SIA vs IK vs Self-Employed in Latvia 2026 — Which Structure Fits You?

SIA vs IK vs Self-Employed in Latvia 2026 — Which Structure Actually Fits You?

In our experience, the question "SIA or IK?" comes up in roughly eight out of ten first consultations. The other two ask: "Maybe self-employed is better?" At its core, it's the same question phrased differently. The answer has always started with "it depends" — but in 2026 the rules have shifted enough that it's worth revisiting the old rules of thumb. Here's a framework that actually helps you decide.

Key takeaways

• Self-employed/IK: at low income (~€15,000/year), practically on par with an SIA on tax alone — the real advantage is low running costs and simplicity, not lower taxes, but liability is fully personal.

• SIA: the tax advantage appears from fairly low income already and grows gradually — at €80,000/year the difference is in the several-thousand-euro range, still far from the "tens of thousands" often assumed.

• The micro-enterprise tax (MUN, 25% of turnover, capped at €50,000/year) is available ONLY to individuals — sole traders (IK), individual enterprises, and self-employed persons. SIAs have not been able to use MUN since 2022.

• Self-employed/IK social security contributions (VSAOI) are NOT simply 31.07% of all income — it's a two-tier system (at €780 or more a month: €242.35 plus 10% of the income above €780; below €780: 10% of actual income), and in months with no income, no contribution is due at all.

• When you face significant liability risk, plan to raise investment, or want to pay yourself dividends, SIA is the right choice regardless of income level.

The short answer

The choice between SIA, IK, self-employment, and the micro-enterprise tax (MUN) depends on your income level, risk profile, and need for liability protection. At low income (~€15,000/year), the two forms are practically on par on tax alone — the self-employed person's real advantage at this level is low running costs and simplicity, not lower taxes. From roughly €30,000–40,000/year, the SIA tax advantage becomes noticeable and grows gradually, not in a sudden jump. Even at €80,000/year in income, the real difference is in the several-thousand-euro range, not tens of thousands. That means the case for an SIA usually rests less on tax savings alone and more on liability protection, creditworthiness, and reputation. If you face liability risk — penalty clauses, product liability, employees — an SIA is necessary regardless of income.

If you are a freelancer or service provider and want to see concrete numbers at different income levels, see our Freelancer's Guide: Self-Employed or SIA.

Three-plus-one options

MUN (micro-enterprise tax) — a special tax regime available only to individuals: sole traders (IK), individual enterprise owners, and self-employed persons (registered economic activity). ⚠️ SIAs have not been able to be MUN payers since January 1, 2022 — SIAs that were previously MUN payers automatically became corporate income tax (UIN) payers as of that date. In 2026 the MUN rate is 25% of turnover, applicable up to €50,000/year in turnover. This system is simple, but the €50,000 ceiling and its incompatibility with VAT registration mean you need to plan for growth early.

SIA (limited liability company) — a capital company. A separate legal entity. Profit is taxed under the 20/80 formula when distributed as dividends (or 15%+6% under the new alternative regime). Requires registration with the Register of Enterprises, full double-entry bookkeeping, and annual report filing.

IK (individual merchant) — registered in the commercial register, but does not create a separate legal entity. The owner is personally liable for all obligations. Profit is taxed as business income under PIT rules (25.5%/33%), plus social security contributions.

Self-employed — a person conducting registered economic activity, who only needs to register with VID (no need to register with the Register of Enterprises). No legal-entity status. Exactly the same tax scheme as IK — PIT (25.5%/33%) and a two-tier social security contribution system (31.07% / 10% — see the "Real tax calculations" section below).

Comparison table

When SIA is the right choice

Choose an SIA if:

• Your annual income exceeds roughly €30,000–40,000 and keeps growing. From this range, the SIA tax advantage becomes noticeable and grows slowly with income — but gradually, not in a jump (see the precise calculations below).

• You face significant business risk. Penalty clauses, product liability, hiring employees — if something goes wrong, an SIA protects your personal assets.

• You plan to bring in investors or partners. Only an SIA lets you split ownership into shares and raise outside funding.

• You want to pay yourself dividends. An SIA separates salary from profit distribution and lets you use the 0% UIN rate on reinvested profit.

• Your company's reputation matters. Banks, larger clients, and business partners favor SIAs over IK or self-employed status.

• You want to fund growth from profit. Because reinvested profit is taxed at 0% UIN, an SIA can build up capital for equipment, inventory, or new hires much faster than if that same money were first taxed as self-employment income (PIT + social contributions).

• You plan to bid on public tenders. Most government and municipal procurement requires bidders to be legal entities — self-employed individuals or IK may be unable to apply.

• You're thinking about eventually selling the business or passing it on. SIA shares can be sold or inherited, and the company continues regardless of ownership changes. A self-employed or IK business is tied directly to one person — it can't be "sold" the same way.

Important: tax savings alone are rarely the sole or even the main reason to choose an SIA — see the "Real tax calculations" section below, where you'll see the difference at moderate income levels is much smaller than commonly assumed.

When MUN — the micro-enterprise tax — is worth considering

MUN is a tax regime, not a legal form, and it's available only to individuals — IK, individual enterprise owners, and self-employed persons. Its main advantage is simplicity: taxes are paid purely on turnover, without having to calculate profit from complex expenses. But that simplicity comes with real costs and limitations.

Worth it if:

• Your turnover doesn't exceed €50,000/year. You can only stay under MUN while annual turnover stays under this limit. Exceed it, and you must switch to the general regime the following year.

• Simple bookkeeping — tracking revenue rather than the difference between income and expenses — matters to you.

• Your business operates in a supported sector and meets MUN's criteria (for example, turnover of up to €50,000 a year).

Not worth it if:

• You want to grow quickly. The €50,000 ceiling is strict. Exceed it, and you'll have to drop MUN and move to the general regime the next year.

• Your business has significant expenses. Under MUN you can't deduct expenses, so it can substantially increase your tax burden if your underlying costs are high.

• You'll need VAT-payer status in the future. ⚠️ A MUN payer generally cannot simultaneously be a VAT payer — if you have to register for VAT under the general procedure (for example, on reaching the €50,000 threshold), MUN status is automatically lost and you must switch to the general tax regime. There's one narrow exception: since July 1, 2025, MUN can also be chosen by persons registered for VAT under the special procedure of Article 139.² of the VAT Law — this covers only a small, specific group of cases and isn't relevant for most business owners.

• Your business form is an SIA. SIAs haven't been able to use MUN since 2022 — it's for individuals only.

When IK is the right choice

IK occupies an awkward middle ground — the same tax regime as self-employment, but with commercial-register registration and extra formalities to maintain. In 2026, we rarely recommend IK: for liability protection, an SIA is better; for simplicity, registering as self-employed is better.

IK is justified only in these cases:

• Having a registered business name in the commercial register matters for building client trust, but a full SIA structure feels excessive.

• You work in a sector where commercial-register registration is mandatory (for example, construction).

• You want a transitional stage before forming an SIA, but aren't ready to take on the full SIA maintenance burden right away.

When self-employment is the right choice

Choose self-employment if:

• Your annual income is below roughly €25,000–30,000. In this range, the self-employed and SIA tax burdens are practically on par, but self-employment has no mandatory accountant, registered-address services, or annual report — meaning lower overall costs, not lower taxes.

• Your business risk is low. For example, you provide consulting, write, do photography, or work in the arts.

• You want to test a business idea. There are no mandatory monthly costs, so you can start with minimal funding.

• Your income is irregular or seasonal. This is one of the biggest advantages of self-employed status: social contributions are calculated from your actual monthly income, not a fixed minimum. If you have no income in a given month, you owe no contributions for that month either.

An important warning: if your income is approaching the €25,000–30,000 range and still growing, start planning your move to an SIA — not because the tax difference will be dramatic, but because the transition takes time and is easier to plan ahead of.

VAT registration — the same for every form

The VAT registration threshold (€50,000/year) is the same regardless of your chosen business form — SIA, IK, or self-employed. Once you exceed this turnover within a calendar year, VAT registration becomes mandatory — the application must be filed with VID by the 15th of the following month. The one important nuance: for a MUN payer, VAT registration automatically means losing MUN status — you can't have both. SIAs and general-regime IK/self-employed can also voluntarily register for VAT before reaching the threshold if it's advantageous (for example, when working with other VAT payers or exporting).

Real tax calculations

To make the comparison concrete, let's look at four income scenarios for 2026. We assume the business has no significant expenses and that you want to withdraw all the money for personal use (as dividends, in the SIA's case). Note that in the SIA scenario the dividend recipient builds no pension or other social insurance cover — that accrues only from salary on which social contributions are paid (for example the €780 minimum wage with 34.09% contributions), which would reduce the SIA's advantage.

An important note on self-employed/IK social security contributions: contributions for a self-employed person or IK are not simply 31.07% of all income — it's a two-tier system: 31.07% applies only to a base equal to the minimum wage (€780/month, i.e. €9,360/year), and 10% applies to the portion of income above that base. If monthly income is below €780, only 10% of the actual income is owed (and nothing if there is no income) — there is no fixed mandatory minimum regardless of income. On top of that, PIT for a self-employed person/IK, just like for an employee, applies the annual non-taxable minimum (€550/month, i.e. €6,600/year), which reduces the PIT base. The calculations below use this correct, verified methodology. ⚠️ This is a fairly recent arrangement: amendments to the Law "On State Social Insurance" that took effect on May 6, 2026 (with most provisions for self-employed persons already applying from January 1, 2026) abolished the previous requirement to file a special confirmation with VID for low-income quarters — the State Social Insurance Agency no longer calculates minimum contributions for periods where a self-employed person's income is low or absent.

In addition, the 2026 contribution ceiling (and the 25.5% PIT threshold) is €105,300/year — in every scenario below, income is under this threshold, so a flat 25.5% PIT rate applies throughout.

1. Income: €15,000/year

Calculation note: UIN here is computed assuming the entire company profit (€15,000) is used to fund both the dividend and the UIN itself — that makes UIN 20% of that profit directly (€3,000), not 25% of the amount paid out. This is the correct formula when the company's only resource is that year's profit. (If instead you wanted to know how much extra it costs to get exactly €15,000 into the shareholder's account, the calculation looks different — see our corporate tax article for both approaches.)

Takeaway: At €15,000, the two forms are practically on par — the SIA is even marginally ahead (~€30), though that gap is negligible against the simplifications in this example. At this level, the decision comes down to administrative burden, not tax: self-employment has no mandatory accountant, registered address, or annual report, which keeps it the simpler choice at low income and in the testing phase — not because it's cheaper on tax.

2. Income: €40,000/year

Takeaway: At €40,000, the SIA advantage is already noticeable — around €3,000/year, not dramatic, but no longer negligible either.

3. Income: €60,000/year

Takeaway: At €60,000, the difference is about €5,500/year in the SIA's favor — already noticeable and growing.

4. Income: €80,000/year

Takeaway: At €80,000, the gap grows to about €8,000/year. The SIA advantage is real and grows gradually with income — but even here it's far from the "tens of thousands" figure often quoted. And remember: these figures assume the SIA pays out ALL of its profit as dividends. In practice the SIA advantage at high income is usually even larger, since the company can reinvest part of its profit at 0% UIN instead of distributing all of it right away — something these simplified examples don't account for.

Note: these calculations are simplified, assuming all income is paid out as dividends (SIA) or net income (self-employed), and that income is spread evenly across months. SIA UIN is calculated assuming the company's only resource is that year's profit, fully used to cover both the dividend and UIN — in that case UIN is exactly 20% of profit. Taking a salary from the SIA, or reinvesting profit, changes the picture — reinvested profit carries 0% UIN, which can make the SIA advantage considerably larger if the money stays in the company. Always verify the exact calculation for your situation with an accountant.

Want to run your own numbers? Use our free salary calculator and dividend calculator to check the net income for both options with your own figures.

The new alternative UIN regime (15% + 6%) and its impact

Starting in 2026, an SIA whose shareholders are all individuals can opt into an alternative tax regime: 15% UIN on distributed profit plus an additional 6% PIT when dividends are paid out. One important clarification here: calculated correctly on the same base, the alternative regime is not significantly more advantageous than the standard 20/80 formula for a full distribution — the real cost of both options is nearly identical (a difference of around €100 per €100,000 of profit, in the standard regime's favor). For a detailed comparison of both regimes, see our article on Latvia's corporate tax system. What matters most stays the same: the main SIA advantage at high income comes from the ability to reinvest profit without UIN, not from which distribution regime you choose.

Why most people switch to an SIA in year one

This isn't a marketing line — it's what we actually observe. And, as the calculations above show, it's often not purely about tax. Here are the real reasons:

1. Clients want invoices from a legal entity. Most B2B clients refuse to work with self-employed individuals because they want official invoices from an SIA.

2. Creditworthiness. An SIA usually finds it easier to get a bank loan, a leasing offer, or a business credit card.

3. Growth plans. If you're self-employed and your business is growing, it usually reaches an income level after some time where an SIA becomes financially advantageous — and the other reasons listed here kick in too.

4. Social guarantees. An SIA lets you pay yourself a salary and build up a pension, while optimizing taxes through dividends.

5. International business. Foreign clients and partners expect to deal with an SIA, not an individual.

6. Public procurement. Government and municipal tenders almost always require legal-entity status — this market is essentially closed to self-employed individuals.

7. Business value and succession. An SIA can be sold, inherited, or handed down as a going concern — a self-employed or IK business ends along with that specific person.

Decision test — find your path

Answer 5 questions to find out which form fits you in 2026.

1. What are your planned annual revenues?

• a) Up to €25,000 → 0 points

• b) €25,000–50,000 → 1 point

• c) Above €50,000 → 2 points

2. How significant is your business risk?

• a) Low — writing, design, consulting → 0 points

• b) Medium — small penalty clauses → 1 point

• c) High — product liability, construction → 2 points

3. Do you plan to bring in investors or partners?

• a) No → 0 points

• b) Possibly, in the future → 1 point

• c) Yes, it's necessary → 2 points

4. Does a registered business name in the commercial register matter to you?

• a) No, clients don't care → 0 points

• b) Yes, it would build trust → 1 point

• c) Absolutely required → 2 points

5. What are your growth plans?

• a) Stay solo, no employees → 0 points

• b) Possibly hire 1–2 employees → 1 point

• c) Actively grow, build a team → 2 points

Results: 0–3 points — Self-employed; 4–6 points — SIA; 7–10 points — SIA, definitely.

Do it yourself or hire a specialist?

Frequently asked questions

Can I start as self-employed and switch to an SIA later?

Yes, this is a very common path. Register as self-employed, test your business idea, and once income reaches the €25,000–30,000 range and keeps growing, form an SIA. You can then close the self-employed activity or continue both in parallel, depending on the type of work.

Do IK or self-employed individuals have to pay social contributions even with no income?

No. Social contributions for a self-employed person or IK are calculated from actual monthly income — if there's no income in a given month, no contribution is due for that month. If income for the month is €780 or more, the contribution is €242.35 (€780 × 31.07%) plus 10% of the income above €780; if it is lower, it is 10% of the actual income. There is no fixed minimum payment regardless of income.

Why choose IK at all, if self-employment is simpler?

IK's advantage is a registered entry in the commercial register, which is a mandatory requirement in some sectors (for example, construction). To some clients, "SIA" or "IK" sounds more credible than "self-employed." But in 2026 we only recommend IK when there's a specific reason — in most cases, either an SIA or self-employed status is the better choice.

Is an SIA always more advantageous than self-employment?

On tax alone, the SIA advantage appears fairly early and grows gradually with income, but it's never a sudden jump — even at €80,000/year the difference is in the several-thousand, not tens-of-thousands, range. At low income (~€15,000–25,000), the SIA and self-employed tax burdens are nearly identical, and running costs become the deciding factor: an SIA requires an accountant, a registered address, and banking services that self-employment doesn't. That's why self-employment tends to be the more practical choice at low income and in the testing phase — not because it's cheaper on tax.

Is the MUN regime right for everyone?

No. MUN is only available to individuals (IK, self-employed) — SIAs haven't been able to use it since 2022. It suits those whose turnover doesn't exceed €50,000 and whose business expenses are relatively low. It's also incompatible with VAT-payer status. Always consult an accountant before choosing it.

How are self-employed social contributions calculated if income fluctuates month to month?

Contributions are calculated for each month separately (or quarter, depending on your chosen reporting frequency) based on that period's actual income — if income is €780 or more — €242.35 (31.07% of €780) plus 10% of the excess, if lower — 10% of actual income. In months with no income, no contribution is due. This makes self-employed status especially advantageous for seasonal or irregular work.

Not sure which form fits you? Our specialists will analyze your specific situation — income level, expense structure, growth plans, risk profile — and recommend the optimal business structure based on real, not simplified, calculations. Get in touch with Balansis — we'll also handle registering and setting up your chosen structure.

Legal sources and references

• Micro-Enterprise Tax Law — MUN eligibility conditions, turnover ceiling, incompatibility with VAT status

• Law on Personal Income Tax — progressive PIT rates, non-taxable minimum

• Law "On State Social Insurance" — self-employed/IK social contribution calculation

• Law on Corporate Income Tax — standard UIN regime (20/80) and the alternative regime (Article 4.²)

• LV portāls — SIAs will no longer have micro-enterprise taxpayer status next year

• LV portāls — How a self-employed person pays taxes in 2026

• Baltikons Centrs — Amendments to the Law "On State Social Insurance" took effect on May 6

• LV portāls — From July 1, the micro-enterprise tax regime will also be available to persons registered under the special VAT procedure

Last updated: September 2026. Information based on the Micro-Enterprise Tax Law, the Law on Personal Income Tax, the Law "On State Social Insurance," and the Law on Corporate Income Tax, reflecting 2026 rates. Consult a licensed accountant or lawyer about your specific situation.