Taxing Wages 2026

Latvia

Abstract

This chapter includes data on the income taxes paid by workers, their social security contributions, the family benefits they receive in the form of cash transfers as well as the social security contributions and payroll taxes paid by their employers. Results reported include the marginal and average tax burden for eight different family types.

Methodological information is available for personal income tax systems, compulsory social security contributions to schemes operated within the government sector, universal cash transfers as well as recent changes in the tax/benefit system. The methodology also includes the parameter values and tax equations underlying the data.

 

 

Since 2014, the Latvian currency is the Euro (EUR). In 2025, EUR 0.88 was equal to USD 1. That year, the average worker in Latvia earned EUR 21 321 annually (Secretariat estimate).

Personal income tax system

From 1st January 2025, Latvia introduced a tax reform. One of the main objectives of this reform was to meet the expectations of the Latvian government as well as international experts – to reduce the tax wedge, especially for low-wage earners and to simplify the PIT system.

Central government income tax

In 2025 the differentiated non-taxable minimum was replaced by a fixed non-taxable minimum, at the same time raising the amount of the monthly non-taxable minimum. The three PIT rates were replaced by two rates, the non-taxable minimum for pensioners was increased and the minimum monthly wage was raised.

Tax unit

The tax unit are individuals.

The main tax allowance.

Standard tax reliefs

• A general (basic) allowance:

From 2016 till 2024, the differentiated non-taxable minimum was applied, which varied depending on the person's income level: higher for lower wages, but lower or zero for higher wages. The differentiated non-taxable minimum was gradually raised.

From 2025 the differentiated non-taxable minimum was replaced by a fixed non-taxable minimum, which is applied to all employees regardless of their income level. In 2025 the non-taxable minimum is EUR 510 per month.

Differentiated and fixed non-taxable minimum criteria:

	2021	2022	2023	2024	2025
Non – taxable minimum					510
Maximum non-taxable minimum, EUR per month	300	350 | 5001	500	500	-
Minimum non-taxable minimum, EUR per month	0	0	0	0	-
Taxable income* minimum threshold up to which the maximum annual non-taxable minimum is applied, EUR per month	500	500	500	500	-
Taxable income* maximum threshold up to which the annual non-taxable minimum is applied, EUR per month	1 800	1 800	1800	1800	-

1. Calculating the taxable income not only the salary is taken into account, but also other income (such as dividends and income from real estate etc.). Similarly, if a person works in several jobs, the salaries are summed up and the non-taxable minimum is applied to the total revenue.

• The allowance for dependents

The allowance for dependents is also deductible from the income before taxes.

The tax allowance for each dependant (which in most cases are children) has not been changed since 2021 and is EUR 250 per month.

The taxpayer can apply the allowance for a child aged 18 years and younger and for a child while he or she continues the acquisition of the general, professional, higher or special education, but not longer than until reaching 24 years of age. The allowance for dependents is applicable for a taxpayer's child and in certain cases and under certain conditions for sisters, brothers, grandchildren, spouses, parents and grandparents with disability as well as persons under guardianship.

The tax allowance for dependents can by applied for a non-working spouse (if the non-working spouse does not receive taxable income or State pension), who is taking care of:

• a minor child with a disability;

• one child below 3 years of age;

• three or more children below 18 years or below 24 years of age (if he/she studies), of which at least one is below 7 years of age.

• five children below 18 years of age or below 24 years of age (if he/she studies).

To support youth employment during the summer (from June 1st to August 31st), parents can still receive tax allowance for dependents (children while they are employed).

Relief for compulsory social security contributions: employee’s state social security contributions are deductible from the income before taxes.

Relief for solidarity tax: employee’s solidarity tax payment is deductible from the income before taxes.

Tax credits: none for employees.

The main exemptions:

• income from rural tourism and agricultural production, as well as of mushrooming, berry-picking or the collection of wild medicinal plants and flowers or an uncultivated species or individuals of non-game species - edible snails (Helix pomatia), if it does not exceed EUR 3 000 per taxation year, including the sums of State aid for agriculture or of the European Union aid for agriculture and rural development, in amount of up to EUR 3 000 per taxation year.

• insurance compensations, except such insurance compensations paid on the basis of a life, health and accident insurance contract entered into by the employer and a life-long pension insurance contract (with accrued funded pension assets in accordance with the Law on State Funded Pensions).

• insurance compensations which have been disbursed upon the occurrence of an insurable event in relation to the life and health of the insured person due to an accident or illness, in accordance with the life insurance policy (including with accumulation of funds) regardless of who has entered into the insurance contract.

• the supplementary pension capital, which has been formed from contributions made by the natural person himself or herself, spouse thereof or persons in kinship thereto to the third degree within the meaning of the Civil Law into private pension funds according to licensed pension plans and disbursed to pension plan participants.

• income from Latvian or other EU Member State or EEA State and local government bonds.

• capital gains on immovable property, if the ownership of the payer has been for more than 60 months (5 years) and it has been the declared as place of residence of the person for at least 12 months (1 year).

• capital gains on immovable property, if the ownership of the payer has been for more than 60 months (5 years) and the last 60 months (5 years) this immovable property has been the only immovable property of the payer.

• capital gains on immovable property which has occurred in relation to the division of property in the case of dissolution of marriage, if it has been the declared place of residence of both spouses at least 12 months until the day of entering into the alienation contract.

• capital gains on immovable property (the relevant immovable property is registered in the Land Register as only immovable property of the payer), if this income is invested a new in a functionally similar immovable property within 12 months following the alienation of the immovable property or before alienation of the immovable property.

• income from the alienation of personal property (movable objects such as furniture, clothing and other movable objects belonging to an individual intended for personal use) except income from the sale of items (tangible or intangible) prepared for sale or purchased, the capital gains and other income from capital and scrap sales.

• scholarships paid from the budget, association, or foundation resources.

• scholarships up to EUR 280 per month which are disbursed by a merchant, institution, association, foundation, natural person registered as a performer of economic activity, and also an individual undertaking, including a farm or fishing enterprise, and other performers of economic activity in accordance with the procedures stipulated by the Cabinet for organising and implementing work-based learning.

• scholarships paid to a student who attends a medical education program to promote the acquisition of an educational program, and which is paid out from the medical treatment institution.

• income obtained as a result of inheritance except author's fees (royalty) which is paid to the inheritors of the copyright and for the State funded pension capital which is inherited in case of the death of a participant of a State funded pension scheme.

• allowance (alimony).

• prizes of lotteries and gambling if the amount (total amount) of the prize (value thereof) does not exceed EUR 3 000 per taxation year.

• goods and services lottery prizes.

• material and monetary prizes (premiums) received at competitions and contests, the total value of which in the taxation year does not exceed EUR 1500, as well as the financial incentive paid out to the laureates of the prizes of the Baltic Assembly and monetary prizes of the Cabinet received at outstanding achievements in sport.

• revenues from gifts up to EUR 1 425 from natural person, other than a close relative.

• revenues from gifts in full amount from natural persons, if the giver is connected to the payer by marriage or kinship to the third degree within the meaning of the Civil Law.

• revenues from gifts in full amount regardless of whether the giver is connected to the payer by marriage or kinship to the third degree within the meaning of the Civil Law, if the gift is intended and the payer uses it in order to cover his or her expenditure for using medicinal and medical treatment services (except cosmetic surgeries) and to cover his or her expenditure for the acquisition of education.

• dividends, income equal to dividends or notional dividends if the enterprise income tax has been paid in the Republic of Latvia in accordance with the Enterprise Income Tax Law or the enterprise income tax or tax equal thereto has been paid in a foreign state or the personal income tax or tax equal thereto has been deducted from dividends, income equal to dividends or notional dividends.

• assistance provided on the basis of a decision of a trade union institution from the funds of the trade union which are formed from the payments of membership fees and donations (gifts) of foreign trade unions - EUR 3 000 a year;

• assistance in the form of money or other things, or services provided from a religious organisation or monies of an institution thereof on the basis of a decision of the religious organisation or a body of the institutions thereof (officials) - EUR 3 000 per year;

• tuition fees paid by an employer for an employee's studies for higher education if the acquisition of higher education is related to the acquisition of such skills which are necessary for the employer;

• employer-paid employee expenses related to remote working if their total amount per month for full-time work does not exceed EUR 40.

Tax schedule

From 2025, the personal income tax (PIT) system is simplified, replacing the three PIT rates with two PIT rates.

In 2025, the PIT rates are set:

• 25.5% - for income up to EUR 105 300 per year.

• 33% - for income exceeding EUR 105 300 per year.

The tax rate 25.5% is applicable monthly in the workplace where a payroll tax book is submitted.

The rate 33% is calculated only in the annual tax return. During the year, the tax is paid as Solidarity tax for an employee whose revenue exceeds EUR 105 300 per year. The Solidarity tax part of 10.0% is transformed into the personal income tax rate of 33%. The compulsory social security contributions from income above EUR 105 300 per year shall not be paid.

Regional and local income tax

There are no regional and local income taxes.

Compulsory social security contributions to schemes operated within the government sector.

Since 2021 the social security contribution rate has not been changed and is 34.09% (for employers 23.59%, for employees 10.5%).

The social security contributions cover:

• state pension insurance.

• social insurance in case of unemployment.

• social insurance in respect of accidents at work and occupational diseases.

• disability insurance.

• maternity and sickness insurance.

• parental insurance.

• health insurance.

In 2025, the maximum object of mandatory social payments is EUR 105 300 per year.

Employees’ contributions

Employees pay 10.5% of their earnings in social security contributions. The taxable base is the total amount of the gross wage or salary including vacation payments, fringe benefits and remuneration of expenses related to work above a certain threshold. The assessment period is the calendar month.

Employers’ contributions

Social security contributions are also paid by employers at a rate of 23.59% on behalf of their employees. The taxable base and the assessment period are the same as for employees’ contributions.

The total contribution rates paid by employees and employers in 2025 are divided:

Scheme name	Rate of contribution (%)
Pension insurance	23.91
Unemployment insurance	1.6
Insurance of accidents at work and occupational diseases	0.66
Disability insurance	2.29
Maternity and sickness insurance	3.47
Parental insurance	1.16
Health insurance	1.00
Total	34.09

Solidarity tax

Since 2021 the Solidarity tax rate is 25%. The Solidarity tax is applied during the tax year at the same rate as the social security contributions (34.09%) and the overpaid solidarity tax is refunded to the employer in the next taxation year.

The tax is paid for the income exceeding the amount of the maximum social security contribution object. From 2025 the social security contribution ceiling was raised to EUR 105 300 per year (in 2022-2024 was EUR 78 100 per year). The taxation period is the calendar year.

The purpose of the Solidarity tax is to eliminate the existing regressivity in the labour tax system and to equalize the tax burden on labour between low-wage earners and high wage earners. This problem appeared when the social contribution ceiling was re-introduced in 2014.

The Solidarity tax applies to all socially insured individuals – employees, self-employed, if their income during the calendar year exceeds the amount of the maximum compulsory social security contributions. Employers are also subject to the solidarity tax (in the same way, as they are liable for paying employer social security contributions).

Solidarity tax rate distribution

		2019-2020	2021-2025
Solidarity tax rate		25.50%	25.00%
Employer's rate distribution:		14.50%	14.50%
	State budget (not tied to social services)
	Funded pension (2nd pillar pension scheme) *
	Private pension in the Fund's Pension Plan (3rd pillar pension scheme) *
	State Pension
	Pension insurance	14.00%***	14.00%***
	Health care	0.50%	0.50%
Employee's rate distribution:		11.00%	10.50%
	State budget (not tied to social services)
	Personal income tax**	10.50%	10.00%
	Health care	0.50%	0.50%

* If a person is not a member of a funded pension scheme, a private pension fund is transferred 10%.

** The Solidarity tax (paid by employee for income above EUR 105,300 per year in 2025, EUR 78,100 per year in 2022-2024, above EUR 62,800 per year in 2019-2021) part of 10.0% (before 2021 10.5%) is transformed into a Personal income tax rate of 33% (in 2021 – 2024 31%, before 2021 31.4%). It means that, by submitting the annual income declaration of 2025 and performing the conversion of the PIT into two PIT rates (the second rate of 33%), the share of paid Solidarity Tax is equal to PIT rate 33%.

***From 2019 to 2020, 14% of the paid solidarity tax was transferred to the State pension special budget and registered in the personal account of the taxpayer in accordance with the law On State Pensions (in 2018 13.59% were transferred to the State pension special budget). As of 2021, 14% of the paid solidarity tax are transferred to the State pension special budget non-personalised.

Payroll tax

The Business risk fee is paid in the state basic budget, and then transferred to the Employee claim guarantee fund, which is administrated by the state agency “Insolvency administration”. The Insolvency administration is a public institution controlled by the Ministry of Justice.

If an enterprise is insolvent, the Insolvency Administration satisfies employee claims for their unpaid salaries, compensations for the paid annual leaves and compensations for dismissal in case of the end of the employment relationships.

The Business risk fee does not confer entitlement to any kind of social benefits.

The Business risk fee is a constant payment for a person EUR 0.36 per employee per month.

Universal cash transfers

Transfers related to marital status

None.

Transfers for dependent children

From 2022 the family state benefit is:

• EUR 25 per month for one child,

• EUR 50 per month for two children (per each child),

• EUR 75 per month for three children (per each child),

• EUR 100 per month for four and more children (per each child).

The state pays family benefits to all children until they reach the age of 16. Children enrolled in basic or secondary schools or vocational education institutions operating on the basis of basic education have the right to receive family benefits until the age of 20.

In addition, there are four other types of family benefits for which the payment depends on either the age of the child(ren) and/ or the status of the person(s) looking after them: maternity and paternity benefit; childbirth benefit; parental benefit; childcare benefit (additional benefit for child with disabilities). These are not included in the modelling.

Main changes in tax/benefit system in 2025

• The three PIT rates (20%, 23%, 31%) have been replaced by two rates (25.5%, 33%).

• The differentiated non-taxable minimum has been replaced by a fixed non-taxable minimum, simultaneously raising the monthly amount of the non-taxable minimum to EUR 510.

• The non-taxable minimum of a pensioner has been raised from EUR 500 to EUR 1000.

• The monthly minimum wage has been raised from EUR 700 to EUR 740.

• An additional 3% PIT rate has been introduced for all income exceeding EUR 200 000 per year (including capital income).

Memorandum items

Average gross annual wage earnings

In Latvia the gross earnings figures cover wages and salaries paid to individuals in formal employment including payment for overtime. They also include additional bonuses and payments and other payments such as for the annual and supplementary vacations, public holidays, sick pay (sick-leave certificate A), payment for public holidays and other days not worked, social security compulsory contributions paid by the employees and personal income tax, as well as labour remuneration subsidies.

Employer contributions to private pension and health schemes

Some employer contributions are made to private health and pension schemes but there is no relevant information available on the amounts that are paid.

2025 Parameter values

Average earnings/yr	Ave_earn	21 321	MoF forecast
Basic allowance	Basic_al	6,120
Allowance for dependants	Child_al	3,000
Income tax schedule	Tax_sch	0.255	105 300
	Tax_rate_2	0.33
Payroll tax - Business risk fee	payroll	4.32
Income ceiling	Ceiling	105 300
Employers SSC	SSC_rate1	0.2359
Employers Solidarity Tax	Sol_tax_rate_1	0.145
Employees SSC (without health ins.)	SSC_rate2	0.10
Employees health insurance	Health_ins2	0.005
Employees Solidarity tax (without health ins.)	Sol_tax_rate_2	0.10
Child allowances	CA_one	300
	CA_two	1200
	CA_three	2700
	CA_four	4800
Additional child allowance
Days in tax year	numdays	365

* Calculating taxable income not only the salary is taken into account, but also other income (such as economic activity, pension etc.). Similarly, if a person works in several jobs, the salaries are summed up and the non-taxable minimum is applied to the total revenue.

2025 Tax equations

The equations for the Latvian system are mostly on an individual basis.

The functions which are used in the equations (Taper, MIN, Tax etc) are described in the technical note about tax equations. Variable names are defined in the table of parameters above, within the equations table, or are the standard variables “married” and “children”. A reference to a variable with the affix “_total” indicates the sum of the relevant variable values for the principal and spouse. And the affixes “_princ” and “_spouse” indicate the value for the principal and spouse, respectively. Equations for a single person are as shown for the principal, with “_spouse” values taken as 0.

 

	Line in country table and intermediate steps	Variable name	Range	Equation
1.	Earnings	earn
2.	Allowances:	tax_al	P	=MINA(Basic_al+ SSC_empee_princ+ Health ins2 _empee_princ + Sol_tax_ee +(Children>0)*(Child_al*Children);earn_princ)
			S	=MINA(Basic_al+ SSC_empee _spouse+ Health ins2 _empee_spouse,earn_spouse)
	Non-taxable minimum	Basic_al	B	=IF(earn<=0;0;(IF(earn-Income_for_MAX_non_taxable<0; MAX_non_taxable;(IF((MAX_non_taxable-Coefficient*(earn-Income_for_MAX_non_taxable))> MIN_non_taxable; (MAX_non_taxable-Coefficient*(earn-Income_for_MAX_non_taxable)); MIN_non_taxable)))))
3.	Credits in taxable income	taxbl_cr	B	0
4.	CG taxable income	tax_inc	B	=Positive(earn-tax_al)
5.	CG tax before credits	CG_tax_excl	B	=IF(earn < inc_thresh_1;IF((earn – tax_al)<0;0;(earn – tax_al)*Tax_rate_1);IF((earn – tax_al)<0;0;(earn – tax_al)*Tax_rate_1+Sol_tax_ee))
6.	Tax credits :	tax_cr	B	0
7.	CG tax	CG_tax	B	=IF(CG_tax_excl-tax_cr>0; CG_tax_excl-tax_cr;””””)- tax_cr_non_waste
8.	State and local taxes	local_tax	B	0
9.	Employees' soc security	SSC_empee	B	= MIN(Ceiling;earn)*SSC_rate2
10.	Employees health insurance	Health_ins2		= earn* Health_ins2
11.	Employees’ Solidarity tax	Sol_tax_ee	B	=IF(earn<Ceiling,0,(earn-Ceiling)*Sol_tax_rate_2)
12.	Cash transfers	cash_trans	J	=IF(Children<1;0;IF(Children=1;CA_one;IF(Children=2;CA_two;IF(Children=3;CA_three;IF(Children=4;CA_four;IF(Children>4;CA_four/4*Children))))))
13.
14.	Employer's soc security	SSC_empr Payroll taxes	B B	= MIN(Ceiling;earn)*SSC_rate1 =payroll
15.	Employer’s Solidarity tax	Sol_tax_er	B	=IF(earn<Ceiling,0,(earn-Ceiling)*Sol_tax_rate_1)

Key to range of equation B calculated separately for both principal earner and spouse P calculated for principal only (value taken as 0 for spouse calculation) J calculated once only on a joint basis.