Accounting in Latvia (2026): A Complete Business Owner's Guide with Examples

Accounting in Latvia (2026): A Complete Business Owner's Guide with Examples

Every year in Latvia, someone hires an employee using outdated payroll tax rates, or applies the wrong VAT rate category. The result — a VID audit, late-payment interest, and time spent on corrections. Not because the laws are unclear — but because they change more often than business owners keep up with them.

New personal income tax (PIT) rates took effect in 2025. As of January 1, 2026, VID's Electronic Declaration System (EDS) can only be accessed with secure electronic identification tools, and invoices to government institutions (B2G) have had to be issued in a structured electronic format since 2025 — while mandatory e-invoicing between businesses (B2B) has been pushed back to 2028. This guide brings together everything current — VAT, payroll, corporate tax, micro-enterprise tax, and annual report deadlines — in one place, with numbers and legal references.

This article is an informational overview and does not replace individual tax advice. How taxes apply depends on your specific situation — consult a certified accountant before making decisions.

Key takeaways

• The PIT rate in 2026 is 25.5% on income up to €105,300 and 33% above that threshold. The old 20% and 23% rates were in effect until December 31, 2024.

• VAT registration is mandatory once annual turnover exceeds €50,000.

• Corporate income tax (UIN) in Latvia is paid only on distributed dividends — reinvested profit is untaxed.

• The micro-enterprise tax (MUN) turnover cap is €50,000/year, at a rate of 25% of turnover. SIAs (limited liability companies) can no longer use it, as of 2022.

• The solidarity tax (paid jointly by employer and employee) is 25% on the portion of income above €105,300/year; this is a separate matter from the additional 3% PIT rate that applies to income above €200,000/year.

• The minimum wage in 2026 is €780 gross/month.

• Mandatory e-invoicing between businesses (B2B) has been postponed to 2028 — in 2026 it's voluntary; e-invoicing to government institutions (B2G) has been mandatory since 2025.

What is accounting in Latvia, and what does it require?

Accounting isn't just paperwork — it's the financial story of your business, showing the real picture: how much you earn, how much you spend, what taxes arise, and whether the business is actually profitable. Without accounting, a company cannot legally exist. The main governing law is the Accounting Law.

Latvia has two types of accounting record-keeping — and the choice affects both the workload and the ability to deduct expenses:

Three institutions you need to know:

• VID (State Revenue Service) — oversees tax payment and conducts audits

• UR (Register of Enterprises) — registers companies and their changes, and publishes annual reports

• EDS (Electronic Declaration System) — the platform through which all reports and returns are filed

Legal acts underpinning accounting in Latvia:

Source: Accounting Law · VAT Law · Corporate Income Tax Law · Annual Reports Law

VAT in Latvia — how it works and when to register as a VAT payer

VAT is a tax that a business collects from customers and passes on to the state. It is not the business's income — it's money in transit. A VAT payer can deduct the VAT shown on suppliers' invoices as input tax, so it only pays the state the difference.

How this looks in practice: A service costs €1,000 + €210 VAT = the customer pays €1,210. The business doesn't earn that €210 — it goes to the state budget. If the business, in turn, bought materials for €500 + €105 VAT, it can deduct that €105 as input tax. The state actually receives €210 − €105 = €105. So VAT registration doesn't just create obligations — it provides a real financial advantage for businesses with large expenses.

VAT rates in 2026

Source: Value Added Tax Law

When to register as a VAT payer

VAT registration becomes mandatory once a business's annual turnover exceeds €50,000 for most standard domestic transactions. For certain types of transactions (for example, services to EU customers or certain cross-border transactions), the obligation to register for VAT may arise earlier — see the relevant provisions of the VAT Law. The threshold is counted from when the business starts operating — not from the beginning of the calendar year. That means: if a company founded in June has already reached €50,000 in turnover by October, it must register immediately.

Voluntary registration is also possible before reaching the threshold — for example, if your clients are VAT payers and you want to recover input tax on your own expenses. Read more about the process and documents in our article VAT registration in Latvia.

Exports and the 0% rate: Exports outside the EU and supplies to EU VAT payers are taxed at 0% — but only if the partner has a valid VAT registration number. This can be checked in the European Commission's VIES system. If there's no number, or it's not valid, 21% must be applied.

Corporate income tax (UIN) — reinvested profit is not taxed

Latvia's corporate income tax system is unique in Europe: tax is paid only on profit taken out of the business (dividends). If profit stays in the business and is reinvested, there's no tax. This makes Latvia an attractive place for long-term business growth.

How this works in practice: A company earns €30,000 a year. If the money stays in the business — UIN is 0%. If the owner pays out €10,000 in dividends — UIN arises only on that €10,000. The remaining €20,000 can be freely reinvested, kept, or used for business needs.

An important nuance — the 20/80 calculation principle: Many mistakenly think UIN is simply 20% of the amount to be paid out. In reality, the tax is calculated using a 20/80 coefficient (i.e., 0.25) of the net payout. If you want a shareholder to receive €10,000 "in hand," the company must pay €2,500 in tax (€10,000 × 0.25), and the total cost will be €12,500.

Source: Corporate Income Tax Law

Two UIN regimes in 2026

The alternative regime can be favorable if a company pays regular, large dividends — but it comes with specific conditions and nuances in VID's interpretation. Consult an accountant before choosing it. For a fuller analysis, see our article Dividends or salary from a SIA?.

When UIN is due even without paying dividends

UIN also arises in situations unrelated to dividends: if a company pays interest or royalties to related foreign parties, or provides financial benefits to shareholders outside the ordinary course of business. These situations are easy to overlook — and VID audits pay close attention to them. See the full list in Article 8 of the UIN Law.

Payroll taxes in 2026 — where the mistakes hide

Payroll taxes are the most common source of errors, both for new businesses and for experienced owners hiring their first employee. The main reason: until early 2025, Latvia still had PIT rates of 20% and 23%. As of January 1, 2025, these are no longer in effect. The new standard rate is 25.5%.

Key parameters for 2026

Source: Law "On Personal Income Tax," Article 15 · State Social Insurance Law, Article 18 · VID website

How to calculate PIT correctly: the tax is calculated from gross − employee VSAOI, not directly from gross. This nuance disappears if you use a good payroll program or calculator — but it's often forgotten in manual calculations.

We cover all payroll tax questions in more detail in our article Payroll taxes for employers 2026.

A practical example — payroll calculation from €1,500 gross

Suppose Marta runs a small design studio and hires her first employee at a gross salary of €1,500/month. What will the costs look like in 2026?

Option A — without a payroll tax booklet (non-taxable minimum not applied):

Option B — with a payroll tax booklet (non-taxable minimum €550/month — the typical situation):

Note: The calculation is simplified for demonstration purposes. For a precise calculation, use our payroll calculator.

From €1,500 gross, Marta's business always pays €1,853.85 — only the employee's net pay differs depending on whether a payroll tax booklet has been submitted. The difference between Options A and B — €140.25 net per month — can be a meaningful point in employment negotiations.

Micro-enterprise tax (MUN) in 2026

MUN is an alternative tax regime available only to certain types of small businesses: individual merchants, individual enterprises, farm or fishing farm owners, and natural persons registered as economic operators. SIAs can no longer be MUN payers — this right was withdrawn as of January 1, 2022 (for newly established SIAs, from January 1, 2021). Tax is paid on turnover (not profit) at a flat rate of 25%. It replaces PIT and VSAOI on income from economic activity.

MUN parameters for 2026

Source: Micro-Enterprise Tax Law

Who MUN suits — and who it doesn't

MUN suits businesses with a low cost share: consultants, hairdressers, IT specialists, designers who work independently. The lower the costs, the higher the share of profit that remains, and then 25% of turnover can end up lower than the combined taxes under the general regime.

However, there are three important limitations that are often overlooked:

1. Input VAT deduction — the MUN regime itself doesn't provide any special VAT benefits. If a MUN payer isn't registered as a VAT payer, deducting input tax isn't possible. A registered VAT payer can deduct input tax under the general rules of the VAT Law. For businesses with large VAT-taxable expenses, MUN usually isn't favorable.

2. Pension savings and social guarantees — under MUN, social contributions are calculated differently, and future social guarantees (such as pension capital or sickness benefits) may be lower than under the general regime.

3. If turnover is exceeded, switching to the general regime becomes mandatory the following year — and the transition requires preparation.

The annual report and tax returns — deadlines

The annual report is a financial summary for the year: the balance sheet, the profit-and-loss statement, a cash flow statement (for larger companies), and notes. It's important to understand — VID and UR are two different institutions with different deadlines.

• Financial statements are filed with VID (EDS), not UR

• Tax returns (VAT, UIN, PIT, etc.) are filed with VID (EDS)

• UR publishes annual reports — but it is not a tax oversight body

Note: If an IK is registered as a VAT payer, it must also file VAT returns with VID — quarterly (if turnover was ≤ €50,000 the previous year) or monthly (if turnover was > €50,000). You can always check these deadlines against VID's/UR's current guidance, as they are periodically adjusted.

Source: Annual Reports and Consolidated Annual Reports Law

New VID requirements for 2026

Electronic identification for EDS

As of January 1, 2026, VID's Electronic Declaration System (EDS) can only be accessed using secure electronic identification tools: Smart-ID (the qualified version — not Smart-ID Basic), an eID card, eParaksts, eParaksts mobile, or certain internet-banking authentication.

VID-issued usernames and passwords may still only be used by foreign nationals who have no legal tie to Latvia and no way to obtain a Latvian eID card.

This means businesses and accountants need to make sure in good time that:

• EDS users have access to a qualified authentication tool;

• outsourced accountants are correctly authorized in EDS;

• company officers have access to EDS even when employees or outsourced service providers change.

Source: VID announcement on EDS authentication changes

E-invoices — B2G already mandatory, B2B postponed to 2028

Since January 1, 2025, all invoices issued to government institutions (B2G) have had to be prepared in a structured electronic format (PEPPOL BIS 3.0). It was originally planned that, from January 1, 2026, e-invoices would also become mandatory for transactions between businesses (B2B) — but in May 2025 the government postponed this deadline to January 1, 2028, because a large share of businesses were not yet technically ready for the transition. Until the end of 2027, using B2B e-invoices is voluntary (mandatory from 1 January 2028).

It's already worth checking whether your accounting software (Moneo, Jumis, Horizon, or another) supports the PEPPOL format — so the mandatory transition in 2028 doesn't have to be rushed at the last minute.

Check the "Tax account overview" section in EDS regularly for any arrears or overpayments — this lets you spot discrepancies early.

Do it yourself, or hire a specialist?

The law doesn't prohibit a business owner from handling their own accounting. In practice, though, self-managed accounting often creates problems that are expensive to fix later — not because business owners are unreasonable, but because requirements change and the landscape is broad.

If you choose to outsource, make sure the accountant has experience in your industry, access to EDS with your authorization, and civil liability insurance. Outsourced accountants in Latvia need a license — check the license status before starting to work together. Read more about costs in our article Accounting costs for small businesses.

Common mistakes businesses make

In our practice, we see these mistakes recur most often — and all of them are preventable:

1. Calculating PIT using old rates — the 20% rate was in effect until December 31, 2024. As of January 1, 2025, the rate is 25.5%. The difference on a €1,500 gross salary: roughly €74/month in incorrectly calculated tax (5.5% of the €1,342.50 PIT base after employee social contributions, before the non-taxable minimum).

2. Incorrect VAT application — 12% instead of 21% or vice versa; exports and EU supplies must be 0% (check the VAT number in the VIES system).

3. Missing documentation — invoices, receipts, contracts, delivery notes not prepared in line with regulatory requirements. VID won't accept them as evidence in an audit.

4. Mixing personal and business expenses — this prevents deducting input VAT and creates PIT risks.

5. Late returns — even a one-day delay creates late-payment interest (0.05%/day) and fines. Use our VID penalty calculator to estimate potential costs.

6. Incorrect asset classification — fixed assets (computers, equipment) get written off as expenses instead of depreciated according to a depreciation schedule.

7. Failing to meet AML/CFT requirements — customer identification and determining the ultimate beneficial owner are mandatory. Fines can reach €1,000,000 (for credit and financial institutions — 10% of annual turnover).

8. Not observing document retention periods — supporting documents (including VAT invoices) must be kept for at least 5 years, accounting registers and payroll documents for 10 years.

Does any of these mistakes apply to your business? We advise businesses across Latvia — get in touch with us and we'll assess your situation together.

Fines and sanctions — the real numbers

Note: These sanctions are indicative and depend on the severity of the violation and the deciding authority. Sources: Law "On Taxes and Duties", Section 15.² (14); AML/CFT Law, Section 78; Law on International Sanctions and National Sanctions of the Republic of Latvia, Section 18; Criminal Law, Sections 84 and 217; Accounting Law, Section 42 (1 penalty unit = €5).

Document retention periods

Paper documents may be converted to electronic form if readability is ensured, they are protected against changes and the process is documented (Accounting Law, Article 29) — the original may then be destroyed. Sources: Accounting Law, Article 28; VAT Law.

Frequently asked questions

Does an individual merchant need accounting?

Yes. An IK must keep single-entry bookkeeping and file an annual income tax return with VID by June 1. A sole proprietor does not file an annual report — that is an obligation for SIAs and joint-stock companies (filed with VID via EDS, not with UR).

What is the PIT rate in 2026?

25.5% on income up to €105,300/year (the maximum VSAOI contribution base). Above that threshold — 33%. The old 20% and 23% rates were in effect until December 31, 2024, and no longer apply.

Can I handle the accounting for my own SIA myself?

Yes, the law doesn't prohibit it. But the risk is high, especially if the company has employees, is VAT registered, or has transactions with related parties. A single mistake can cost more than a year of outsourced accounting.

From what turnover is VAT registration mandatory?

€50,000 in a calendar year for most standard domestic transactions. For certain types of transactions (for example, EU services or cross-border transactions), the registration obligation can arise earlier. The threshold is counted from when the business starts operating, not from the start of the year.

How long do invoices and contracts need to be kept?

Supporting documents (invoices, contracts) — at least 5 years; VAT invoices — 5 years from the invoice date. Accounting registers and payroll records — 10 years.

What happens if VID finds errors?

In practice, VID reviews several previous tax periods — the specific period depends on the situation, the type of violation, and the applicable limitation periods. You'll have to pay the shortfall in tax, plus 0.05%/day late-payment interest, plus a fine.

Can input VAT be deducted under the MUN regime?

The MUN regime itself doesn't provide any special VAT benefits. If a MUN payer isn't registered as a VAT payer, deducting input tax isn't possible. A registered VAT payer can deduct input tax under the general rules of the VAT Law.

How is salary calculated in Latvia in 2026?

The employer pays the gross salary plus employer VSAOI (23.59%). Employee VSAOI (10.50%) is deducted from the employee's gross, then PIT (25.5%) is calculated on the remainder, applying the non-taxable minimum if a payroll tax booklet has been submitted. See the practical example above, or use our payroll calculator.

Can a SIA be a MUN payer?

No. Since January 1, 2022, a SIA can no longer be a MUN payer (for newly established SIAs, since January 1, 2021). The MUN regime is available only to individual merchants, individual enterprises, farm or fishing farm owners, and natural persons registered as economic operators.

Are e-invoices mandatory for all businesses in 2026?

No. They are mandatory only for invoices to government institutions (B2G) — since January 1, 2025. Mandatory e-invoicing between businesses (B2B) was planned for 2026, but the government postponed it to January 1, 2028. In 2026, B2B e-invoices are voluntary.

Conclusion

Accounting in Latvia is a logical system when you look at it as a whole. What matters most: document transactions properly, meet filing deadlines, and work with current rates. Mistakes arise not from bad intent, but from outdated information or being overloaded.

If you want to calculate payroll using 2026 rates, use our payroll calculator. For optimizing dividends vs. salary, read Dividends or salary from a SIA?. For choosing a tax regime among different business forms — SIA vs. IK vs. self-employed. For the 0% UIN system on reinvested profit — 0% corporate tax in Latvia.

If you have questions about accounting requirements or want to discuss the optimal tax regime for your business — get in touch with us. Our team helps you navigate the tax landscape and choose the right solution for your specific situation.

Last updated: September 2026. This information is based on the Accounting Law, the VAT Law, the Corporate Income Tax Law, the Law on Personal Income Tax, the State Social Insurance Law, the Solidarity Tax Law, and official VID materials. This article is prepared for educational purposes — it is not a legal or tax consultancy service. How taxes apply depends on your specific situation, and legislation can change. Consult a certified accountant or tax advisor before making decisions.

Legal sources and references

• Accounting Law

• Law "On Personal Income Tax"

• State Social Insurance Law

• Value Added Tax Law

• Corporate Income Tax Law

• Micro-Enterprise Tax Law

• Annual Reports and Consolidated Annual Reports Law

• VID: Personal Income Tax Rates

• VID announcement on EDS authentication changes

• VID: E-invoices