27.07.2017. Tax Reform in Latvia

Company News

Tax reform drafted by the Ministry of Finance of Latvia will be approved this week to come into force from 2018.
The tax reform will cover both individual and corporate taxpayers in Latvia.

Key changes for legal entities:

– corporate income tax
Where the income is invested in the company’s further development the respective corporate income tax rate will be 0% while the regular corporate income tax rate will increase from 15% to 20%. However, dividends distributed to individuals will be tax-exempt.

– minimum wage
The minimum wage will increase up to EUR 430, the non-taxable minimum wage will increase up to EUR 200, likewise, it is planned to increase the tax deduction for a dependent up to EUR 200.

– social tax
The social tax rate will increase by 1% (0.5% for each of employee and employer) totaling 35.09% where an employer will pay 24.09% and an employee will pay 11%.

– value added tax
The list of sectors with a reverse VAT payment procedure will be expanded. The VAT registration threshold will increase up to EUR 40,000.

Key changes for individuals:

– personal income tax
Personal income tax rates (previously — 23%) will be differentiated depending on income:

– income up to EUR 20,000 will be taxed at 20%;
– income from EUR 20,001 to EUR 55,000 will be taxed at 23%;
– income above EUR 55,000 will be taxed at 31.4%.

The single personal income tax rate of 20% will be applied to capital income, including capital gain. Previously these respective rates were 10% and 15%.

– excise tax
The reform provides for the increase of fuel, cigarette and alcohol excise tax rates. Fuel excise tax rates will be from 7.8% to 24% (depending on fuel type), the alcohol excise tax rates will be from 15% to 24%, and the cigarette excise tax rate will be 5.5%.

Also, the amendments to laws on taxes and duties will require credit institutions to provide to the tax service information about their clients, namely individual taxpayers in Latvia, on an annual basis where debit or credit turnover exceeds EUR 15,000 in the previous year.

The tax service is expected to publish lists of employers where average salary does not exceed the national minimum wage.