Accounting in Latvia (2026): A Complete Entrepreneur's Guide with Examples
Introduction
Accounting in Latvia is not just a formality or "paperwork". It is the system that determines how a company records its financial activities, calculates taxes, and proves its economic activity to the state.
Every company in Latvia – regardless of its size – is subject to uniform rules. The main supervisory authority for tax matters is the State Revenue Service (VID), while the registration of companies and the acceptance of annual reports is handled by the Enterprise Register (UR).
Basis: Accounting Law (with amendments effective 27.03.2026)
1. What is accounting in Latvia
In simple terms – accounting is the financial story of your company. It shows how much you earn, how much you spend, what taxes arise, and what your real financial situation is. Without accounting, a company cannot legally exist.
Basic accounting principles (under the Accounting Law):
Accrual principle – revenues and expenses are recognised when they occur, not when money is received or paid.
Going concern principle – assumes the company will continue operating in the future.
True and fair view – financial statements must reflect the real situation.
Real example: If a company issues an invoice for €1000, that does not mean this amount is pure profit. If the company is a VAT payer – part of the amount is VAT, part may be expenses, only the remainder is profit.
1.1. Types of accounting records
Two types of accounting records exist in Latvia:
Type of record | Applicable to | Description |
|---|---|---|
Single-entry bookkeeping | Sole traders (IK), MET payers, some others | Records only income and expenses. No double entry. |
Double-entry bookkeeping | SIA, foreign branches, larger sole traders (by choice) | Each transaction is recorded as a debit and credit. Mandatory for most companies. |
2. How the accounting system works in Latvia
Three levels:
Laws – determine accounting and tax calculations.
VID – monitors tax payments, declarations and audits.
Enterprise Register (UR) – registers companies and accepts annual reports.
Key legal acts:
3. VAT in Latvia
VAT is a tax included in the price of goods and services. The company merely collects it and passes it to the state. A VAT payer can deduct the VAT shown on an invoice received from a seller as input tax.
**Example with 21% rate:**Service €1000 + VAT €210 = customer pays €1210. The company does not profit from the VAT – €210 must be paid into the state budget.
VAT rates in 2026
Rate | Application |
|---|---|
21% (standard) | Most goods and services |
12% (reduced) | Food, medicines, books, hospitality services, firewood, etc. |
5% (specially reduced) | Printed matter, cultural events, fresh fruits, berries and vegetables (from 1 January 2026) |
VAT registration
Threshold: if turnover exceeds €40,000 within a 12‑month period, registration is mandatory.
Voluntary registration: possible at any time if the company carries out taxable transactions.
VAT groups: related companies can register as a single VAT group.
4. Corporate income tax (CIT)
In Latvia, CIT is only paid when profit is withdrawn (as dividends). If profit remains in the company and is reinvested – no tax. This system is called "deferred" or "withdrawn" profit tax.
Example: A company earns €10,000.
Money stays in the company → no tax.
The owner pays out €5,000 in dividends → CIT arises.
Significant choice in 2026:
Regime | Rate | Advance payments | Application |
|---|---|---|---|
Standard regime | 20% of dividends (gross dividend = net dividend × 20/80) | No advance | Default regime |
Alternative regime | 15% of dividends (net dividend × 15/85) | Annual advance payment (0.25% of assets, minimum €50) | Must choose, submit application |
Consult an accountant before choosing! The alternative regime may be advantageous for companies with large assets and regular dividend payments.
Exceptions – CIT is also payable without dividend distribution:
Company passenger car (20% of the car's value per year)
Allocated payments to foreign related parties (e.g., interest, royalties)
Amounts paid for the benefit of members not related to economic activity
5. Salaries and payroll taxes (2026 rates)
Salary consists of three parts: net (to employee), employee taxes, and employer social security contributions (VSAOI).
Key figures for 2026
Parameter | Value |
|---|---|
Minimum wage (gross) | €780 per month (2025: €740) |
Non-taxable minimum (per month) | €550 (2025: €510) |
PIT (personal income tax) | 20% (up to €105,300/year), 31% (above) |
VSAOI – employee | 10.5% |
VSAOI – employer | 23.59% |
VSAOI total | 34.09% |
Solidarity tax | 25% on income above €105,300/year (paid by employee) |
Note on solidarity tax: It applies to income above €105,300 per year (gross). On this excess portion, PIT is 31% plus solidarity tax 25% – total 56%. Solidarity tax is allocated to the pension budget.
Example from €1000 gross salary (2026)
Item | Amount |
|---|---|
Gross salary | €1000.00 |
Employee VSAOI (10.5%) | –€105.00 |
Taxable income | €895.00 |
Non-taxable minimum (if applicable) | –€550.00 |
Income subject to PIT | €345.00 |
PIT 20% (345 × 0.20) | –€69.00 |
Net salary (to employee) | ~€826.00 (exact PIT depends on application of non-taxable minimum) |
Employer VSAOI (23.59%) | +€235.90 |
Total cost to employer | ~€1,235.90 |
EDS (Electronic Declaration System)
6. Micro-enterprise tax (MET) – what's new in 2026
MET is an alternative regime for small businesses – tax is paid on turnover, not profit. It includes corporate income tax, personal income tax and social security contributions for employees.
2026 parameters
Parameter | Value |
|---|---|
MET rate | 25% of turnover |
Maximum annual turnover | €40,000 |
Maximum number of employees | 5 employees |
Declaration frequency | Monthly (not quarterly) |
Declaration submission deadline | By the 15th of the following month |
MET payment deadline | By the 15th of the following month |
New in 2026: You can register for MET for a fixed period (e.g., 6 months), not only indefinitely. This is useful for seasonal businesses.
Who is MET advantageous for?
Small businesses with low profit margins (consulting, hairdressers, IT, design)
Businesses with a low expense ratio
Sole traders without employees
Important restrictions
Under the MET regime, input VAT cannot be deducted (even if the company is VAT registered).
If turnover exceeds €40,000, you must switch to the general regime in the following year.
MET cannot be applied to certain industries (gambling, finance, legal services, etc.).
7. Annual report
The annual report is a financial summary for the year – balance sheet, profit or loss account, cash flow statement (for larger companies) and notes.
Submission and deadlines
Type of company | Submission | Deadline (if reporting year = calendar year) |
|---|---|---|
SIA, AS, foreign branches | Enterprise Register (UR) | By 30 June |
Sole trader (IK) | No annual report required, but income must be declared | – |
Division of functions
Enterprise Register (UR) – registers and publishes the annual report. UR is not a tax control authority.
VID – conducts tax analysis and control based on the annual report and other declarations.
Changes in 2026
From 1 January 2026, the Enterprise Register no longer requires a liquidation closing financial report if it has already been submitted to VID. This simplifies the liquidation process.
8. VID requirements for 2026 – what has changed?
Electronic declaration (EDS)
From 1 January 2026, access to EDS is only permitted using secure means:
Smart-ID (qualified version)
eID card
eParaksts or eParaksts mobile
VID username and password may only be used by foreigners without ties to Latvia.
Mandatory e-invoices (B2G)
From 1 January 2026, all invoices to state institutions (B2G) must be electronic, in a structured format (e.g., PEPPOL BIS 3.0), and the data must be sent to VID. B2B e-invoices will become mandatory from 2028.
Data reconciliation with VID
By 31 January 2026, tax debts/overpayments had to be reconciled. The deadline has passed, but it is recommended to check your status in EDS under "Tax account summary".
9. Penalties and sanctions in 2026
Main risk areas and sanctions:
Violation | Penalty |
|---|---|
AML/CFT (lack of customer due diligence, failure to identify UBO) | Significant fines (up to 5% of annual turnover) |
Sanctions regime violations (transactions with sanctioned persons) | For legal entities up to €4000; criminal liability up to 8 years |
Lack of or incomplete transfer pricing documentation | 0.05% of transaction amount, but not more than €15,000 |
Late VAT declaration | Fine (from €5 to €1000) + late payment interest (0.05% per day) |
No accounting documents or their destruction | Fine up to €10,000 |
Criminal liability: For serious violations (non-payment of taxes in a large amount – more than €50,000), failure to comply with sanctions regime – imprisonment up to 8 years.
10. Most common mistakes in companies (updated list)
Incorrect VAT application – 21% instead of 12% or vice versa, or applying VAT to exempt transactions (e.g., exports).
Lack of documents – invoices, receipts, contracts, waybills are not available or not properly formatted.
Mixing private and company expenses – prevents VAT and expense deduction, creates PIT risks.
Late VID declarations – leads to fines and interest.
Incorrect transaction classification – fixed assets written off as expenses instead of depreciation.
Non-compliance with AML/CFT requirements – customer identification, UBO determination, transaction monitoring.
Missing or incomplete transfer pricing documentation – transactions with related parties.
Failure to maintain accounting registers – cash book, sales journal, general ledger missing.
Non-compliance with document retention periods – source documents must be kept for 5 years (some for 10 years).
These errors often arise not from complexity but from a lack of understanding of the system.
11. Document retention periods
Type of document | Retention period |
|---|---|
Source accounting documents (invoices, receipts, contracts) | 5 years |
Accounting registers (general ledger, journals) | 5 years |
Annual reports | 10 years |
Payroll calculation documents, employment contracts | 10 years (after end of employment) |
VAT invoices, import documents | 10 years |
Electronic documents (e-invoices) | Same as paper documents |
Periods are counted from the end of the year in which the document was prepared or the transaction took place.
12. Quick reference – key figures for 2026
Parameter | Value |
|---|---|
Minimum wage (gross) | €780 per month |
Non-taxable minimum | €550 per month |
PIT (20% / 31%) | 20% up to €105,300/year; 31% above |
VSAOI employer | 23.59% |
VSAOI employee | 10.5% |
Solidarity tax | 25% (above €105,300/year) |
Standard VAT rate | 21% |
Reduced VAT rate | 12% |
Specially reduced VAT rate | 5% (for fruits, berries, vegetables from 01.01.2026) |
VAT registration threshold | €40,000 (over last 12 months) |
CIT on dividends (standard) | 20% (net dividend × 20/80) |
CIT on dividends (alternative) | 15% (net dividend × 15/85), with advance |
MET rate | 25% of turnover |
MET maximum turnover | €40,000 per year |
MET maximum number of employees | 5 |
Annual report deadline (SIA) | 30 June |
Accounting document retention | 5 years (10 years for payroll and VAT) |
13. Outsourced accounting – when and why?
Many Latvian companies (especially SIAs and larger sole traders) choose to outsource their accounting to external companies or certified accountants. This is permitted and often more efficient.
Recommended if:
The company does not have an in-house accountant
You want to reduce the risk of errors
You need to ensure compliance with constantly changing regulations
You plan to attract investors or obtain a loan
Before signing a contract, ensure the accountant has:
Certification (LGA – Latvian Association of Accountants) or at least experience in your industry
Access to EDS (with your authorisation)
Civil liability insurance
14. FAQ
**Does a sole trader need accounting?**Yes, a sole trader must maintain single-entry bookkeeping (recording income and expenses) and submit an annual income declaration. No annual report needs to be submitted to the UR.
**What is the difference between VID and UR in accounting?**VID controls taxes and can conduct audits. UR only accepts and publishes annual reports, but does not conduct tax control.
**Can I do accounting for my SIA myself?**Yes, the law does not prohibit persons without an accountant's certificate from doing accounting, as long as they can ensure compliance with regulations. However, the risk of errors is high.
**How long must invoices and contracts be kept?**At least 5 years (10 years for payroll and VAT) from the end of the year in which the document was prepared.
**What happens if VID discovers errors from more than 5 years ago?**VID may extend the audit period if serious violations are found (cross-border transactions, transfer pricing, fraud). It is recommended to keep all documentation for 10 years.
15. Conclusions
Accounting in Latvia is a strictly regulated but logical system. Its foundation is laws, VID, UR and precise financial records. If you understand the system – it is predictable. If you ignore it – it becomes a risk.
Key principles to remember:
Always document every transaction.
Observe deadlines – declarations, payments, annual report.
Do not mix private and company expenses.
Understand the impact of your tax regime (MET, general).
Keep documents for at least 5 years (10 years for payroll and VAT).
Accounting may seem complicated, but with the right system it becomes a powerful tool for your company. Our team helps entrepreneurs navigate accounting requirements and choose the optimal tax strategy.
Last updated: April 2026. Information is based on the Accounting Law, VAT Law, CIT Law and official materials of the State Revenue Service.
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