Accounting in Latvia (2026 Guide): VAT, Payroll, Corporate Tax & Compliance Explained

📌 **Accounting in Latvia (2026): A Complete Entrepreneur’s Guide with Examples**

(Revised and supplemented version)

**Introduction**

Accounting in Latvia is not just a formality or "paperwork". It is a 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 in tax matters is the State Revenue Service (VID), while company registration and the acceptance of annual reports are handled by the Enterprise Register (UR).

Basis: Accounting Law (with amendments effective 27.03.2026)

https://likumi.lv/ta/id/324249-gramatvedibas-likums

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**1. What is accounting in Latvia?**

In simple terms – accounting is the financial story of a company. It shows how much is earned, how much is spent, what taxes arise, and what the real financial situation is. Without accounting, a company cannot legally exist.

A real example: if a company issues an invoice for €1000, that does not mean this amount is net profit. If the company is a VAT registrant – part of the amount is VAT, part may be costs, only the remainder is profit.

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**2. How does the accounting system work in Latvia?**

Three levels:

1. Laws – determine accounting and tax calculations.

2. VID – supervises tax payments, declarations, and audits.

3. Enterprise Register (UR) – registers companies and accepts annual reports.

VAT Law: https://likumi.lv/ta/id/5366-pievienotas-vertibas-nodokla-likums

CIT Law: https://likumi.lv/ta/id/292700-uznemumu-ienakuma-nodokla-likums

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**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.

Example with 21% rate:

Service €1000 + VAT €210 = client pays €1210. The company earns nothing from the VAT.

✅ VAT rates in 2026:

- 21% – standard (for most items)

- 12% – food, medicines, books, hospitality

- 5% – printed matter, cultural events, **fresh fruit, berries and vegetables** (from 1 January 2026)

✅ VAT registration threshold: if turnover exceeds €40,000 over 12 months, registration is mandatory. Voluntary registration is also possible.

VID: https://www.vid.gov.lv

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**4. Corporate Income Tax (CIT)**

In Latvia, CIT is only paid when profits are distributed (as dividends). If profits remain in the company and are reinvested – no tax.

Example: company earns €10,000.

- Money stays in the company → no tax.

- Owner pays out €5,000 in dividends → CIT arises.

⚠️ Significant choice in 2026:

- Existing regime: 20% on dividends, no advance payments.

- Alternative regime: 15% on dividends, but an annual advance payment must be made.

Consult an accountant before choosing!

Exceptions (CIT is due even without dividend distribution):

- Company car (certain expense restrictions)

- Reallocated payments to foreign related parties

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**5. Salary and payroll taxes (2026 rates)**

A salary consists of: net (to employee), taxes (to the state), and employer social contributions.

✅ Key figures for 2026:

- Minimum monthly wage (gross): €780 (was €740 in 2025)

- IIN (PIT) non-taxable minimum: €550 per month (2025: €510)

- IIN: 20% (up to €105,300/year) and 31% (above)

- VSAOI (social tax): employee 10.5%, employer 23.59% (total 34.09%)

- Solidarity tax: 25% on income above €105,300/year

Example from €1000 gross salary (2026):

Gross €1000 – employee VSAOI €105 – IIN ~€150 = net ~€745.

Employer also pays an additional €235.90 VSAOI. Total cost to employer ~€1236.

(Exact IIN depends on application of the non-taxable minimum.)

EDS: https://eds.vid.gov.lv

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**6. Micro-enterprise tax (MUN) – what's new in 2026**

MUN is an alternative regime for small enterprises – tax is paid on turnover, not profit.

In 2026:

- Rate: 25% of turnover.

- Declaration once per quarter (by the 15th of the following month).

- New: can register for a specific period, not only indefinitely.

Who is it for? Small businesses with low profit margins (consulting, hairdressers, IT).

Important: Under MUN regime, input VAT cannot be deducted.

MUN Law: https://likumi.lv/ta/id/274967-mikrouzņēmumu-nodokļa-likums

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**7. Annual report**

The annual report is a financial summary for the year – revenues, expenses, profit or loss.

Submission: to the Enterprise Register (UR).

Deadline: if the reporting year = calendar year, then 30 June.

Division of functions:

- UR registers and publishes the annual report.

- VID performs tax analysis and control. UR is not a tax control authority.

Changes in 2026: from 1 January, UR no longer requires a liquidation closing financial report if it has already been submitted to VID.

Annual Report Law: https://likumi.lv/ta/id/277779

UR: https://www.ur.gov.lv

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**8. VID requirements for 2026 – what has changed?**

🔧 Electronic declaration (EDS) – only with secure means.

From 1 January 2026, access to EDS is only allowed with Smart-ID (qualified version), eID card, eParaksts or eParaksts mobile. VID-issued username and password may only be used by foreigners without a connection to Latvia.

🔧 Mandatory e-invoices (B2G).

From 1 January 2026 – all invoices to state institutions must be electronic, in a structured format, and the data must be sent to VID. B2B e-invoices will become mandatory in 2028.

🔧 Data reconciliation with VID.

By 31 January 2026, taxpayers had to reconcile tax debts/overpayments. The deadline has passed, but check your status!

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**9. Fines and sanctions in 2026**

Main risk areas:

- AML/CFT (lack of customer due diligence) – significant fines.

- Sanctions regime violations – up to €4000 for legal entities.

- Transfer pricing documentation violations – 0.05% of transaction amount, but not more than €15,000.

- Late VAT declaration – fine + late payment interest.

Criminal liability: for serious violations or non-compliance with sanctions – imprisonment up to 8 years.

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**10. Most common mistakes in companies (supplemented)**

1. Incorrect application of VAT (21% instead of 12% or vice versa).

2. Lack of documents (invoices, receipts, contracts).

3. Mixing private and company expenses.

4. Late VID declarations.

5. Incorrect classification of transactions.

6. Non-compliance with AML/CFT requirements (customer identification, beneficial owner).

7. Non-existent or incomplete transfer pricing documentation.

These mistakes often arise not from complexity, but from insufficient understanding of the system.

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**11. Quick reference – key figures for 2026**

Minimum wage (gross): €780

IIN non-taxable minimum: €550 per month

IIN: 20% (up to €105,300/year), 31% (above)

VSAOI: employer 23.59%, employee 10.5%

Solidarity tax: 25% (above €105,300/year)

VAT: 21% / 12% / 5%

VAT registration threshold: €40,000 (over 12 months)

CIT on dividends: 20% (existing) or 15% (alternative with advance)

MUN: 25% of turnover

Annual report deadline: 30 June (if reporting year = calendar year)

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**Conclusions**

Accounting in Latvia is a strictly regulated but logical system. It is based on laws, VID, UR, and accurate financial records. If you understand the system – it is predictable. If you ignore it – it becomes a risk.

⚠️ This article provides general information as of 22 April 2026. Tax laws may change. Consult with us if you need help or advice!

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**Revised: 23.04.2026** (revised and supplemented version)