Freelancer's Guide: Self-Employed or SIA — When to Switch in Latvia?

Freelancer's Guide: Self-Employed or SIA — When to Switch?

Almost every freelancer in Latvia eventually faces this question. At first, self-employed status seems simple — register with the State Revenue Service (VID), issue invoices, file one annual declaration. But as income grows, so does the tax burden, client expectations, and the entrepreneur's own goals.

In 2026 this decision has become even more relevant, as several tax changes have taken effect: the alternative corporate income tax regime (15% + 6%), a clarified calculation method for mandatory social insurance contributions (VSAOI). This guide will help you work out at what point an SIA becomes more advantageous, and how to make the switch without unnecessary stress.

Key takeaways

• Self-employed social insurance contributions (VSAOI) are not simply 31.07% of your entire income — 31.07% applies only to the first €780/month (€9,360/year), while 10% applies to everything above that

• Calculated correctly, an SIA (under the standard 20% corporate tax regime, fully distributing dividends) becomes more advantageous at a considerably lower income level than commonly assumed — depending on SIA running costs, the tipping point can be as low as €8,000–16,000/year, not €20,000+

• The maximum social insurance contribution base (ceiling) for 2026 is €105,300/year, not €62,800

• The alternative corporate tax regime (15% + 6%) may only be applied if all company members are natural persons

• Taxes aren't the only factor — client requirements, liability protection, and growth potential are often just as important

How self-employed status works in 2026

A self-employed person (a natural person carrying out economic activity) registers only with VID — no registration with the Enterprise Register (Uzņēmumu reģistrs) is required. Registration happens by submitting an application to VID (through EDS or in person), after which the person is entitled to carry out economic activity.

Tax burden for the self-employed in 2026

Self-employed income is taxed with personal income tax (IIN) at two rates:

• 25.5% on income up to €105,300/year

• 33% on the portion of income above €105,300

In addition, a self-employed person makes mandatory state social insurance contributions (VSAOI) under a two-tier structure — and this is exactly where the most common mistake happens:

• 31.07% applies only to the contribution base — the minimum wage, €780/month (€9,360/year). That's €242.35/month, if monthly income reaches or exceeds €780.

• 10% applies to the portion of income that exceeds €780/month — not to the entire income.

• If monthly income is below €780, only 10% of actual income is due — not a fixed €242.35 minimum regardless of income level.

Source: Law "On State Social Insurance" (Article 18)

A common mistake is applying the 31.07% rate to the entire annual income, rather than just the first €9,360. This significantly overstates the self-employed person's tax burden and skews the decision on whether to form an SIA, as shown in the example below.

Self-employed tax calculation — an example

Suppose a freelancer earns €30,000/year (€2,500/month, above the €780 threshold). The correct calculation:

Note: this calculation is simplified and does not include the non-taxable minimum, which would slightly reduce IIN in an actual declaration — for a precise calculation, consult an accountant or use our salary calculator for an indicative comparison.

This is a considerably lower burden than you'd get by mistakenly calculating VSAOI as 31.07% of the entire income (which would produce a net of only ~€15,400) — that error overstates the cost of being self-employed and misleads about how early an SIA actually becomes worthwhile.

When an SIA becomes more advantageous — the precise income level

The answer depends on what share of profit you plan to pay out to yourself, and on the SIA's running costs. Let's look at a scenario where the SIA distributes all its profit as dividends.

Scenario: the freelancer distributes all profit

If an SIA's annual profit is X euros and it's distributed in full as dividends, under the 20/80 corporate tax formula (where X is the total profit pool, out of which both the tax and the dividend must be paid): corporate tax (UIN) = 20% of X, net dividend = 80% of X. At €30,000 in profit, that means €6,000 in tax and a €24,000 net dividend — not €7,500 in tax, as you'd get by applying the formula as if €30,000 were already the intended net dividend (this confusion between gross profit and net dividend amount is a common mistake in these calculations).

SIA (standard corporate tax regime), €30,000 profit:

• Corporate tax (20% of €30,000): €6,000

• Net dividend: €24,000

• Minus SIA running costs (~€2,400/year — accountant, bank, registered address; depending on volume, realistically €1,200–3,600/year)

• Actually in your pocket: ~€21,600

Compared to the self-employed person's €18,646 at the same €30,000 income — a difference of ~€2,950 in the SIA's favor, not ~€4,700 as you'd get with an incorrect VSAOI calculation.

The tipping point — at what income does an SIA start winning

Conclusion: when VSAOI is calculated correctly (only 31.07% of the first €9,360, not of the entire income), an SIA becomes more advantageous at a considerably lower income level than is often claimed — depending on SIA running costs (€1,200–3,600/year), the tipping point is typically around €8,000–16,000/year, not €20,000+. Lower SIA running costs mean a lower tipping point; if your expenses (equipment, office rent, input VAT) are significant, the calculation may differ, so it's worth working out the precise figure individually with an accountant or using our dividend calculator.

When the alternative corporate tax regime is advantageous for a freelancer

The alternative corporate tax regime (15% corporate tax + 6% personal income tax on dividends) may only be applied if all company members are natural persons — if even one member is a legal entity, the alternative regime cannot be used. For a single-owner freelancer, this condition is usually met automatically.

The regime can be more advantageous if you plan to distribute a large share (75–80%+) of profit as dividends, but the precise benefit depends on your specific situation — compare both regimes with our dividend calculator or consult an accountant, since the detailed calculation for both regimes is sensitive to the amount distributed and the ownership structure.

VAT — when it becomes relevant for a freelancer or an SIA

Regardless of the structure you choose, VAT registration becomes mandatory once turnover exceeds €50,000 within a calendar year. If your clients are themselves VAT payers (typical in B2B situations), voluntary VAT registration can be worthwhile even earlier, since it lets you reclaim input VAT on equipment, software, and office expenses. The VAT registration conditions are the same for a self-employed person and an SIA — the difference is that an SIA typically finds it easier to convince larger B2B clients that working with a VAT-registered business is a "proper" business form.

Non-tax reasons to form an SIA

Taxes aren't the only reason freelancers switch to an SIA. Several other factors matter too:

1. Client requirements. Most B2B clients — especially foreign ones — refuse to sign contracts with natural persons. They want invoices from a legal entity with a VAT number. An SIA opens the door to larger projects and corporate clients.

2. Limited liability. A self-employed person is liable with all their personal assets. An SIA owner's liability is limited to the invested share capital. If something goes wrong — a contractual penalty, a dissatisfied client, a mistake at work — an SIA protects your personal assets.

3. Professional image. "SIA" on a business card and invoices looks more professional than "self-employed." Banks, leasing companies, and potential partners take an SIA more seriously.

4. Growth potential. An SIA can hire employees, bring on partners, and sell shares. Self-employed status doesn't offer these options.

5. VAT recovery. If your expenses involve VAT (equipment, software, office rent), an SIA as a VAT payer can reclaim input tax.

How to switch from self-employed to an SIA without interrupting your business

The switch from self-employed to an SIA can go smoothly if you follow the right sequence. The key is not to close your self-employed activity until the SIA is fully ready to operate.

Step by step

1. Form the SIA while still operating as self-employed. Registration takes 1–3 working days.

2. Open the SIA's bank account and obtain a VAT number (if needed). Opening a bank account can take 2–4 weeks — start this process in parallel with registration.

3. Notify your clients. Send a notice that invoices will now be issued by the SIA, not the self-employed individual. Provide the new company details.

4. Start invoicing from the SIA for new projects. Continue old projects that began under self-employed status until they're completed.

5. Gradually wind down self-employed activity. Once all old projects are finished and all new business goes through the SIA, you can close your self-employed status.

6. Submit your final self-employed declaration and notify VID that the activity has ended.

Important nuances

• Don't use the same bank account for both structures. This creates confusion in your bookkeping and can trigger VID questions.

• Don't overlap the same expenses across both structures. If you use the same computer for both activities, determine a proportion and document it.

• Keep all self-employed records — supporting documents for at least 5 years, accounting records for at least 10 years — even after closing the status.

Can you operate as both self-employed and an SIA owner at the same time?

Yes, the law allows this. A natural person can simultaneously be self-employed and an SIA owner/board member. However, this must be justified by distinct types of activity — for example:

• As self-employed you provide consulting in one field, while the SIA sells software.

• As self-employed you work with smaller clients, while the SIA serves large corporate orders.

VID closely monitors situations where a person artificially splits the same activity between two structures to avoid taxes. If both structures carry out identical activity for the same clients, this can be treated as tax avoidance.

Accounting for freelancers — what records to keep and administrative costs

Self-employed bookkeeping

A self-employed person must keep single-entry bookkeeping — an income and expense journal. A full double-entry system isn't required, but you must be able to show all income, all expenses, and a record of fixed assets (if you have equipment or computers). It's advisable to use accounting software (such as Pats.lv) that automatically generates the income/expense journal and helps complete the annual income declaration.

SIA bookkeeping

An SIA requires full double-entry bookkeeping: every transaction must be posted to accounts (debit/credit), a balance sheet and profit & loss statement must be prepared, VAT declarations filed (if the SIA is a VAT payer), and an annual report submitted. Most freelancer-SIAs use an outsourced accountant — it's cheaper than hiring a full-time accountant and ensures professional record-keeping.

How to choose the best structure for your situation

To make the decision, consider these questions:

• What is your annual income? Below €8,000–10,000 — self-employed status may be administratively simpler. Above €15,000–20,000 — an SIA is usually already more advantageous financially, not just administratively simpler.

• Do your clients require invoices from a legal entity? If most clients are B2B, an SIA is almost a mandatory requirement.

• What are your business risks? If there's a possibility a client could bring a claim against you, an SIA provides liability protection.

• Are you planning to expand? If you want to hire employees or bring on partners in the future, an SIA is the only option.

• How much time are you willing to spend on administration? Self-employed status means less bureaucracy; an SIA means more, though an outsourced accountant can take over most of that.

Switching from self-employed status to an SIA isn't just a tax question — it's a stage in business growth. And as this guide shows, financially an SIA usually becomes advantageous much earlier than commonly assumed — sometimes already at €10,000–15,000 in annual income. Our team helps both with forming an SIA and organizing the transition process — from the first consultation to full accounting support. Get in touch to work out your specific situation, or see our accounting services.

This guide focuses specifically on the choice between self-employed status and an SIA. If you would also like to see how the picture changes with an IK (individual merchant) included, compared across three income levels, see our broader comparison SIA vs IK vs Self-Employed in Latvia 2026.

Frequently asked questions

Does a self-employed person always owe at least €242.35/month in social insurance contributions?

No. This amount (31.07% of €780) is only due if monthly income reaches or exceeds €780. If income is lower, only 10% of actual income is due — and if there's no income at all, the contribution is 0.

What is the precise income level at which an SIA becomes more advantageous?

It depends on the SIA's running costs and your expense structure, but calculating VSAOI correctly (only 31.07% of the first €9,360/year, not of the entire income), the tipping point is typically already €8,000–16,000/year, not €20,000+ as is often claimed.

Can I apply the alternative corporate tax regime (15%+6%) if I have a member that is a legal entity?

No. The alternative regime may only be applied if all company members are natural persons. If even one member is a legal entity, the standard 20% corporate tax regime must be used.

What is the maximum social insurance contribution base for 2026?

€105,300/year. Above this threshold, the higher personal income tax rate (33%) applies to the portion of income, instead of the lower rate (25.5%).

Can I be both self-employed and an SIA owner at the same time?

Yes, if both structures carry out different activities or serve different client segments. If both operate identically for the same clients, VID may treat this as artificial tax optimization.

Does forming an SIA automatically mean higher administrative costs?

Yes, an SIA requires double-entry bookkeeping and an annual report, which usually costs more than the simple record-keeping required of a self-employed person. However, as the calculation above shows, the tax savings often exceed this additional cost already at relatively low income levels.

Related reading: SIA vs IK vs self-employed and accounting for e-commerce businesses.

Sources

• Law "On State Social Insurance" — Article 18 (self-employed social insurance contributions)

• Law "On Personal Income Tax"

• Corporate Income Tax Law

• VID: Personal income tax rates

Last updated: September 2026. Information based on the Law "On State Social Insurance," the Law "On Personal Income Tax," the Corporate Income Tax Law, and official VID materials. Examples are simplified and do not cover all individual nuances (expenses, non-taxable minimum) — for a precise calculation for your situation, consult an accountant.