime.
Dividends: Between Exemption and Full Rate
Dividends paid to individuals are in principle taxable at a rate of 25.5%. However, the structure of the Latvian corporate income tax creates a frequent exemption scenario.
Dividends received by an individual are not subject to additional income tax if corporate income tax has already been paid on the distributed profits. This 0% regime applies to dividends from Latvian and EU/EEA companies, subject to conditions: profits realized after 2017, not sourced from tax havens, and proof of prior taxation abroad may be required.
Dividends from companies established in jurisdictions with preferential tax regimes remain taxed at 25.5% with no possible exemption. Similarly, certain dividends from micro‑enterprises that are not subject to corporate income tax may remain taxable in the hands of the shareholder.
Starting in 2026, an optional regime applies to Latvian companies owned solely by individuals. This scheme, designed for small structures, taxes distributed profits at a CIT rate of 15%, then applies a 6% withholding tax on dividends paid to shareholders. It allows smoothing of the tax burden between the company and the individual and clarifies the taxation of distributions.
Royalties and Other Capital Income
Royalties (copyright, neighboring rights, etc.) received by individuals not registered as self-employed are subject to a 25% withholding tax on the gross amount. This transitional regime is extended until the end of 2027. When royalties come from collective management organizations, a rate of 25.5% applies.
Interest received by individuals, including from bank deposits, is taxed at 25.5%. Income from the third pillar of private pensions or certain life insurance contracts is itself considered “other capital income” and taxed at a specific rate (around 10% for some products, 25.5% in more recent practices for others).
Real Estate Taxation: Property Tax, Capital Gains, and Transfer Taxes
For many expats, Latvia is considered a country where they can buy an apartment or house, whether to live in, rent out, or as part of a residential investment (for example, through certain “golden visa” schemes requiring a real estate investment of at least €250,000). Real estate taxation has three components: annual property tax, taxation of rental income and capital gains, and acquisition/transfer taxes.
Property Tax: A Local Tax Based on Cadastral Value
The property tax (Immovable Property Tax) is a tax managed by municipalities, based on the cadastral value of the property (land + buildings) determined by the State Land Service according to a mass valuation methodology (location, area, technical condition, utilities, etc.). Cadastral values are generally significantly lower than market values and are revised periodically.
Municipalities have considerable discretion in setting rates, within a national framework ranging from 0.2% to 3% of the cadastral value. They must publish their regulations before November 1 of the year preceding the tax year. In the absence of a local decision, default rates apply.
For residences (dwellings not used for commercial purposes), the default schedule is progressive:
| Cadastral Value of Dwelling | Property Tax Rate |
|---|---|
| Up to €56,915 | 0.2% |
| From €56,915 to €106,715 | 0.4% |
| Over €106,715 | 0.6% |
For vacant land and commercial buildings, the default standard rate is 1.5% of the cadastral value. For unfarmed agricultural land exceeding one hectare, an additional 1.5% may apply, bringing the effective rate to 3%.
Tax rate for commercial properties under the planned reform in Riga, which may be higher for dilapidated buildings.
Tax is due from the month following acquisition of the property, and a payment notice must be sent by the municipality before February 15 of the tax year. The amount can be paid in four installments (March 31, May 15, August 15, November 15) or in a single payment. A minimum of €7 per taxpayer per municipality applies. Late payments incur interest of 0.05% per day.
For expatriate property owners, it is crucial to notify the municipality of any change of use (e.g., renting out) within one month; otherwise, a penalty of 30% of the tax amount may be imposed for the undeclared period.
Property Tax Relief and Exemptions
Relief is not automatic: you must apply to the municipality with supporting documents. Possible reductions include, for example, up to 90% for the most disadvantaged individuals, 50% for large families (3 or more minor children) within a limit, or reductions for disabled persons and certain protected groups (former political prisoners, etc.).
Certain categories of property are fully exempt: embassy and consulate buildings, state or municipal properties used for their functions, roads, railways, public networks, non‑commercial buildings of religious organizations, listed cultural monuments under certain conditions, buildings used exclusively for agriculture, health, education, cultural buildings, national sports facilities, cemeteries, and residential annexes under 25 m² (excluding garages).
For expats, these exemptions will mainly apply in cases of ownership of property used strictly for agricultural, cultural, or religious purposes, which remains marginal.
Taxation of Rental Income for Non‑Residents
A sensitive point for expatriate investors concerns taxation of rental income. A non‑resident who rents out a property located in Latvia is taxable in Latvia on this income.
They have two main options:
– be subject to the standard progressive rate schedule (20% to 31% depending on the reference year), with the possibility to deduct actual expenses: property tax, depreciation, repairs, management fees;
– choose a flat rate of 10% on gross rental income, with no expense deductions, but in return, forgoing any consideration of costs upon resale (no acquisition cost increased by depreciation for calculating capital gains).
For an expatriate investor, the choice depends on the cost structure, holding period, and income profile. The flat rate may be attractive for properties with low upkeep costs held long‑term, but it complicates capital gains optimization.
Real Estate Capital Gains and Exemptions
Since 2010, real estate capital gains have been taxed in Latvia as income, with the base being the positive difference between the sale price and the acquisition cost, plus documented notary fees, agent commissions, appraisal or renovation costs. The applicable rate is around 20%.
Several exemptions are provided for individuals:
Sale of your primary residence is exempt if it has been held and occupied as such for at least 12 consecutive months. The exemption also applies if the property, held for more than 60 months, was your only real estate during that period. Finally, the capital gain may be exempt if the sale proceeds are reinvested in another Latvian real estate property of a similar function within 12 months before or after the sale.
These rules are particularly important for an expat who sells a property after having lived there. If not eligible, the capital gain will be taxed, potentially in Latvia and in the country of residence, with the tax treaty serving as arbiter.
Non‑residents are also subject, upon the sale of Latvian real estate, to a withholding tax of 3% on the sale price. For residents of an EU state or a treaty country, it is possible to request taxation on the actual capital gain at a rate of 20% rather than on the gross amount. The withholding is then credited against the final tax calculated via a return.
Transfer Taxes, VAT, and Ancillary Costs
Latvia applies a real estate transfer tax, often called Property Transfer Tax or Land Register registration fee. The base rate is 3.75% and applies to the highest of the following three amounts: purchase price, cadastral value, or mortgage value. In addition, there are land registration fees (often 1.5% when the property is contributed to a company), notary fees (0.1% to 0.6%), and possibly agent commissions (2% to 5% of the price, borne by the seller).
When the property is new (less than one year since commissioning), the sale is subject to VAT at the standard rate of 21%. After that, the sale is generally exempt from VAT and falls under standard real estate taxation.
Declaration Procedures, EDS, and Deadlines for Expats
Latvia has heavily digitized its tax administration. Almost all procedures are handled via the Electronic Declaration System (EDS) of the State Revenue Service, accessible online. For a resident, access requires a secure electronic identification method (eID, online banking, etc.). Non‑residents can obtain access via a username and password, subject to periodic renewal.
The annual income tax return follows this schedule:
| Taxpayer Situation | Annual Return Filing Period |
|---|---|
| “Standard” income, income < €105,300 | From March 1 to June 1 of the following year |
| Annual income > €105,300 | From April 1 to July 1 |
Filing is mandatory for the self‑employed, individuals with multiple income sources not subject to full withholding at source, those who must pay additional tax (e.g., due to the 33% bracket and 3% surcharge), or those wishing to claim deductions. An employee who has only one Latvian employer and is correctly taxed at source may choose not to file a return, but would then lose the possibility of recovering any overpayments or claiming deductions.
If there is a tax balance due, it is imperative to respect the specific payment deadlines to avoid any penalties.
| Additional Amount Due | Payment Terms |
|---|---|
| ≤ €640 | Single payment by June 23 or July 23 (depending on case) |
| > €640 (return filed before June 1) | Payment in three installments: June 23, July 23, August 23 |
Tax refunds are generally processed within three months after filing the return. The taxpayer must provide a valid bank account in the form.
Supporting documents (medical expenses, education invoices, donation certificates, etc.) can be uploaded as scanned attachments in the EDS, or submitted in person/by mail. It is possible to amend a return within three years if new supporting documents are found.
Double Taxation and Treaties: A Complex Safety Net
For an expat, the main protection against double taxation remains the tax treaty between Latvia and their home country. These treaties generally provide:
– either an exemption method: certain income (e.g., salaries taxed only in the state of performance, dividends taxed in the distributing company’s state) is not re‑taxed in the state of residence;
– or a credit method: tax paid in Latvia is creditable against tax due in the country of residence, up to the amount of tax that would be due locally.
To benefit from double taxation relief mechanisms, it is often necessary to provide a certificate of tax residency from the other state and certifications of the amount of tax paid abroad. Additionally, the Latvian tax authority may require an official attestation from the foreign tax administration to accept the exemption of foreign income in Latvia.
Latvian tax residents who receive foreign income must declare it and request application of the treaty. Non‑residents, on the other hand, can invoke the treaty to benefit from reduced withholding tax rates (e.g., on dividends, interest, royalties) or an exemption from Latvian tax on certain foreign salaries already taxed in an EU/EEA state or a treaty state.
Specifics for Certain Expat Categories
Beyond the general rules, certain expat situations merit clarification.
Posted workers or those teleworking from Latvia for a foreign employer must check whether they create a permanent establishment of their employer in Latvia, which would imply local taxation of the company’s profits. The Latvian authorities particularly examine this risk for senior executives, salespeople, and persons authorized to conclude contracts.
Foreign freelancers and self‑employed individuals can register as sole entrepreneurs in Latvia and possibly opt for the Microenterprise Tax (25% of turnover up to €40,000), which includes income tax and social contributions. They must keep rigorous accounts and can deduct up to 80% of their income as expenses, subject to supporting documents.
Digital nomad employees of an OECD company may sometimes be taxed in their home country, subject to conditions: having a current foreign contract, at least six months of seniority, a high monthly salary (around €3,843), and providing proof of remote work. In this specific case, Latvia may waive taxing their income, but the situation must be rigorously documented.
Finally, U.S. citizens remain subject, in parallel, to the U.S. tax system, as the U.S.-Latvia treaty contains a “savings clause” that allows the United States to tax its citizens as if the treaty did not exist. Mitigation tools (Foreign Earned Income Exclusion, Foreign Tax Credit, FATCA and FBAR obligations) complement the Latvian framework but do not replace it.
Conclusion: A Consistent but Demanding System for Expats
Income taxation and property tax in Latvia form a relatively consistent whole: a fairly simple progressive rate schedule, clearly defined thresholds, no local income taxes, and property taxation based on moderate cadastral values. For an expat, the attractiveness also lies in the corporate income tax regime, which only taxes distributed profits and leaves reinvested profits exempt from CIT, as well as the many double taxation treaties.
The tax regime is technically demanding, with strict reporting obligations, impeccable documentation required for deductible expenses, and imperative filing deadlines subject to penalties. The qualification of residency, based on physical presence and personal ties, must be closely monitored for mobile expats and remote workers.
For a foreigner settling in Latvia long‑term, the challenge is twofold: quickly integrate the mechanisms of allowances, deductions, and relief to reduce the tax bill, while anticipating the impact of property tax and real estate capital gains on their estate plans. By combining a good understanding of local rules with the tools offered by tax treaties, it is possible to reconcile this tax system with a smooth and sustainable establishment in Latvia.
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Cyril Jarnias is an independent expert in international wealth management with over 20 years of experience. As an expatriate himself, he is dedicated to helping individuals and business leaders build, protect, and pass on their wealth with complete peace of mind.
On his website, cyriljarnias.com, he shares his expertise on international real estate, offshore company formation, and expatriation.
Thanks to his expertise, he offers sound advice to optimize his clients' wealth management. Cyril Jarnias is also recognized for his appearances in many prestigious media outlets such as BFM Business, les Français de l’étranger, Le Figaro, Les Echos, and Mieux vivre votre argent, where he shares his knowledge and know-how in wealth management.
