A Riga-based SIA in early 2025 missed its CIT return filing deadline by 47 days. The actual underpayment was €3,200. By the time the State Revenue Service (VID) finished its assessment, the company owed €6,880 — the original €3,200, another €3,200 in penalties (100% of the amount), and €480 in late interest. The penalty exceeded the tax debt itself. We hear stories like this regularly — and almost always from entrepreneurs who were convinced a couple of weeks' delay wouldn't lead to anything serious[reference:24].
In 2026, the system has changed — not softened, not tightened, but different. The rhythm of late interest calculation is different, filing deadlines for certain items have been clarified, and the voluntary correction mechanism remains the single most powerful tool for anyone who discovers the delay themselves. This article covers everything you need to know if the deadline is already behind you — and what to do next.
The Three Penalty Layers — How the System Works
Latvia's tax penalty mechanism is not a single large charge but three independent layers that complement one another. Understanding them lets you predict the real consequences far more accurately.
Layer 1: Late Filing Penalty
If a return is filed after the deadline, VID imposes a fixed penalty. It does not depend on whether any tax was actually payable — even a zero VAT return filed one day late triggers the penalty. Amounts for 2026[reference:25]:
Monthly VAT return: €50 first time, €100 repeat
Annual CIT return: €150 first time, €300 repeat
Annual report to the Commercial Register: €150, up to €600 after repeated warnings
Employee payroll reports: €50 per reporting month
Repeat offences within three years can double the penalty.
Layer 2: Underpayment Penalty
If VID finds that tax has not been paid in full (due to errors, incorrect positions, or deliberate conduct), the penalty can reach 100% of the unpaid amount[reference:26].
In practice, first-time inadvertent errors usually result in a 20–30% penalty. But a repeat offence or suspicion of deliberate behaviour can mean the full 100%. VID considers: whether the error was intentional, whether the taxpayer cooperated during the review, whether it is a first offence, and how material the underpayment is relative to total liabilities.
Layer 3: Late Payment Interest
Late payment interest is a percentage charge for each day the tax remains unpaid. The rate is 0.05% per day of the unpaid principal[reference:27][reference:28]. Over the course of a year, that amounts to 18.25% — on a €10,000 debt alone, that means €5 per day, roughly €150 per month, and €1,825 per year.
Maximum cap: total late interest may not exceed 40% of the principal. Once this threshold is reached, late interest stops accruing[reference:29].
How the Layers Add Up — An Example
A company has underpaid VAT of €20,000, discovered 8 months later:
Item | Amount |
|---|---|
Unpaid tax | €20,000 |
Late filing penalties | €800 |
Underpayment penalty (50%) | €10,000 |
Late payment interest (240 days) | €2,400 |
Total | €33,200 |
From an initial €20,000 debt, the amount has grown to €33,200 — a 66% surcharge[reference:30].
Changes to Late Payment Interest Calculation in 2026
From 1 January 2026, amendments to the Law "On Taxes and Duties" have changed the procedure for calculating late payment interest. The most significant change: going forward, late interest is calculated twice monthly — on the 1st and the 15th of each month, rather than daily[reference:31].
What this means: if a tax payment is made between these dates, interest is not recalculated every day. For businesses with a high volume of transactions, this simplifies cash flow management and reduces the administrative burden.
What has not changed: the 0.05% daily rate. It is applied for each day of delay, but the calculation is fixed only twice per month[reference:32].
Delay Scenarios: What to Do in Each Case
Scenario 1: Return not filed, but no tax is due
For example, a zero VAT return filed 5 days late. Steps to take:
File the return immediately via EDS.
Wait for VID to calculate the penalty automatically (usually €50 for a first offence).
If the delay had an objective reason (e.g. technical failure), you can submit an explanation via EDS and request a penalty reduction.
Scenario 2: Return not filed, and tax not paid
For example, a CIT return on distributed profits not filed for 2 months. Steps to take:
File the return immediately. The longer you delay, the more late interest accumulates — 0.05% per day.
Pay the principal immediately or as soon as possible. This stops further late interest from accruing.
Calculate the late interest and pay it together with the principal. You can apply the formula yourself (principal × 0.05% × number of days), but verify the calculation in the EDS "Payments" section.
Wait for the penalty notice — VID will issue it separately.
Scenario 3: Return filed on time, but tax not paid
For example, an employer report filed by the 17th, but payment not made by the 23rd. Steps to take:
Within the first 5 working days after the deadline, no late interest is charged[reference:33].
After the 5-day grace period, late interest starts accruing — pay as soon as possible.
Scenario 4: Error in the return resulting in underpaid tax
For example, a VAT return erroneously shows a lower tax liability. Steps to take:
Immediately file a corrected return via EDS and pay the difference.
The 50% reduction rule: if you correct the error voluntarily, before VID has initiated a review or sent a formal notice, the underpayment penalty is automatically reduced by 50%[reference:34]. This is the most powerful cost-saving tool — it is not discretionary but operates automatically.
Important: the 50% reduction is available only before VID formally turns its attention to the issue. Once an audit order or a letter about VAT returns is received, the window closes for those items.
How to File a Late Declaration
If a return has not been filed on time, take the following steps:
Log in to eds.vid.gov.lv using your e-identity.
Find the relevant declaration form and complete it as you normally would.
The system will automatically record the filing date — the delay will be visible.
After filing the return, VID will calculate the penalty within a few days and notify you via EDS.
Under no circumstances wait for VID to send a reminder. The longer the delay, the higher the penalty. Moreover, if VID itself discovers an unfiled return, it may trigger a broader review.
Payment Plans — If You Cannot Pay Everything at Once
If you realise you cannot pay the full amount (principal + late interest + penalties) all at once, there is a solution — a tax payment extension, or payment plan.
How to Apply
Prepare a written application to VID (via EDS or in paper form).
Attach documents demonstrating the financial difficulty: profit/loss projection, cash flow forecast, current balance sheet.
Propose a specific payment schedule. VID's standard periods range from 6 to 36 months; for larger debts (above €50,000), up to 5 years may be considered[reference:35].
Important Conditions
The business must be viable. VID will not approve a plan for a business that cannot generate sufficient cash flow to cover current taxes.
Current obligations must be up to date. When applying for a plan, all current returns must be filed and current payments made. Requesting a plan while continuing to miss current deadlines practically guarantees rejection[reference:36].
Late interest continues to accrue during the payment plan — 0.05% per day on the remaining principal. The shorter the plan, the less you will pay overall.
Calculation Example
A €60,000 debt restructured over 24 months: monthly payment €2,500, total late interest approximately €10,950, total cost approximately €70,950. The same debt over 36 months — monthly payment €1,667, but total late interest rises to approximately €16,425, total cost approximately €76,425[reference:37].
Thus, an extra year of repayment costs roughly €5,500 more. When planning the schedule, find the balance between an affordable monthly payment and the total cost.
Settlement Agreements — How to Reduce Penalties by up to 85%
If VID discovers irregularities during a review and calculates additional amounts due, it is possible to enter into a settlement agreement and substantially reduce both late interest and penalties[reference:38].
Reduction Amounts by Stage:
In the case of tax control:
Before the control invoice is issued: 85% of late interest cancelled
After the invoice, but before appeal deadline: 75% of late interest cancelled
During court proceedings (first instance): 55% of late interest cancelled
In the case of a tax audit:
Before VID issues its decision: 60% of late interest and 60% of penalties cancelled
After the decision, but before appeal deadline: 50% of late interest cancelled, penalties reduced by 50–85% or fully cancelled
During court proceedings: 30–65% reduction[reference:39]
How to Apply
To enter into a settlement agreement, you must apply to VID with a corresponding request. For legal entities, all payments must be made within one year of concluding the agreement, paying a proportional amount each month. For individuals (not conducting business), the deadline is two years[reference:40].
Warning: if even one payment is late, the agreement becomes void, and late interest is recalculated for the entire delay period under the general procedure[reference:41].
When You Need a Lawyer or Tax Consultant
There are situations where handling things alone is not advisable:
VID has initiated a tax audit. A professional consultant knows which positions are challengeable and prevents a common mistake — providing more information than requested[reference:42].
The penalty amount exceeds €10,000. With large sums, the cost of error is too high to risk.
There is suspicion of deliberate conduct. In such cases, the consequences can be criminal without legal protection.
You disagree with VID's assessment. There have been cases where VID applied an incorrect tax period or an erroneous late interest methodology — these can be successfully challenged[reference:43].
The Limitation Period
VID may impose additional tax for a period of up to 3 years from the original deadline. In cases of fraud — up to 5 years. After this period, the right to assess expires. This limitation period works both ways — overpaid taxes can also be recovered within 3 years[reference:44].
Frequently Asked Questions
Can I request a waiver of penalties if the delay was due to technical reasons?
Yes, you can submit an explanation to VID outlining the circumstances (e.g. EDS technical issues, illness). VID assesses each case individually, but a favourable decision is not guaranteed. The better documented the reason, the higher the chances.
How quickly does VID process a payment plan application?
Usually within 30 days. The response may be approval, proposed changes to the plan, or rejection. A rejection can be challenged through standard administrative procedures[reference:45].
Do I need to calculate late interest myself?
Formally — no, because VID calculates it automatically. But it is worth calculating it yourself to understand the total liability. In the EDS "Payments" section, you can see the current late interest balance, updated twice per month[reference:46].
Can I request a payment extension before the due date arrives?
Yes. If you can see in advance that you will not be able to pay the tax by the due date, submit an application for extension of up to one year. In this case, late interest applies at a reduced rate — 0.0125% per day[reference:47].
A missed VID deadline is not the end of the world, but it has a cost — and that cost grows with each passing day. The golden rule: the sooner you react, the smaller the consequences. If you need help sorting out returns, applying for a payment plan, or communicating with VID, our team is ready to assist.
Last updated: April 2026. Information is based on the current amendments to the Law "On Taxes and Duties" and VID practice.
Comments