Tax changes 2026 Latvia — guide for small businesses

Tax Changes in Latvia 2026 — Everything a Small Business Needs to Know

The year 2026 has brought several significant changes to Latvia's tax system — some beneficial for entrepreneurs, others requiring adjustment. The new alternative CIT/PIT regime, changes to payroll tax thresholds, VAT changes for food and books, as well as an excise tax increase — all of this directly affects small and medium-sized enterprises. In this article, we have summarized the most important changes and practical recommendations on how to prepare for them.

The New Alternative CIT/PIT Regime (15% + 6%)

Until now, Latvia operated a unique system: corporate income tax (CIT) at a rate of 20% was paid only at the moment of profit distribution, and individuals did not pay additional personal income tax (PIT) on dividends. The total tax burden was 20%.

From 1 January 2026, companies whose members are only natural persons have the option to choose an alternative regime: 15% CIT at the company level when distributing dividends, plus an additional 6% PIT withheld from the dividends at the time of payment. The total tax burden remains approximately 20% (more precisely, 21–22% depending on the calculation base), but its distribution changes — part of the PIT goes to municipal budgets, which may encourage investment attraction in the regions.

The choice is voluntary. Each company decides which regime to apply. Important: if you choose the alternative 15% rate, it must apply to all dividends calculated in the relevant tax period (month) — it is not possible to apply both rates simultaneously.

When is the alternative regime beneficial?

The alternative regime is particularly beneficial for:

• Foreign investors who can reduce their payable tax in their country of residence by the PIT paid in Latvia.

• Companies planning to distribute most of their profits as dividends. The larger the share of profit distributed, the more advantageous the alternative regime compared to the standard 20% CIT.

Conversely, if a company mainly reinvests its profits, the standard regime (20% CIT only at the time of distribution) remains more advantageous — tax is deferred until the profit is actually paid out.

The alternative regime also applies to previous years' profits

An important nuance: the alternative 15% CIT rate may also be applied to undistributed profits from previous years (2018–2025). This means — if your company has accumulated profit from previous years, it can be distributed in 2026 paying 15% CIT and 6% PIT.

Minimum wage: 740 → 780 EUR

The monthly minimum wage in 2026 has been increased from 740 EUR to 780 EUR per month. In the construction sector, the minimum wage is set at 1050 EUR.

These changes affect:

• Employers who hire employees at minimum wage — both gross salary costs and mandatory social security contributions (VSAOI) increase.

• Self-employed and individual merchants — mandatory minimum VSAOI contributions increase (780 × 31.07% = 242.35 EUR per month).

• Board members of SIA (Ltd) who receive a salary — the board member's salary must also be at least the minimum wage if it is their only workplace.

Non-taxable minimum: 510 → 550 EUR

From 1 January 2026, the fixed non-taxable minimum for all wage earners has been increased from 510 EUR to 550 EUR per month.

This means that no PIT is deducted from wages up to 550 EUR. In practice, this increases net wages by approximately 8–10 EUR per month depending on the gross salary amount.

It is planned that in 2027 the non-taxable minimum will increase to 570 EUR, and in 2028 it will remain at 570 EUR (with possible review).

VAT changes from 2026

Reduced VAT 12% for food (pilot project)

From 1 July 2026 to 30 June 2027, Latvia will operate a pilot project introducing a reduced VAT rate of 12% for certain food products. The list includes:

• Fresh and chilled poultry meat

• Fresh poultry eggs (in shells)

• Fresh milk (excluding UHT milk)

• Bread and basic bread products

• Fresh fruits, berries and vegetables (already subject to 12% previously)

For other food products — processed meat products, sweets, beverages, restaurant meals — the standard 21% VAT rate still applies.

For businesses operating in food retail or production, it is essential to update cash register systems and invoice templates in good time to correctly separate products subject to the 12% and 21% rates.

VAT 5% for books — narrowed language scope

From 1 January 2026, the reduced VAT rate of 5% for books, press and other publications no longer applies to publications in Russian. The 5% rate is maintained only for publications in:

• Latvian, Latgalian and Livonian;

• Official languages of the EU, EEA, Switzerland, EU candidate countries and the OECD.

All other publications (including Russian) are subject to the standard 21% VAT.

Excise duty changes in 2026

Alcohol

From 15 March 2026, a steeper excise duty increase for spirits has entered into force — +15 EUR per 100 litres of pure alcohol. For wine, excise duty increases from 134 to 148 EUR per 100 litres. For beer, the increase is more moderate — from 9.80 to 10.58 EUR per hectolitre/degree.

The next significant increase is planned for 1 March 2028, when excise rates will increase for all types of alcoholic beverages, including beer.

Tobacco

From 1 January 2026, excise duty on tobacco products has been increased by an additional 5 percentage points. For example, the minimum tax level for 1000 cigarettes has increased from 171.90 EUR to 197.70 EUR.

Other excise duties

In 2026, natural resource tax and gambling tax amounts have also been increased. Meanwhile, from 2028, it is planned to increase excise duty on non-alcoholic beverages, including energy drinks.

Other significant changes

• Transfer pricing documentation — from 2026, the full transfer pricing documentation (local file) must be submitted to the State Revenue Service only upon request within 30 days. However, a requirement has been introduced to annually submit a standardised controlled transaction report (KDP) electronically if transactions with related parties exceed 250,000 EUR. The KDP must be submitted within 12 months after the end of the reporting year, not only upon request.

• Interest deduction restrictions (thin capitalization) — the range of financing sources to which the debt-to-equity ratio restriction does not apply has been expanded. This facilitates access to alternative financing sources outside the banking sector.

Micro-enterprise tax changes in 2026

Significant amendments have also been made to the micro-enterprise tax (MET) regime in 2026. The rate has been increased to 25% of turnover (previously 15% to 25% progression), and the scope of persons to whom MET does not apply has been expanded. If you operate as a micro-enterprise, check whether you still meet the new criteria (for example, up to 5 employees, turnover up to 100,000 EUR). It is recommended to consult with your accountant about switching to the general regime if MET becomes unfavourable.

Change calendar — when does each change take effect?

What entrepreneurs need to do now

1. Review your payroll budget. If you have employees, ensure that salaries comply with the new minimum of 780€ (or 1050€ in construction). Recalculate VSAOI costs.

2. Evaluate the CIT regime. If your members are only natural persons and you plan to distribute profits, calculate which regime — standard 20% or alternative 15%+6% — is more advantageous for your situation. Consult with your accountant.

3. Adjust VAT accounting. If you operate in the food or book industry, update cash register systems, invoice templates and product classification according to the new VAT rates.

4. Monitor excise changes. Alcohol and tobacco traders must account for higher purchase prices and adjust retail prices accordingly.

5. Don't forget transfer pricing requirements. If you have transactions with related companies exceeding 250,000 EUR, ensure that transfer pricing documentation is available and that the controlled transaction report (KDP) is submitted within 12 months after the end of the year.

6. Review your micro-enterprise status. If you operate under the MET regime, ensure that you still meet the new conditions and that the 25% rate remains advantageous for you.

The 2026 tax changes are overall moderately favourable for small businesses — raising wage thresholds increases labour costs, but the new CIT regime offers more flexible dividend distribution opportunities, especially for foreign investors. Our team helps entrepreneurs navigate these changes and make well-considered decisions.

Last updated: April 2026. Information is based on amendments adopted by the Saeima and official materials from the State Revenue Service.