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Latvia: Living There - Tax Issues

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Living There

INDIVIDUAL TAXATION

Residents are taxed on their worldwide income. An individual becomes a resident of Latvia if – he has a permanent place of residence in Latvia, he is present in Latvia for 183 days or more during any 12-month period, or he is a national of Latvia employed abroad by the Latvian government. Married couples are taxed separately.

INCOME TAX

Residents in Latvia are liable to pay income tax at a flat rate of 25%. Taxable income is generally an aggregate of all kinds of income less expenses incurred in the generation of income.

As of 01 January 2008, business income is taxed at a reduced rate of 15%. To avail of the reduced tax rate, taxpayers must register their economic activities with the tax authorities.

Deductions and Allowances

• Interest expenses related to business income are deductible.
• Life and health insurance premiums, as well as contributions to approved private pension funds are deductible within certain limits.
• Donations to approved cultural, educational, scientific, sporting, charitable, health, environmental and religious organizations, as well as governmental institutions are deductible up to 20% of taxable income.
• An allowance of LVL600 (€854), called “the non-taxable minimum amount”, is deductible.
• An allowance for dependants is also granted, at LVL420 (€598) a year for each dependant.

RENTAL INCOME
Rental income can be taxed at a reduced rate of 15% if the taxpayer registers his economic activities with the tax authorities. Property taxes and depreciation expenses are deductible. The annual tax depreciation rate of buildings is allowed up to 10% of the property value.

CAPITAL GAINS
Gains from the sale of real estate property that was acquired for sale are taxed as ordinary income at 25%. Gains from the sale of property that was held for less than 12 months are also taxable. Taxable capital gains are computed as selling price less acquisition costs and other related expenses.

Capital gains from the sale of a taxpayer’s private residence are not taxable.

PROPERTY TAX

Real Estate Tax

Real estate tax is levied in Latvia. The tax is levied on the cadastral value of the land, at 1.5%. Local authorities are allowed to grant discounts on this tax for certain taxpayers. Real estate tax paid is also deductible for income tax purposes if the real estate property is used for business or commercial purposes.

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