Benefits Tax in Latvia: How Non-Monetary Employee Benefits Are Taxed in 2026
You decide to pay for your employees' health insurance, give everyone a food hamper at Christmas, organise a team event, or let a manager drive the company car at weekends. In every one of these cases the same question comes up — one many business owners ask after the fact rather than before: is tax due on this, and if so, who pays and how much?
There is no single answer for every benefit. Each type has its own regime: some benefits the law exempts from tax, some are taxed as the employee's income, and some fall under corporate income tax (CIT). Which regime applies is decided by the nature of the benefit and the conditions in the law — not by how you book it.
Key takeaways
The tax treatment depends on the type of benefit: the personal income tax (PIT) law may exempt it, it may be taxed as employee income (payroll tax + social contributions), or it may fall under CIT. A company cannot freely choose — the law requires the economic substance of the transaction to be assessed.
An employer's gift that does not exceed €100 during the tax year is exempt from PIT (Personal Income Tax Law, Article 9, Part 1, Point 32¹). A child-birth benefit up to €500, certain tuition fees and help buying medical technology are also exempt.
Health, accident and life (without savings) insurance premiums are exempt up to 10% of annual gross pay but no more than €750 a year. Life insurance with a savings component has the 10% limit without the €750 cap, but requires a 10-year minimum term.
A company car for private use: if the company car tax (UVTN) is paid for the car in that month, the benefit is not subject to PIT; if it is not paid, payroll tax is due.
Collective motivation and team-building events are "personnel sustainability measures": they enter the CIT base only if, together with representation costs, they exceed 5% of the previous year's gross pay calculated to employees.
Three possible regimes
Think of a benefit as a decision tree with three outcomes.
Exempt from PIT. The Personal Income Tax Law provides an exemption for a specific benefit (for example, a gift up to €100). Such a benefit is not the employee's taxable income, and the exception in Article 8, Part 2, Point 1 of the Corporate Income Tax Law means it is not a CIT item either — that exception applies precisely where the PIT law provides an exemption.
Employee income in kind. The benefit is added to the employee's income, and payroll tax (PIT) and social contributions are calculated on it just as on a cash salary.
CIT. If the benefit is not included in the individual's income taxed by PIT and the PIT law does not exempt it, it is an expense unrelated to business activity, and the company pays tax under the familiar 20/80 formula. For personnel sustainability measures, CIT arises only above the 5% threshold — see below.
Under Article 8, Part 2, Point 1 of the Corporate Income Tax Law, expenses unrelated to business activity include the taxpayer's expenses on recreation, entertainment events and other benefits for members or employees, if these benefits were not included in the income of an individual taxed by personal income tax, except where the Personal Income Tax Law provides an exemption for that type of income.
Source: Corporate Income Tax Law
This is not a matter of free choice. The same article requires expenses unrelated to business activity to be assessed "not only by legal form, but also by the economic substance of the transaction". So you cannot simply decide to "book it as a company expense because CIT is cheaper" — the regime is set by the type of benefit and whether the statutory conditions are met. Comparing costs only makes sense where the law genuinely gives more than one way to comply, and then only with an accountant.
Benefits the PIT law exempts
Article 9, Part 1 of the Personal Income Tax Law lists several exemptions for employer benefits. Each has its own conditions, so check the text of the law before applying one.
Employer's gift (Point 32¹) — if it does not exceed €100 during the tax year. The rule is worded as "a gift that does not exceed 100 euro during the tax year", so the safer approach is to add up the gifts one employee receives over the year.
Child-birth benefit (Point 32²) — up to €500 per child born in a single birth, if paid within six months of the birth.
Tuition fees (Point 32³) — if the employer paid for the employee's higher-education studies at an accredited Latvian, EU or EEA institution and the studies are linked to skills the employer needs.
Help buying medical technology (Point 32⁴) — if the conditions of Article 8, Part 2.¹⁵ of the law are met.
Insurance: two groups with different caps
The biggest mistake here is to treat all insurance types under one limit. The law splits them into two groups (Personal Income Tax Law, Article 8), and Article 14, Part 7 of the State Social Insurance Law keeps these amounts out of the mandatory-contribution base in line with the PIT law.
Type of insurance | Exemption limit | Minimum contract term |
|---|---|---|
Life insurance with a savings component | up to 10% of the employee's annual gross pay | at least 10 years |
Life (without savings), health and accident insurance | up to 10% of annual gross pay, but no more than €750 a year | at least 1 year |
The term is not the only condition. The law also requires the insurer to be registered in Latvia, the EU, the EEA or an OECD member state, and the contract terms to provide that:
the insurance payout for an insured event is paid to the insured person (or their beneficiary);
other amounts connected with the operation or termination of the contract are paid to the employer (the policyholder);
the contract does not provide for loans to insured persons.
Whatever exceeds these limits drops out of the exemption and stays in the employee's payroll-tax and social-contribution base.
Source: Personal Income Tax Law, Article 8; State Social Insurance Law, Article 14
For example, if an employee's annual gross salary is €24,000, 10% is €2,400. For health insurance that means only €750 is exempt (the lower of the two amounts). For life insurance with savings the €750 cap does not apply — only the 10% limit does.
A company car for private use
Here there is a concrete rule that can be stated simply. A benefit from a passenger car owned by or at the disposal of the employer, used for purposes unrelated to work duties or business activity, covers employees, board members and their close family (parents, grandparents, spouse, children, grandchildren). From there, everything depends on UVTN:
UVTN was paid for the car in that month — the benefit is not subject to PIT (Personal Income Tax Law, Article 9, Part 1, Point 41).
UVTN was not paid — payroll tax must be paid on the benefit (Personal Income Tax Law, Article 8, Part 2.³).
Separate rules apply to vehicles exempt from UVTN under Article 14, Part 1, Point 6 of the vehicle tax law — this article does not cover them, and in that situation a consultation is essential.
Collective events: the 5% threshold
A Christmas party, a team-building trip or a shared dinner is not the same as a benefit granted to each employee personally. The Corporate Income Tax Law calls such expenses personnel sustainability measures (Article 8, Part 4) — they include, for example, expenses on collective motivation or team-building events for employees.
The key rule: only representation and personnel sustainability expenses that together exceed 5% in the reporting year of the previous year's total gross pay calculated to employees (on which social insurance was paid) are added to expenses unrelated to business activity. Expenses that do not exceed this limit and are recorded separately from other expenses can be left out of the CIT base (Article 8, Part 3).
So it is not correct that every collective event automatically triggers 20/80 CIT. Nor is it correct to simply relabel employee benefits as "representation" — if an expense is a personnel sustainability measure, it is assessed under the same Article 8.
A practical example
Say SIA "Konsultants" decides to pay for health insurance for all 5 employees with an annual premium of €600 each. The average employee's annual gross salary is €18,000, the policy is for one year and meets the contract conditions in the law.
Calculation | |
|---|---|
10% of annual gross salary | €1,800 |
Statutory maximum for health insurance | €750 |
Exempt amount (the lower of the two) | €750 |
Actual premium | €600 |
Result | The €600 premium fits entirely within the exemption — no payroll tax, no social contributions, no CIT |
If the company raised the premium to €900 a year per employee, the situation changes:
Calculation | |
|---|---|
Exempt amount | €750 |
Excess | €150 |
Result | The €150 stays in the employee's taxable income — payroll tax and social contributions are due on it (employer 23.59%, employee 10.50%) |
This example shows why knowing the exact threshold is a real money question, not just a formality.
Common mistakes
Assuming all benefits are taxed the same way. Some are exempt, some are employee income, some are a CIT matter. Determine the type of benefit first, then the tax.
Choosing the regime by where the benefit is booked. The CIT law requires the economic substance of the transaction to be assessed, not just the ledger account.
Applying the €750 cap to all insurance. It applies to health, accident and life (without savings) insurance, not to life insurance with savings.
Forgetting the insurance contract conditions. The term is only one of them — the payout arrangements and the ban on loans must be checked too.
Not recording personnel sustainability expenses separately. Without separate records the 5% threshold relief cannot be used.
Handing over a car for private use without checking UVTN. That decides whether a payroll tax obligation arises.
Not recording the benefit in the books at all. Even if the amount seems small, every unrecorded benefit is a risk in the event of a tax audit — for both the company and the employee.
Do it yourself or bring in a specialist?
Situation | Recommendation |
|---|---|
One small, one-off gift (e.g. a holiday gift) | Manageable on your own if the exact threshold is clearly known and verified |
An ongoing insurance program for all employees | Worth a consultation — the calculation has to be done per employee based on their individual salary |
Private use of a company car | Strongly recommend a consultation — the mechanism depends on UVTN and the specific setup |
Collective events at or near the 5% threshold | Separate records and calculation needed — best agreed with an accountant in advance |
Multiple combined benefit types (car + insurance + gifts) | Needs professional accounting involvement — the risk of error grows with each additional benefit type |
In our experience, the most valuable moment to consult is before the decision is made, not at year-end when the accountant finds a discrepancy that's already happened.
Frequently asked questions
Are all employee benefits taxable?
No. Some benefits are expressly exempt from PIT by law (for example, a gift up to €100 in a tax year, or insurance premiums within the set limits), and benefits exempted by law cannot be taxed under CIT as expenses unrelated to business activity under that provision. The rest are taxed either as employee income (payroll tax + social contributions) or — if they are not included in the employee's income and the PIT law does not exempt them — as a CIT item.
Who pays the tax on a non-monetary benefit — the employee or the company?
It depends on the type of benefit. If the benefit is employee income in kind, payroll tax and social contributions are calculated from payroll. If the benefit is not included in the employee's taxable income and the PIT law does not exempt it, the company pays CIT under the 20/80 formula — except for personnel sustainability and representation expenses that stay within the 5% threshold.
Can we choose whichever of the two is cheaper for us?
No, not freely. The tax regime is set by the type of benefit and the economic substance of the transaction, not by the ledger account. Comparing cost only makes sense where the law genuinely allows different ways to comply — and it should be done with an accountant.
How large can an employer's gift to an employee be before it's taxed?
The law exempts an employer's gift that does not exceed €100 during the tax year (Personal Income Tax Law, Article 9, Part 1, Point 32¹). If an employee receives several gifts in a year, the safer approach is to add them up. Check that the amount has not changed since publication.
Can health insurance be tax-efficient?
Yes, it can. Qualifying health insurance up to 10% of annual gross pay and no more than €750 a year is not subject to payroll tax or social contributions, while an equivalent salary increase would be taxed in full. Whether it is better than a raise depends on the amounts, the employee's situation and the goal — it can only be assessed for a specific case.
Can a company car be used for private purposes without extra tax?
If UVTN is paid for the car in that month, the benefit from private use is not subject to PIT. If UVTN is not paid, payroll tax is due. Special rules apply to vehicles exempt from UVTN — consult an accountant in that case.
Does a collective event automatically create CIT?
No. Collective motivation and team-building events are personnel sustainability measures. They enter the CIT base only if, together with representation costs, they exceed 5% of the previous year's gross pay calculated to employees, and provided the expenses are recorded separately.
Do these rules apply to board members too, not just employees?
Yes — a board member's benefits are assessed under the same principle as an employee's. What matters is whether the benefit is included in the person's taxable income, not their formal job title. For example, the PIT rule on car benefits expressly names a company's board member.
Conclusion
Taxing non-monetary benefits in Latvia is not a single "either-or" scheme but three possible outcomes — exemption, employee income or CIT — plus separate rules for personnel sustainability measures. The exemptions the law spells out clearly (insurance, small gifts, certain benefits) give you a real way to motivate employees more efficiently than a plain salary increase — but only if the thresholds and all the conditions are applied precisely. If you're planning to introduce or expand an employee benefits program, an accurate calculation before the decision can save both money and an unpleasant surprise in a tax audit.
Use our salary calculator to work out exactly how additional income — including non-monetary income — affects your total employer costs.
Related reading
If you're planning to expand your compensation package, these may help too: payroll taxes for employers, salary vs. dividends for an SIA shareholder, and hiring your first employee in Latvia. If you're considering full outsourced accounting, see our services and pricing.
Legal sources and references
Not sure how to correctly record employee benefits for your company? Get in touch — we'll assess your specific situation and help you choose the option that's both tax-efficient and legally correct.
Last updated: September 2026; rules checked against the texts of the laws on 20 September 2026. Information based on the Corporate Income Tax Law, the Personal Income Tax Law and the State Social Insurance Law. This article is a general explanation and does not replace individual tax advice. The tax treatment of non-monetary benefits (especially company vehicles) depends on your specific situation — consult a certified accountant before making a decision.
Comments