Accounting in Latvia 2026: VAT, salaries and taxes | Balansis

Accounting in Latvia (2026): a complete entrepreneur's guide with examples

Every year in Latvia, someone hires an employee using old payroll tax rates or applies VAT to the wrong rate category. The result — an SRS audit, late payment interest, and time spent on corrections. Not because the laws are unclear — but because they change more often than entrepreneurs follow them.

New personal income tax rates took effect in 2025. From 1 January 2026, EDS can only be accessed using secure electronic identification tools, and e-invoicing became mandatory for state institutions. This guide summarises everything current — VAT, salaries, CIT, MET, and annual report deadlines — in one place, with figures and legal references.

This article is an informative overview and does not replace individual tax advice. Tax application depends on the specific situation — consult a certified accountant before making decisions.

Key takeaways

• The IIN rate in 2026 is 25.5% — the old 20% and 23% rates were in force until 31.12.2024.

• VAT registration is mandatory if turnover in a calendar year exceeds €50,000

• CIT in Latvia is only paid on dividends — reinvested profit is tax-free

• The MET maximum turnover is €50,000/year, rate 25% of turnover

• Solidarity tax — an additional 3% on certain income types above €200,000/year

• Minimum monthly wage in 2026 — €780 gross/month

What accounting in Latvia is and what it requires

Accounting is not just document filing — it's the company's financial story, showing the real situation: how much it earns, spends, what taxes arise, and whether it is profitable at all. A company cannot legally exist without accounting. The main regulatory act is the Accounting Law.

In Latvia, there are two types of accounting — and the choice affects both workload and the ability to deduct expenses:

Three institutions you need to know:

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

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

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

Regulatory acts on which accounting in Latvia is based:

Source: Accounting Law · VAT Law · CIT 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 company's income — it's transit money. A VAT payer can deduct the VAT shown on supplier invoices as input tax, thereby paying the state only the difference.

How it looks in practice: A service for €1,000 + VAT €210 = customer pays €1,210. The business does not earn €210 — this sum goes to the state budget. If, however, the business bought materials for €500 + VAT €105, it can deduct these €105 as input tax. The amount actually to be paid to the state is €210 − €105 = €105. So VAT registration not only creates obligations — it provides a real financial advantage for businesses with high expenses.

VAT rates in 2026

Source: Value Added Tax Law

When to register as a VAT payer

VAT registration becomes mandatory when the company's turnover exceeds €50,000 in a calendar year in most standard domestic transactions. For certain types of transactions (e.g., services to EU clients or certain cross-border transactions), VAT registration obligation may arise earlier — see relevant provisions of the VAT Law. The threshold is counted from the time the business starts operating — not from the start of the year. This means: if a company incorporated in June reaches €50,000 turnover by October, registration must be submitted 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 expenses. More about the process and documents in the article VAT registration in Latvia.

Export and 0% rate: For export outside the EU and supplies to EU VAT payers, the 0% rate is applied — but only if the counterparty has a valid VAT registration number. This can be verified in the European Commission's VIES system. If the number is missing or not valid — 21% must be applied.

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

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

How it works in practice: A company earns €30,000 per year. If the money stays in the company — CIT 0%. If the owner distributes €10,000 in dividends — CIT arises only from these €10,000. The remaining €20,000 can be freely reinvested, saved, or used for business needs.

Important nuance — the 20/80 calculation principle: Many mistakenly think that CIT is simply 20% of the amount distributed. In reality, the tax is calculated using the coefficient 20/80 (or 0.25) on the net distribution. If you want the 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 CIT regimes in 2026

The alternative regime may be advantageous if the company has regular, large dividend distributions — but it has specific conditions and SRS interpretation nuances. Consult an accountant before choosing. For a more detailed analysis, see the article Dividends vs salary in SIA?.

When CIT is payable even without dividend distribution

CIT also arises in cases not related to dividends: if the company pays interest or royalties to related foreign persons, or provides financial benefits to shareholders outside ordinary business activities. These cases are easy to overlook — and SRS audits pay attention to them. For a complete list, see CIT Law Section 8.

Payroll taxes in 2026 — where mistakes hide

Payroll taxes are the most common source of errors both in new companies and among experienced entrepreneurs hiring an employee for the first time. The main reason — until early 2025, Latvia had PIT rates of 20% and 23%. From 1 January 2025, these are no longer in force. The new standard rate is 25.5%.

Main parameters in 2026

Source: Law "On Personal Income Tax", Section 15 · Law "On State Social Insurance", Section 18

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

We cover all payroll tax issues in more detail in the article Payroll taxes for employers 2026.

Practical example — salary calculation from €1,500 gross

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

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

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

Note: The calculation is simplified for demonstration purposes. For an exact calculation, use our salary calculator.

From €1,500 gross, Marta's company always pays €1,853.85 — only the employee's net differs depending on whether a tax book has been submitted. The difference between options A and B — €140.25 net per month — can be a significant argument in employment negotiations.

Micro-enterprise tax (MET) in 2026

MET is an alternative tax regime available only to certain types of small businesses: sole proprietors, individual enterprises, rural/fishing farms, and natural persons performing economic activity. Ltd. (SIA) can no longer be MET payers. The tax is paid on turnover (not profit) at a flat rate — 25%. It replaces PIT and VSAOI on income from economic activity.

MET parameters in 2026

Source: Micro-enterprise Tax Law

For whom MET is advantageous — and for whom not

MET suits businesses with a low cost share: consultants, hairdressers, IT specialists, designers working independently. The lower the costs, the larger the profit share remains, and then 25% of turnover may be less than the combined taxes under the general regime.

However, there are three key limitations often overlooked:

1. VAT input tax deduction — the MET regime itself does not provide special VAT relief. If a MET payer is not registered for VAT, input tax deduction is not possible. A registered VAT payer can deduct input tax under the general procedure according to the VAT Law. For businesses with large VAT-taxable expenses, MET is usually not advantageous.

2. Pension accumulation and social guarantees — in the MET regime, social contributions are calculated differently, and future social guarantees (e.g., pension capital or sickness benefits) may be lower than in the general regime.

3. If the turnover threshold is exceeded, a mandatory transition to the general regime is required the following year — and the transition requires preparation.

Annual report and tax returns — deadlines

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

• Financial statements are submitted to SRS (EDS), not UR

• Tax returns (VAT, CIT, PIT, etc.) are submitted to SRS (EDS)

• UR publishes annual reports — but it is not a tax control authority

Note: If an IK is registered as a VAT payer, it must additionally submit VAT returns to SRS — quarterly (turnover ≤ €50,000 in the previous year) or monthly (turnover > €50,000).

Source: Annual Reports and Consolidated Annual Reports Law

SRS requirements in 2026 — what's new to know

Electronic identification in EDS

From 1 January 2026, the SRS Electronic Declaration System (EDS) can only be accessed using secure electronic identification tools: Smart-ID (qualified version — not Smart-ID Basic), eID card, eSignature, eSignature mobile, or authentication from certain online banks.

The username and password issued by SRS may continue to be used only by foreigners who do not develop a legal link with Latvia and do not have the possibility to obtain a Latvian eID card.

This means that companies and accountants must ensure in good time that:

• EDS users have access to a qualified authentication tool;

• outsourced accountants are correctly authorised in EDS;

• company officials have access to EDS even when employees or external service providers change.

Source: SRS announcement on EDS authentication changes

Mandatory e-invoices

From 1 January 2025, all invoices issued to state institutions (B2G) must be prepared in a structured electronic format (PEPPOL BIS 3.0). From 1 January 2026, these e-invoices must also be submitted to SRS via EDS. Expansion of B2B e-invoicing (between private companies) in the private sector is envisaged in the following years — before adapting systems, check the current regulation on the Ministry of Finance website. Already now, it is advisable to check whether your accounting software (Moneo, Jumis, Horizon or other) supports the PEPPOL format.

In the EDS section "Tax account overview", regularly check the status of debts or overpayments — this allows timely detection of discrepancies.

Do it yourself or entrust to a specialist?

The law does not prohibit a company owner from doing the accounting themselves. In practice, however, self-managed accounting often causes problems that are expensive to fix later — not because entrepreneurs are unreasonable, but because requirements change and the picture is broad.

If you choose outsourcing, ensure that the accountant has experience in your industry, access to EDS with your authorisation, and professional indemnity insurance. Outsourced accountants in Latvia require a licence — check the licence status before starting cooperation. More about costs — in the article Accounting prices for a small company.

Most common mistakes in companies

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

1. PIT calculated using old rates — the 20% rate was in effect until 31.12.2024. From 1 January 2025, the rate is 25.5%. The difference for a €1,500 gross salary: approximately €82/month incorrectly calculated tax.

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

3. Lack of documents — invoices, receipts, contracts, waybills are not prepared in accordance with regulatory acts. In an SRS audit, they will not be accepted as evidence.

4. Mixing private and business expenses — prevents VAT input tax deduction and creates PIT risks.

5. Late declarations — even a one-day delay incurs late payment interest (0.05%/day) and a fine. Use our SRS penalty calculator to calculate potential costs.

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

7. Failure to comply with AML/CTF requirements — client identification and determination of the true beneficial owner are mandatory. Sanctions can reach 5% of annual turnover.

8. Non-compliance with document retention periods — primary documents must be kept for 5 years; payroll and VAT documents — for 10 years.

Do any of these mistakes apply to your company? We advise companies throughout Latvia — contact us and let's evaluate the situation together.

Penalties and sanctions — the real figures

Document retention periods

The periods are counted from the end of the year in which the document was drawn up or the transaction was made. Electronic documents must be kept for the same duration as paper ones — and their readability must be ensured throughout the retention period.

Frequently asked questions

Does a sole proprietor need accounting?

Yes. An IK must maintain single-entry accounting and submit an annual income declaration to SRS by 1 June. The annual report does not need to be submitted to UR — that is an obligation for SIA and JSC.

What is the PIT rate in 2026?

25.5% for income up to €105,300/year (the maximum VSAOI contribution base). Above this threshold — 33%. The old 20% and 23% rates were in force until 31.12.2024 and are no longer applicable.

Can I do the accounting for my own SIA?

Yes, the law does not prohibit it. However, the risk is high, especially if the company has employees, VAT registration, or transactions with related persons. Even one mistake can cost more than a year's accounting outsourcing.

From what turnover is VAT registration mandatory?

€50,000 in a calendar year for most standard domestic transactions. For certain types of transactions (e.g., EU services or cross-border transactions), the registration obligation may arise earlier. The threshold is counted from the start of business operations, not the beginning of the year.

How long must invoices and contracts be kept?

5 years from the end of the year in which the document was drawn up. Payroll calculation documents and VAT invoices — 10 years.

What happens if SRS discovers errors?

In SRS practice, several previous tax periods are audited — the specific period depends on the situation, the type of violation, and the applicable limitation periods. Unpaid taxes + 0.05%/day late payment interest + fine must be paid.

Can VAT input tax be deducted in the MET regime?

The MET regime itself does not provide special VAT relief. If a MET payer is not registered for VAT, input tax deduction is not possible. A registered VAT payer can deduct input tax under the general procedure according to the VAT Law.

How is salary calculated in Latvia in 2026?

The employer pays gross salary + employer VSAOI (23.59%). From the employee's gross, employee VSAOI (10.50%) is deducted, then PIT (25.5%) is calculated on the remainder, applying the non-taxable minimum if a tax book has been submitted. See details in section Practical example or use our salary calculator.

Can an SIA be a MET payer?

No. From 2013, SIA can no longer register as MET payers. The MET regime is available only to sole proprietors, individual enterprises, rural/fishing farms, and natural persons performing economic activity.

Conclusion

Accounting in Latvia is a logical system if you view it as a whole. The most important thing: document transactions properly, meet declaration deadlines, and work with current rates. Mistakes arise not from ill will, but from outdated information or overload.

If you want to calculate salaries using 2026 rates, use our salary calculator. For dividend vs salary optimisation, read Dividends or salary in SIA?. For choosing a tax regime between different company forms — SIA vs IK vs self-employed. For the 0% CIT system and reinvested profit — CIT 0% in Latvia.

If you have questions about accounting requirements or want to discuss the most suitable tax regime for your company — contact us. Our team helps navigate the tax field and choose a solution specifically for your situation.

Last updated: May 2026. Information based on the Accounting Law, VAT Law, CIT Law, Law on PIT, Law on State Social Insurance, and official SRS materials. The article is prepared for educational purposes — it is not a legal or tax advisory service. Tax application depends on the specific situation and regulatory acts may change. Consult a certified accountant or tax advisor before making decisions.

Regulatory sources and references

• Accounting Law

• Law "On Personal Income Tax"

• Law "On State Social Insurance"

• Value Added Tax Law

• Corporate Income Tax Law

• Micro-enterprise Tax Law

• Annual Reports and Consolidated Annual Reports Law

• SRS announcement on EDS authentication changes