Dividends or Salary — What's More Profitable for an SIA Owner in 2026?
Every SIA owner eventually faces the same question: how do you pay yourself in a way that minimizes tax? The answer depends on several variables — your income level, whether the company reinvests profit, and the new options available in 2026. In this article we work through both options step by step and show at which point each approach pays off.
Key takeaways
A pure salary carries the highest tax burden (~37–45%, depending on income level), but it earns you a pension, health insurance, and sickness benefits.
Pure dividends (standard 20/80 regime) carry the lowest tax burden (~20%), but give no social guarantees at all.
For most SIA owners, the optimal approach is a hybrid strategy: a minimum salary (€780 in 2026) for social guarantees, plus the remainder as dividends.
The new alternative CIT regime (15% CIT + 6% PIT) is mainly useful for foreign investors, who can use the 6% PIT as a tax credit in their home country — for a Latvian resident, the standard regime is usually slightly more favorable regardless of how much profit is distributed.
How the two options work
Salary: PIT + social insurance
If you pay yourself a salary as a board member, the following is withheld from your gross pay:
Employee social insurance contributions (VSAOI) — 10.50% of gross salary
Personal income tax (PIT) — 25.5% (for income up to €105,300 a year) or 33% (above that threshold), after applying the €550/month non-taxable minimum
The company, as employer, additionally pays:
Employer social insurance contributions (VSAOI) — 23.59% of gross salary
State business risk duty — a fixed €0.36 a month per employee (not a percentage — this amount doesn't change with the salary level)
The total cost to the company per euro the employee actually receives "in hand" significantly exceeds the net amount itself. For example, for the owner to receive €1,000 net, the company needs to spend approximately €1,594.
Run the exact numbers for your own gross/net salary with our salary calculator.
An important point: paying salary reduces the company's profit, since salary is an expense — meaning this amount isn't subject to corporate income tax at all. On the other hand, social contributions (VSAOI) on salary are substantial — the combined rate reaches 34.09% of gross salary.
Dividends: corporate income tax (and, in some cases, personal income tax)
Dividends are a distribution of profit. In 2026, an SIA owner has two options:
Standard regime (20/80 formula):
The company pays corporate income tax (CIT) using a gross-up mechanism: divide the amount to be paid out by 0.8 and apply 20% to the result. For example, to pay out €50,000 in dividends, CIT = (50,000 / 0.8) × 20% = €12,500.
The individual (shareholder) pays no additional personal income tax (PIT) — dividends are exempt from PIT, since CIT has already been paid at the company level.
Under this regime, CIT is charged only on the portion of profit actually distributed — reinvested profit stays untaxed.
Alternative regime (15% + 6%) — new as of 2026:
The company pays 15% CIT, but — just as in the standard regime — only on the portion of profit actually distributed (paid out), not on the full annual profit. Reinvested profit remains untaxed under this regime as well.
The individual additionally pays 6% PIT on the dividends received.
For example, from €100,000 of profit that's fully paid out: CIT 15% = €15,000; dividends = €85,000; PIT 6% = €5,100; net = €79,900.
The alternative regime is only available to companies where all direct shareholders are individuals. It's particularly advantageous for: (1) owners who pay out most of their profit as dividends; (2) foreign investors who can use the 6% PIT as a tax credit in their home country.
To see exactly what you'd take home on the amount you plan to pay out, use our dividend calculator.
Comparative calculations: salary vs. dividends
To make the comparison concrete, let's assume the company has free cash flow it can direct to the owner's income. We'll compare three levels.
Level 1: approximately €1,000/month (€12,000/year)
Salary:
Gross salary: €1,290/month (to reach ~€1,000 net)
Employee VSAOI (10.50%): €135
Taxable income: 1,290 – 135 – 550 (non-taxable minimum) = €605
PIT (25.5%): €154
Net salary: €1,001/month
Employer VSAOI (23.59%): €304/month
Total company cost: €1,594/month, or €19,128/year
In the owner's pocket per year: €12,012
Effective tax burden: 37.2%
Dividends (standard regime):
Assume the company earns €15,000 (enough to cover CIT and pay out ~€12,000)
CIT (20/80): 12,000 / 0.8 × 20% = €3,000
Profit needed: 12,000 + 3,000 = €15,000
In the owner's pocket per year: €12,000
Effective tax burden: 20%
Dividends (alternative regime):
CIT 15% on the distributed profit: 15,000 × 15% = €2,250
Dividends: 15,000 – 2,250 = €12,750
PIT 6%: €765
In the owner's pocket per year: €11,985
Effective tax burden: 20.1%
Conclusion: At €1,000/month, dividends are more favorable — a 20% tax burden versus 37.2% for salary. The difference in company cost: about €4,100 a year in favor of dividends.
Level 2: approximately €2,000/month (€24,000/year)
Salary:
Gross salary: ~€2,789/month
Employee VSAOI (10.50%): €293
Taxable income: 2,789 – 293 – 550 = €1,946
PIT (25.5%): €496
Net salary: €2,000/month (€24,000/year)
Employer VSAOI (23.59%): €658/month
Total company cost: €3,447/month, or €41,364/year
In the owner's pocket per year: €24,000
Effective tax burden: 42.0%
Dividends (standard regime):
Profit needed: €30,000 in the company
CIT (20/80): 24,000 / 0.8 × 20% = €6,000
In the owner's pocket per year: €24,000
Effective tax burden: 20%
Dividends (alternative regime):
CIT 15%: 30,000 × 15% = €4,500
PIT 6%: (30,000 – 4,500) × 6% = €1,530
In the owner's pocket per year: €23,970
Effective tax burden: 20.1%
Conclusion: At €2,000/month, dividends are significantly more favorable — a 20% tax burden versus 42.0% for salary. The difference in company cost is about €11,400 a year.
Level 3: approximately €5,000/month (€60,000/year)
Salary:
Gross salary: ~€7,288/month
Employee VSAOI (10.50%): €765 (ceiling not reached)
Taxable income: 7,288 – 765 – 550 = €5,973
PIT (25.5%): €1,523/month (annual income of €87,456 stays below the €105,300 threshold, so the 33% rate does not apply)
Net salary: €5,000/month (€60,000/year)
Employer VSAOI (23.59%): €1,719/month
Total company cost: €9,007/month, or €108,084/year
In the owner's pocket per year: €60,000
Effective tax burden: ~44.5%
Dividends (standard regime):
Profit needed: €75,000
CIT (20/80): 60,000 / 0.8 × 20% = €15,000
In the owner's pocket per year: €60,000
Effective tax burden: 20%
Dividends (alternative regime):
CIT 15%: 75,000 × 15% = €11,250
PIT 6%: (75,000 – 11,250) × 6% = €3,825
In the owner's pocket per year: €59,925
Effective tax burden: 20.1%
Conclusion: At €5,000/month, dividends are clearly more favorable — the difference in company cost is about €33,100 a year.
Summary table
Monthly net target | Salary: annual company cost | Salary: in pocket | Dividends: company profit | Dividends: in pocket | Difference in company cost |
|---|---|---|---|---|---|
€1,000 | €19,128 | €12,012 | €15,000 | €12,000 | ~€4,100 |
€2,000 | €41,364 | €24,000 | €30,000 | €24,000 | ~€11,400 |
€5,000 | €108,084 | €60,000 | €75,000 | €60,000 | ~€33,100 |
The hybrid strategy: small salary + dividends
In practice, most SIA owners use a hybrid approach: pay themselves the minimum salary (€780/month in 2026) to secure social guarantees — pension, health insurance, sickness benefits — and pay out the rest as dividends.
Why the hybrid strategy works
Social guarantees: Salary provides VSAOI contributions, which give you the right to a pension, sickness benefits, and other social guarantees. Dividends don't provide these guarantees.
Tax optimization: The minimum salary (€780) creates a relatively small tax burden — roughly €300/month in total taxes (employer VSAOI €184, employee VSAOI €82, PIT €38) — while securing the minimum VSAOI contributions. Everything else is paid out as dividends with a 20% effective tax burden.
Flexibility: Salary can be changed every month (with appropriate justification), but dividends can be paid out as needed — not every month, but, for example, quarterly or annually.
Hybrid example: €2,000/month net
Minimum salary: €780 gross → approximately €660 net (after tax)
Remainder as dividends: €1,340/month × 12 = €16,080/year
Company profit: €20,100 (to cover CIT)
CIT (standard): 16,080 / 0.8 × 20% = €4,020
Total in pocket per year: 7,920 (salary) + 16,080 (dividends) = €24,000
For comparison — to leave the same €24,000 a year in your pocket, a pure salary would cost the company €41,364. The hybrid (salary cost ~€11,570 + profit for dividends €20,100 = ~€31,670) saves ~€9,700 at the company level while keeping the same net income.
Does reinvestment affect the choice between CIT regimes?
Here's an important nuance that's easy to misunderstand: in both CIT regimes — standard (20/80) and alternative (15%+6%) — tax is only charged on the portion of profit that's actually distributed (paid out) as dividends. Reinvested profit stays untaxed under CIT in both cases. So the choice between regimes does not depend on how much of the profit you plan to pay out — in that respect, the two regimes are the same.
The real difference lies in the combined rate on the amount paid out: under the standard regime the effective burden is 20%, under the alternative it's slightly higher, around 20.1%. For a Latvian resident, the standard regime is therefore usually slightly more favorable, regardless of whether you pay out 10% or 100% of profit.
The alternative regime becomes attractive mainly for a different reason: for foreign investors, whose home country lets them use the 6% PIT (rather than 0%, as under the standard regime) as a tax credit against local dividend tax — this can reduce their overall international tax burden, even though it comes out slightly more expensive within Latvia itself.
The role of the VSAOI minimum in your decision
An important point: if an SIA owner receives no salary at all (dividends only), they have no VSAOI contributions — and therefore no social guarantees. While dividends are more favorable tax-wise, giving up salary entirely means giving up pension accrual, health insurance, and sickness benefits.
In 2026, the minimum salary is €780/month. This amount is enough to secure the minimum VSAOI contributions. Minimum VSAOI contributions from a €780 salary provide:
Pension insurance
Disability insurance
Maternity and paternity insurance
Sickness insurance
Healthcare
That's exactly why the hybrid strategy with a minimum salary is an almost universal recommendation — it combines the tax advantages of dividends with the social guarantees of salary.
Additional considerations
Solidarity tax and the additional 3% PIT
Higher earners need to account for two additional layers:
Solidarity tax (25%): applies to income exceeding the VSAOI ceiling — €105,300/year (in 2026). This tax replaces the VSAOI contribution above the ceiling.
Additional 3% PIT: applies to the part of total annual income above €200,000. That total includes taxable income (including capital income) as well as dividends and liquidation quotas that are exempt from PIT because CIT was paid on them (PIT Law, Section 15.¹); the tax is assessed on a summary basis in the annual return.
This means: at very high income levels (above €200,000/year), the dividend advantage persists but narrows — since both options pick up the additional 3%. Dividends, however, still avoid VSAOI and the solidarity tax.
Board member remuneration without an employment contract
A common misconception: if a board member receives remuneration solely on the basis of their board authorization (without a separate employment contract), the employer's share of VSAOI doesn't need to be paid. That's not correct. According to VID's guidance, board member remuneration — regardless of the type of agreement it's based on — is income subject to payroll tax, and full VSAOI contributions must be made from it, including the employer's share (23.59%). The only way to avoid VSAOI is to receive no remuneration at all for performing board duties — but that also means giving up any income in this form.
Source: VID — Informational material "Tax reporting on board members' income"
When each approach fits best
Situation | Recommended approach |
|---|---|
Company just founded, no profit yet | Salary only (or minimum salary) |
Company has profit, owner wants social guarantees | Hybrid: minimum salary + dividends |
Company has profit, social guarantees aren't a priority | Dividends only (standard regime is usually more favorable) |
Profit is planned to be partly or fully reinvested | Either CIT regime — the reinvested portion goes untaxed under CIT either way |
All shareholders are individuals, Latvian residents | Standard regime (20/80) — slightly lower combined rate (~20% vs. ~20.1%) |
Owner is a foreign national | Alternative regime (the 6% PIT can serve as a tax credit in the home country) |
Frequently asked questions
Can I receive salary and dividends at the same time?
Yes, this is entirely legal and in fact the most common model among SIA owners. Salary provides social guarantees and reduces the company's profit (and therefore its CIT base). Dividends let you pay out the remaining profit at a lower tax burden.
How often can dividends be paid out?
Dividends can be paid out at any frequency — monthly, quarterly, or annually. There is also the option to pay interim dividends (from current-year profit, before the annual report is approved).
If I only take dividends, do I lose my right to a pension?
Yes — if you receive no salary and therefore make no VSAOI contributions, that period isn't counted toward your pension service record, and no pension capital accrues. That's why even a minimal salary is recommended for the long term.
Is the alternative regime always more favorable?
No — and not for the reason it might seem, i.e., how much profit you reinvest. Under both regimes, CIT is only charged on the profit actually paid out (distributed); reinvested profit stays untaxed either way. For a Latvian resident, the standard regime (effectively ~20%) is usually slightly more favorable than the alternative (~20.1%), regardless of how much is paid out. The alternative regime is mainly worth considering for foreign investors, who can use the 6% PIT as a tax credit in their home country.
Can a board member fully avoid VSAOI by receiving remuneration without an employment contract?
No. VSAOI (including the employer's share) must be paid on any board member remuneration, regardless of whether a separate employment contract exists. The only way to avoid VSAOI in this role is to receive no remuneration at all.
The choice between salary and dividends isn't a one-time decision — it's a strategy to revisit every year based on the company's profit, reinvestment plans, and personal financial goals. Get in touch with Balansis — we help SIA owners build an optimal remuneration structure that balances tax efficiency with social protection.
See also: tax optimization for small businesses and 0% corporate tax on reinvested profit and the alternative regime.
Legal sources and references
Corporate Income Tax Law — standard CIT regime (20/80) and the alternative regime (Article 4.²)
Personal Income Tax Law — 6% PIT on dividends under the alternative regime, solidarity tax, the additional 3% rate
Law "On State Social Insurance" — VSAOI rates and ceilings
VID — Informational material "Tax reporting on board members' income"
ifinanses.lv — New income tax model for dividends from January 1
Last updated: September 2026. Information based on the Corporate Income Tax Law, the Personal Income Tax Law, and the Law "On State Social Insurance," as amended for 2026.
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