Latvia Tax Optimization

Latvia Tax Optimization Skill v0.1

Tier 2 — research-verified. Sources: VID (State Revenue Service), Finanšu ministrija, PwC/KPMG Latvia. Figures must agree with latvia-income-tax.md / latvia-social-contributions.md / latvia-payroll.md. NOT yet signed off by a Latvian tax adviser. Aggressive positions are never advised; every suggestion must be reviewed.

Section 1 -- Quick Reference

Quick Reference

Field	Value
Country	Republic of Latvia
Currency	EUR
Headline levers	Distributed-profits CIT (0% reinvested / 20% on distribution); micro-enterprise tax; FIK vs SIA
Corporate tax (SIA)	0% on reinvested/retained profit; 20% only when distributed (applied to a 0.8 base → effective 25% of the net amount distributed). (VID; Finanšu ministrija)
Micro-enterprise tax	25% of turnover (a single combined tax) for qualifying small businesses
Self-employed (FIK)	IIN at 25.5% (progressive top) or micro-enterprise tax 25%
Anti-avoidance	Substance; deemed-distribution rules capture non-business spending

The Latvian headline mirrors Estonia: an SIA company pays 0% on profit it RETAINS/REINVESTS, and 20% only when it distributes. Reinvest, and you defer indefinitely.

Section 2 -- Deferral via a Company (the core lever)

Deferral via a Company (the core lever)

Action	Tax
SIA earns profit, reinvests/retains it	0% CIT
SIA distributes profit as dividends	20% CIT on the distribution (gross-up: tax = 20% × profit/0.8 ⇒ ~25% of the net paid)
Non-business spending / deemed distributions	Taxed as if distributed — keep business/private clean

For anyone reinvesting to grow (hiring, equipment, expansion), the SIA defers all corporate tax until cash is taken out. This usually beats operating as a self-employed FIK (taxed currently at up to 25.5%).

• 2026 alternative regime for SIAs with only individual shareholders — Distributable profit is divided by 0.85 and taxed at 15% CIT, with 6% PIT withheld on the actual amount paid. [RESEARCH GAP — reviewer to confirm the 2026 alternative-regime mechanics and whether it beats the standard 20% route for the client.] ([RESEARCH GAP — reviewer to confirm the 2026 alternative-regime mechanics and whether it beats the standard 20% route for the client.])

Section 3 -- Micro-Enterprise Tax (simplicity for the small)

• Micro-enterprise tax coverage — A single 25% of turnover tax covers CIT + PIT + (part of) social insurance for qualifying micro-enterprises. (PwC)
• Micro-enterprise limitations — Simple and predictable; but no expense deduction and turnover caps + activity limits apply. [RESEARCH GAP — reviewer to confirm the current turnover cap and eligibility.] ([RESEARCH GAP — reviewer to confirm the current turnover cap and eligibility.])

Best for very small, low-expense activities; model against the FIK/SIA routes.

Section 4 -- Self-Employed (FIK) vs Company (SIA)

Self-Employed (FIK) vs Company (SIA)

Route	Treatment	Best when
FIK (self-employed)	IIN up to 25.5% currently on net income; mandatory social insurance	Small, want income now, simple
Micro-enterprise	25% of turnover	Tiny, low expenses
SIA	0% retained / 20% distributed; real-expense deduction; limited liability	Reinvesting, growing, higher margins

Section 5 -- Deductions & Reliefs

Deductions & Reliefs

Item	Treatment
Differentiated non-taxable minimum / reliefs	Per latvia-income-tax.md — confirm the 2025/2026 non-taxable minimum and dependant allowances.
SIA business expenses	Deductible against profit; but private use → deemed distribution (taxed).
Pension (Pillar 3) & donations	Limited deductible allowances.

Section 6 -- Red Lines (do not cross)

• Deemed distributions — Non-business expenses, excessive loans to shareholders, and non-arm's-length transactions are taxed as if distributed — you cannot extract value tax-free by mislabelling it.
• Substance requirement — The SIA must carry on genuine business.
• Micro-enterprise misuse — Micro-enterprise regime must not be used to disguise what is really employment or a larger business split into pieces. AUDIT FLASH POINT.

PROHIBITIONS

• Prohibition 1 — NEVER describe the SIA 0%-retained system as tax-free — it is deferral; 20% applies on distribution.
• Prohibition 2 — NEVER advise extracting company value as "expenses"/loans to dodge the distribution tax — that triggers deemed-distribution tax.
• Prohibition 3 — NEVER present the micro-enterprise regime without its turnover cap and no-deduction trade-off.
• Prohibition 4 — NEVER contradict the rates in latvia-income-tax.md / latvia-social-contributions.md / latvia-payroll.md.
• Prohibition 5 — NEVER present [RESEARCH GAP] figures as confirmed, nor optimisation as definitive advice — route to a licensed Latvian tax adviser.

Disclaimer

This skill and its outputs are provided for informational and computational purposes only and do not constitute tax, legal, or financial advice. Open Accountants and its contributors accept no liability for any errors, omissions, or outcomes arising from the use of this skill. All outputs must be reviewed and signed off by a qualified professional (such as a licensed tax adviser in Latvia) before acting upon.

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