Almost every freelancer in Latvia eventually faces this question. At first, the self-employed (pašnodarbinātais) status seems simple — register with VID, issue invoices, fill in an annual declaration. But as income grows, so does the tax burden, client requirements, and your own ambitions. Around 80% of freelancers whose income exceeds €25,000–30,000 a year end up forming an SIA. The question is not "whether", but "when".
In 2026, this decision has become even more pressing due to several tax changes: the alternative CIT regime (15% + 6%), minimum social contributions based on a €780 salary, and stricter EDS access requirements. This guide will help you calculate exactly when an SIA becomes more advantageous — and how to make the transition without unnecessary stress.
How the Self-Employed Status Works in 2026
A self-employed person (saimnieciskās darbības veicējs) is a natural person registered only with the State Revenue Service (VID) — no Commercial Register registration is required. Registration is done by submitting an application to VID (via EDS or in person), after which the individual acquires the right to carry out economic activities.
Tax Burden for the Self-Employed in 2026
A self-employed person's income is subject to personal income tax (IIN) at two rates:
25.5% on income up to €105,300 per year
33% on the portion of income exceeding €105,300
Additionally, the self-employed must make state social insurance contributions (VSAOI):
Rate: 31.07% of gross income (employee portion 10.50% + employer portion 20.57% — the self-employed person pays both)
Minimum monthly VSAOI contribution in 2026: €242.35 per month (€780 × 31.07%), even if there is no income
Self-Employed Tax Calculation — An Example
Let's assume a freelancer earns €30,000 per year (€2,500 per month). The calculation:
Gross income: €30,000
VSAOI (31.07%): –€9,321
Taxable income: €20,679
PIT (25.5%): –€5,273
Net income: €15,406
Effective tax burden: 48.6%
That is a significant burden — almost half of what you earn goes in taxes. At €50,000 annual income, due to the VSAOI cap (€62,800 in 2026), the burden slightly decreases but still exceeds 40%.
When an SIA Becomes More Advantageous — The Exact Tipping Point
The answer depends on how much of your profit you plan to withdraw for personal use. Let's look at three scenarios.
Scenario: The freelancer withdraws all profit (nothing left in the company)
Assume the freelancer's annual revenue is €30,000 and they want to withdraw all the money for personal use.
Self-employed:
Net income: €15,406 (see calculation above)
SIA (standard CIT regime):
Assume the company earns €30,000
CIT (20/80 formula): €30,000 / 0.8 × 20% = €7,500
Net income: €22,500
Plus SIA maintenance costs: ~€2,400 per year (accountant, bank, address)
Real take-home: ~€20,100
Difference: ~€4,700 in favour of the SIA. Even with maintenance costs, the SIA is significantly more advantageous already at €30,000.
The Tipping Point — At What Income Does an SIA Start Winning?
Annual revenue | Self-employed (net) | SIA (net, after costs) | Difference |
|---|---|---|---|
€15,000 | €10,700 | €9,600 | +€1,100 self-employed wins |
€25,000 | €14,200 | €15,600 | +€1,400 SIA wins |
€40,000 | €21,500 | €27,600 | +€6,100 SIA wins |
€60,000 | €31,000 | €42,000 | +€11,000 SIA wins |
Conclusion: The tipping point is approximately €20,000 in annual revenue. Above this threshold, an SIA becomes more advantageous. At €40,000, the difference exceeds €6,000 per year — enough to cover your accountant and leave a surplus.
When the Alternative CIT Regime Is Advantageous for a Freelancer
The new alternative CIT regime (15% + 6%) is more advantageous if you withdraw more than 75–80% of your profit. For a freelancer who takes almost all the money out of the company, this regime can be even more beneficial:
At €30,000 profit: alternative regime = CIT €4,500 + PIT €1,530 = total tax €6,030, net €23,970
Standard regime: CIT €7,500, net €22,500
Difference: +€1,470 in favour of the alternative regime.
Non-Tax Reasons to Form an SIA
Taxes are not the only reason freelancers switch to an SIA. There are several other significant factors:
1. Client requirements. The majority of B2B clients — especially foreign ones — refuse to contract with individuals. They want invoices from a legal entity with a VAT number. An SIA opens the door to larger projects and corporate clients.
2. Limited liability. A self-employed individual is liable with all their personal assets. An SIA owner's liability is limited to the invested share capital. If something goes wrong — a contractual penalty, an unhappy client, a mistake in your work — an SIA protects your personal assets.
3. Professional image. "SIA" on your business card and invoices looks more professional than "self-employed". Banks, leasing companies, and potential partners take an SIA more seriously.
4. Growth potential. An SIA can hire employees, bring in partners, and sell capital shares. A self-employed individual cannot offer these options.
5. VAT recovery. If your costs are VAT-inclusive (equipment, software, office rent), an SIA as a VAT payer can recover the input VAT. A self-employed person cannot take advantage of this until they register for VAT (which is less often beneficial for the self-employed).
How to Transition from Self-Employed to SIA Without Business Interruption
The transition from self-employed to SIA can happen smoothly if you follow the right sequence. The main rule: do not close your self-employed activity before the SIA is fully ready to operate.
Step by Step
Form the SIA while continuing to work as self-employed. Registration takes 1–3 working days.
Open an SIA bank account and obtain a VAT number (if required). Opening a bank account can take 2–4 weeks — start this process in parallel with registration.
Notify your clients. Send out a notice that future invoices will be issued by the SIA rather than the self-employed individual. Provide the new payment details.
Start issuing invoices from the SIA for new projects. Continue any existing projects that began under the self-employed status until they are completed.
Gradually reduce your self-employed activity. Once all old projects are finished and all new ones come through the SIA, you can close the self-employed status.
File your final self-employed declaration and notify VID of the termination of your activity.
Important Nuances
Do not use the same bank account for both structures. This creates confusion in accounting and can prompt VID questions.
Do not overlap the same expenses across both structures. If you use a computer for both activities, determine a proportion and document it.
Keep all self-employed documents for at least 10 years — even after closing the status.
Can You Run Both Self-Employed and SIA Simultaneously?
Yes, the law permits it. An individual may simultaneously be self-employed and an SIA owner/board member. However, this must be justified by different types of activity — for example:
As a self-employed person, you provide consulting in one area, while the SIA sells software.
As a self-employed person, you work with smaller clients, while the SIA serves large corporate orders.
VID carefully monitors situations where a person artificially splits the same activity between two structures to avoid taxes. If both structures perform identical activities for the same clients, this may be regarded as tax avoidance.
Accounting for Freelancers — What Records You Must Keep
Self-Employed Accounting
A self-employed person must keep single-entry bookkeeping — an income and expense journal. Full double-entry accounting is not required, but you must be able to demonstrate:
All income (invoices)
All expenses (receipts, supplier invoices)
A fixed asset register (if you have equipment, computers)
It is advisable to use accounting software (e.g. Pats.lv) that automatically generates the income/expense journal and helps with completing the Annual Income Tax Return.
SIA Accounting
An SIA requires full double-entry accounting. This means:
Each transaction must be posted to accounts (debit/credit)
A balance sheet and profit and loss statement must be prepared
VAT returns must be filed (if the SIA is a VAT payer)
An Annual Report must be filed
The majority of freelancer-SIAs use an outsourced accountant — this is cheaper than hiring a full-time accountant and ensures professional record-keeping.
How to Choose the Best Structure for Your Situation
To make your decision, consider these questions:
What is your annual income? If under €20,000 — self-employed is probably simpler. If above €30,000 — an SIA is almost certainly more advantageous.
Do your clients require invoices from a legal entity? If most of your clients are B2B, an SIA is a mandatory requirement.
What are your business risks? If a client could potentially bring a claim, an SIA provides liability limitation.
Do you plan to scale? If you want to hire employees or bring in partners in the future, an SIA is your only option.
How much time are you willing to spend on administration? Self-employed means less bureaucracy; an SIA means more.
The transition from self-employed to SIA is not just a tax question — it is a phase of business development. For most freelancers reaching €25,000–30,000 in annual income, an SIA becomes a natural next step. Our team helps with both SIA formation and managing the transition process — from the first consultation to full ongoing accounting services.
Last updated: May 2026. Information is based on the Personal Income Tax Law, the Corporate Income Tax Law, the State Social Insurance Law, and official VID materials.
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