- How are taxes calculated on my salary?
A progressive PIT rate is applied, which means that taxpayers are taxed according to their income.
Tax rate on income:
20% - up to EUR 20 004
23% - from EUR 20 004 - 62 800
31% - exceeding EUR 62 800
Ex.: If your monthly salary at your primary place of employment (registered as such in your payroll tax booklet) is EUR 2000, 20% PIT is deducted from EUR 1667 and 23% from EUR 333. If you have not registered your payroll tax booklet with the employer, 23% shall be deducted from the total amount.
SRS calculates a monthly non-taxable minimum that is applied at your primary place of employment. SRS notifies your employer of this information every year on 1 January and 1 August through EDS. SRS calculates the monthly non-taxable minimum twice a year, taking into account earned income.
The annual non-taxable minimum and the annual progressive tax rate are calculated and applied upon submission of the annual income tax return.
! Please note - if your monthly income changes, the SRS forecast of your monthly non-taxable minimum may differ from the calculated differentiated non-taxable minimum; a tax debt or overpayment may occur and you will need to submit an annual tax return.
After submitting your tax return, PIT is refunded (in cases specified by law) at a tax rate of 20%.
The general rate for State mandatory social insurance contributions is 34,09 % - 23,59 % paid by the employer and 10,50 % paid by the employee.
- How has the range of eligible expenses been expanded?
As of 1 March 2021, when the annual income tax return for 2020 can be submitted, any taxpayer will be able to submit supporting documents for payments (medical expenses, education) made for a brother or sister who has been diagnosed with Group 1 or 2 disability.
Information on other expenses for which overpaid PIT can be recovered by submitting an annual income declaration is available here.
- What will change in how I receive a refund for eligible expenses?
All residents who have submitted an annual income declaration electronically using EDS or in paper form shall receive information on the amount of refundable personal income tax electronically ONLY through EDS.
To receive timely notifications, please make sure that you include a current e-mail address when registering with EDS.
Every resident can connect to EDS by using one of the following authorisation tools:
• Internet bank
• EDS user name and password assigned by SRS.
- What will change if I owe the State unpaid taxes?
Calculations on taxes paid for the previous year will be made by SRS, regardless of whether you have submitted an annual tax return or not.
If you have not submitted a tax return for 2018 and/or 2019, SRS will automatically calculate your taxes for those years by 1 March 2021.
SRS will also calculate your taxes for 2020 by 1 May 2021. If you have not submitted the annual income declaration for 2020 by 1 June, SRS will automatically calculate your PIT and contact you through EDS or by post (for EDS non-users).
Residents may submit additional documents certifying eligible expenses and update their annual income declarations, thus reducing tax payable.
- Can I end up owing taxes at the end of the year?
The differentiated non-taxable minimum has been increased: the minimum has been increased from EUR 1200 to EUR 1800 per month. If your monthly income varied last year and your average monthly income is expected to exceed EUR 1800 this year, you should indicate “Do not apply the projected monthly non-taxable minimum” in your payroll tax booklet (in EDS) to avoid a tax debt.
If you have not submitted your payroll tax booklet with any employer, a PIT debt can occur if transactions are not declared (e.g., real estate sale) and you do not reduce your monthly income.
Ex. If you work at one job and have no other source of income (e.g., royalties received in the first half of 2021, income from business activities, etc.) or last year’s total income is equal to or higher than this year’s total, you should not worry because you most likely will not have a tax debt.
Ex. If you work for one employer and receive a salary increase in 2021, you can arrange with your employer in writing to apply the differentiated non-taxable minimum that corresponds to your actual salary.
There may be a wide variety of individual situations that require separate explanation. We will be happy to answer your call or electronic application in EDS and help find an individual solution for each non-standard situation.
- How does the progressive tax rate make a difference in PIT?
A tax debt can occur because the progressive PIT rate is applied to different income levels - i.e., lower wages have a lower PIT rate and higher wages have a higher PIT rate.
A tax debt can form mainly for the following groups:
- those who have not worked a full year in the previous year or those who have not previously had an income (e.g., mothers returning to work from parental leave, persons who have only recently started working)
- those who have several sources of income (in addition to salary, they also receive a pension, business income, royalties received in the first half of 2021, etc.
- persons who have changed employers
Members of these groups must submit an annual income tax return (from 1 March to 1 June) for the previous year in order to recalculate PIT. If annual income exceeded EUR 62 800, the annual income tax return must be submitted from 1 April to 1 July.
Ex. Anna receives a salary of EUR 1667, so her salary is subject to 20% PIT (provided that her payroll tax booklet is submitted to the employer). The association AKKA/LAA pays Anna a royalty income of EUR 300 per month to which 20% PIT is also applied. As a result, Anna’s total income is EUR 23 604. For income over 20,004 euros, 23% PIT must be applied, but a 20% PIT rate was applied throughout the year. This means that Anna owes the State 3% on EUR 3 600 (EUR 108).
An outstanding tax balance may also arise because of application of the non-taxable minimum available to persons with an annual income of under EUR 21 600. It is important to note that for salaries under EUR 500 (before taxes), the non-taxable minimum (EUR 300) is applied in full throughout the year. According to the principle of differentiation, the non-taxable minimum for monthly income from EUR 500 to 1800 will decrease as the salary increases, and for monthly income above EUR 1800, the non-taxable minimum will not be applied at all.
In cases where monthly income fluctuated (increased or decreased compared to the previous year), recalculating annual income received and the differentiated non-taxable minimum applicable may result in a tax debt or overpayment. Thus, those who had a significantly lower income in 2020 than in 2021 (e.g., increased salary, mothers returning to work from parental leave, those who have just started to work) and expect that income in 2021 will be higher and even exceed EUR 21 600 for the year (1800 per month), a tax debt will incur.
Ex. Kārlis is a student who started his first job in January 2021. His salary is EUR 1800. The SRS forecast for his monthly non-taxable minimum for 1 January to 31 July is EUR 100 because he earned no income from 1 October 2019 to 30 September 2020. His actual income is over EUR 1800 euros, so recalculation will result in a tax debt of EUR 390,12.
What can you do to avoid a tax debt?
If planned income for 2021 is expected to be higher than in 2020, you may want to consult an accountant.
There are several other options:
- Review your projected monthly non-taxable minimum and agree, in writing, with your employer on a non-taxable minimum amount deduction (it may not be higher than the projected non-taxable minimum set by SRS)
- Indicate no monthly non-taxable minimum in your payroll tax booklet
- Do not indicate 20% PIT on income in your payroll tax booklet (this applies in particular to recipients of royalties whose annual income will exceed EUR 20 004 if the royalties were received in the first half of 2021 or paid out by a collective management organization, e.g., AKKA LAA).
Additionally, if a person does not want to disclose information about another job to his or her employer, it is possible to not submit your payroll tax booklet to any employer. Please note that in this case, the person chooses to reduce his or her monthly income and the overpaid PIT can be recovered only by submitting an annual income tax return.