Running your business

Taxation
The Taxes and Duties Act, as amended, determines Latvia’s general taxation principles. Specific taxes are assessed according to one of the special tax laws, such as the VAT Act or the Corporate Income Tax Act. If there is a conflict between the general principles and special rules, the latter prevail.

Under the Taxes and Duties Act, duties are imposed by either the state or municipalities. The state is entitled to impose duties on a number of different items, including vehicles, court applications, notary applications, gambling, changes to identification data, reservation of land in rural areas, dealings in vouchers and bills of exchange, immigration services, business licences/permits, registration of security interests, applications for patents, trademarks, or plant protection certificates. Municipalities have the right to apply reliefs in respect of payments which are payable to local government budgets, in line with business-support principles, including to real estate tax.

Main business taxes in Latvia

Personal income tax Differential 20%, 23% and 31.4%
Employer's national social insurance contributions 24.09%
Employee's national social insurance contributions 11%
VAT The standard rate of VAT is 21%. The      reduced rate is 12%
CIT 0% rate is applied to reinvested profit

The Act divides companies into four categories based on defined criteria. If two out of three criteria are met for two consecutive years, the entity must be reclassified into the relevant category:

  Net revenue (EUR)  Total balance sheet (EUR) Average number of employees in financial year
Micro company < 700 000 < 350 000 < 10
Small company < 8 million < 4 million < 50
Medium company < 40 million < 20 million < 250
Large company > 40 million > 20 million < 250

Annual financial reporting
Commercial companies, cooperative companies, European economic interest groupings, European cooperative societies and European commercial companies registered in Latvia must prepare their annual accounts in accordance with the Annual Accounts and Consolidated Annual Accounts Act. Sole traders as well as farming and fishing enterprises must prepare their annual accounts in accordance with the Act if their revenue exceeds € 300 000 in the last year.

Annual accounts consist of a financial statement and a management report. Companies classified as small may elect not to prepare a cash flow statement and a statement of changes in equity. The Act also defines certain exemptions for required disclosures. 

A management report must provide information about the company’s development, financial results and position, as well as the main risks and uncertainties it faces.

Annual accounts must be audited by a certified auditor under the Certified Auditors Act if the company is large or medium or if its transferable securities are traded on a regulated market. A statutory audit must also be performed for small companies if one of the following conditions is met:

  1. it exceeds two of the following criteria for two consecutive years: total balance sheet of € 800 000; net revenue of € 1.6 million; an average of 50 employees in the financial year;
  2. it is the parent in a group of companies;
  3. it is a public person’s company or its subsidiary or a public-private capital company within the meaning of the Management of Public Persons’ Shares and Companies Act; or it elects to recognise certain financial statement items in accordance with IFRS.

Companies must submit their annual accounts together with a certified auditor’s report (if any) to the State Revenue Service within one month of the accounts being approved, and within four months of the end of the financial year (for medium and large companies – within seven months of the end of the financial year). In general, the financial year coincides with the calendar year, however companies are free to choose other starting and end points for their financial year.

Real estate acquisition and restrictions

Latvian legislation provides no restrictions on the acquisition or transfer of ownership rights to real estate in cities for citizens of Latvia, citizens of EU member states, and companies in which more than 50% of equity is owned by citizens of Latvia, citizens of EU member states, or natural or legal persons from countries with which Latvia has entered into international agreements on the promotion and protection of investments. Foreign nationals from third countries are subject to restrictions on the acquisition of land in state border zones, specially protected areas, natural-resource extraction areas, and agricultural or forest land.

Regulations of competition, mergers and acquisitions

Foreign and local companies commencing business or involved in reorganization (merger or acquisition) must comply with the corresponding provisions of the Competition Law, the Commercial Law, and the Law on Corporate Income Tax. Since Latvia acceded to the EU in 2004, the Competition Law and the national competition authority – the Competition Council – have operated in accordance with EU regulations on mergers and acquisitions.

The protection and development of competition in Latvia is the responsibility of the Competition Council, whose main tasks are to:

  • Monitor observance of the prohibition against the abuse of dominant positions and prohibited agreements by market participants;
  • Monitor observance of the Advertising Law;
  • Examine submitted notifications regarding agreements between market participants and take decisions in respect of them;
  • Restrict market concentration.

The Competition Council has the right to:

  • Carry out market supervision;
  • Conduct investigations of competition violations;
  • Provide opinions regarding the conformity of market participants’ activities;
  • Submit pleadings, applications, and complaints to courts.

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