• Personal income tax on business income

  • 1. Registration before start of business activities.

    2. Personal income tax for income from economic activities shall be calculated as the difference between the revenue and the expenses related to economic activities:

    • it is permitted to include expenses, which do not exceed 80% of the total income from economic activities of a natural person, in the expenses of economic activities. Certain expenses determined by law can be included in the full amount (for example, salary, immovable property tax, depreciation of non-current assets);
    • the tax rate is the following:
      - 20 % for income up to EUR 20,004;
      - 23 % for a part of income from EUR 20,004 to EUR 55,000;
      - 31,4 % for a part of income, exceeding EUR 55,000.

    3. The performer of business is processing his bookkeeping in the simple entry system recording both income and expenses.

    4. Makes advance payments of the tax by 15 March, 15 June, 15 August and 15 November.

    5. The tax is calculated filing the annual income declaration to the SRS on 1 March to 1 June of the year following the taxation year.

    6. The calculated tax is paid into the budget accounts indicated [2]^[1] at the SRS homepage within 15 days after filing the declaration. If the amount of calculated tax exceeds EUR 640, it can be paid into the budget in three instalments – by 16 June, 16 July and 16 August, each time paying one third of this amount.

    7. Non-taxable minimum amount, tax reliefs and justified expense deductions can be applied to the business income.

    Sole proprietor pasy EUR 50 by 16 June, in case if in the taxation period he has not got any taxable income of business activities or the calculated tax did not exceed EUR 50.

    Minimal tax amount is not applied to taxpayers who paid income tax or social contributions for their employees or for themselves.

    Minimal tax is not applied in the taxation year when the commercial activity was registered, in the next year and in year when commercial activity is terminated.

    Useful information can be found at the SRS homepage in the section Taxes > Personal income tax – “Due dates of submitting annual personal income declaration [3]”.

• Patent fee on performance of particular business type activities 

  • The person shall file the registration application [4] no later than within 7 business days preceding the preferred date of application of the licence fee.

    The Cabinet of Ministers determines a list of professions [4], the representatives of which may pay personal income tax and mandatory state social security contributions as the licence fee.

    The licence fee payer may not employ other persons, and their revenue may not exceed EUR 15,000 a year. The licence fee may be paid for one, three or six calendar months or for one calendar year. The period of paying the licence fee may not be shorter than one calendar month.

    The amount of the licence fee shall be from EUR 50 to EUR 100.

    The licence fee payer shall account only the revenue from economic activities.

    The licence fee payer has no duty to submit the annual income declaration.

    The licence fee shall be transferred into the State budget revenue accounts [5]^[1] indicated on the SRS website within two business days following the submission to the SRS of the application on paying the licence fee.

    It is not permitted to apply the annual non-taxable minimum, tax reliefs and eligible expenses to income from economic activities.

    The payer, who carries out economic activities and pays a licence fee for them, cannot simultaneously be a service provider for a performer of economic activities (merchant) within the framework of economic activities thereof, if the performer of economic activities (merchant) operates in the same area of economic activity, for which the licence fee payer pays a licence fee.

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    ^[1]Information available in Latvian

• Reduced licence fee for the performance of particular types of economic activity

  • A natural person may pay the reduced licence fee if the following conditions are met:

    • the person has been granted an old-age pension (including early) and has the right to apply the pensioner’s non-taxable minimum or has been recognised as a person having disability of group 1 or 2;
    • income from economical activities within the pre-taxation year does not exceed EUR 3,000;
    • the person is not a payer of microenterprise tax or a performer of economic activities (pays a progressive tax rate of 20 %, 23 % or 31,4 % from income from economic activities);
    • the person does not employ other persons and is not a payer of salary tax.

    
    The payer of the reduced licence fee has no duty to file the annual income declaration and does not state therein the revenue for which the licence fee has been paid.

    The reduced licence fee shall be paid for six calendar months or for one calendar year. The period of paying the reduced licence fee shall not be shorter than six calendar months.

    The reduced licence fee shall amount to EUR 17 per year or EUR 9 per six months.

• Micro-enterprise tax

  • Payers get registered as a micro-enterprise tax payer by filing the application by 15 December of the pre-taxation year or at the start of commercial activities.

    The tax rate on micro-enterprises is 15%.

    Micro-enterprise tax can be paid if:

    • the business income — turnover — does not exceed EUR 40,000 in a calendar year;
    • the number of employees of the micro-enterprise at any moment does not exceed five;
    • the monthly income of the employee of the micro-enterprise (also that of the owner) does not exceed EUR 720.

     

    Micro-enterprise tax is applied to the turnover (revenues) of a micro-enterprise.

• Notified non-registered commercial activities

  • 1. If income is earned from the property (for instance, from leasing or renting out immovable property, from selling tenancy rights, transferring the matter further to a sub-lessor or sub-tenant, leasing or alienating movable property, acquiring payment for the use of natural resources or restrictions of use), a natural person shall be obliged to inform the SRS thereof within five business days following the date of conclusion of the contract:

    • the tax rate of 10% shall be applied to income from the property;
    • the revenues from economic activities shall be accounted;
    • if the income from the property is earned from a legal person, the tax shall be withheld at the place of payment;
    • if the tax is not withheld, the natural person shall calculate the tax for a calendar year, having filed with the SRS the annual income declaration from the 1st of March until the 1st of June of the following year;
    • the tax shall be paid into the budget within 15 days following the date of filing the declaration as determined by the Law On Personal Income Tax by transferring thereof into the State budget revenue accounts indicated on the SRS website;
    • it is not permitted to apply the annual non-taxable minimum, tax reliefs and eligible expenses to income from economic activities;
    • the natural person is not considered to be a self-employed person and the mandatory state social security contributions are not paid;
    • the person registers him-/herself in the SRS Register of Value Added Tax Payers if the total value of transactions subject to the value added tax within the preceding 12 months has exceeded EUR 40,000.

    
    2. If the income is earned from home farms or personal subsidiary farms, or from mushrooming, berry-picking or the collection of wild medicinal plants, flowers, or non-game individual species – grapevine snails (Helix pomatia) (the total earnings shall not exceed EUR 3,000):

    • the earned income which exceeds EUR 3,000 shall be subject to the progressive personal income tax rate;
    • income from economic activities shall be accounted;
    • the tax shall be calculated for a calendar year, having filed with the SRS the annual income declaration from the 1st of March until the 1st of June of the following year;
    • the tax shall be paid into the budget within 15 days following the date of filing the declaration as determined by the Law On Personal Income Tax by transferring thereof into the State budget revenue accounts indicated on the SRS website;
    • it is permitted to apply the annual non-taxable minimum, tax reliefs and eligible expenses to income from economic activities.

     

• State social insurance mandatory contributions  

  • A natural person – performer of economic activities – shall be considered to be a self-employed person for the purposes of the Law On State Social Security. 

    If monthly income exceeds EUR 430, mandatory contributions shall be made from the feely selected object of mandatory contributions, which cannot be less than EUR 430 a month. In addition, contributions shall be made for pension insurance in the amount of 5 % of the difference from freely selected object of mandatory contributions and actual income.

    If monthly income is less than EUR 430, social contributions for pension insurance shall be made in the amount to 5 % of actual income.

    If income is less than EUR 50 from the beginning of the year, no mandatory contributions shall be made.

    If income is gained from agricultural production, contributions for pension insurance in the amount of 5 % of income from agricultural production shall be made once a year – by the 15th of April of the following year.

    Persons eligible to social insurance*	Rate (%)
    Self- employed person (also invalids of I, II or III group, recipient of service pension, invalids - recipients of special state pension)	32,15
    Self-employed person who has achieved the age entitling old age pension (also to pension awarded upon reduced regulations or awarded prematurely)	30,34
    Self-employed person – manager of immovable property	27,27

     

    *The following are not subject to mandatory social insurance:

    Owners of farming (fishing) enterprises, who have attained the age granting the right to receive State old-age pension or who have been granted State old-age pension (including early), or who are persons having disability of group I or II.

    A natural person, who carries out the management of his/her immovable property or gains income from a personal auxiliary farm or a personal farm plot and has registered as a performer of economic activities, and has attained the age granting the right to receive State old-age pension or who have been granted State old-age pension (including early), or who is a person having disability of group I or II, or whose permanent place of residence is not located in Latvia.

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    Micro-enterprise employees are eligible to social insurance starting from the day of obtaining the status of the employee of a micro-enterprise. The employees of micro-enterprise can join the state social insurance voluntarily by making the social contributions basing on freely chosen amount of income not exceeding the limit of EUR 720.

    Please find useful information in SRS home page section Taxes > State social insurance mandatory contributions [6].

• Organising of accounting by performers of economic activities

  • The following Cabinet Regulations prescribe organising of accounting by performers of economic activities as well as the procedure of maintaining of accounting by the simple entry system:

    • Cabinet Regulation No. 188 of 20 March 2007 ”Procedure of Maintaining of Accounting by The Simple Entry System by Individual Merchants, Individual Enterprises, Farming and Fishing Enterprises, Other Natural Persons Who Perform Economic Activities [7]“;
    • Cabinet Regulation No. 301 of 8 May 2007 ”Regulations on Financial Statements of Individual Merchants [8]“;
    • Cabinet Regulation No. 585 of 21 October 2003 ”Regulations on Maintaining and Organising of Accounting [9]“;
    • Cabinet Regulation No. 584 of 21 October 2003 ”Regulations on Recording of Cash Operations“ [10].
• Value Added Tax
  • 1. Registering the business activities, the natural person can also get registered at the SRS VAT payer register and make VAT payments irrespective of not achieving the registration threshold of EUR 40 000 set by the VAT law.
    2. However if the total value of VAT taxable supplies of goods and services during the preceding 12 months has exceeded EUR 40 000, the natural person is obliged to get registered at the SRS VAT payer register and must charge VAT on the transactions carried out
    3. If the natural person acquires goods in the territory of European Union and if the total value of these goods without tax has achieved or exceeds in the current calendar year the amount of EUR 10 000, the person has to get registered at the SRS VAT payer register and charge VAT on the acquisitions made in that period.
    4. If the natural person provides services to taxpayers of another EU Member State, the place of supply of which is determined in accordance with Section 1, Art 19 of the VAT law, the person must get registered at the SRS VAT payer register before rendering these services.
    5. If the natural person of another Member State or of any third country or territory not doing business in the domestic territory receives services the place of supply for which is determined in accordance with Section 1, Art 19 of the VAT law, the person must get registered at the SRS VAT payer register before receiving these services.
    6. The registered taxpayers using simple entry accounting system, use a log to record the VAT. The form of the log is approved by the Cabinet Regulations No.17 of 3 January 2013 “Procedure of application of VAT law provisions and certain requirements concerning payment and administration of the VAT” (Appendix 6 to the Regulations).
    7. If the registered taxpayers whose total value of the VAT taxable transactions over the preceding taxation year has not exceeded EUR 100 000, the entries in the log-book of revenues and expenditure of the payers of personal income tax or micro-enterprise tax are made electronically. The taxpayer can instead of keeping the log-book mentioned in Appendix 6 to the Cabinet Regulations No.17 of 3 January 2013 “Procedure of application of VAT law provisions and certain requirements concerning payment and administration of the VAT” make additional boxes in the log-book of revenues and expenditure of the payers of personal income tax or micro-enterprise tax in order to register the calculated tax amounts paid during the taxation period in accordance with the invoices received from other registered taxpayers

     

    Please find the useful information in the SRS homepage section Taxes/Value Added Tax [11] or click here [12].

    The reports and returns must be filed electronically using the Electronic Declaration System (EDS). Natural persons can receive free of charge consultations regarding the application of tax legislation electronically, in written form, verbally in person or by phone, or by attending the regular seminars for performers of business activities arranged by the SRS Client Service Centres.

SRS Consultative Line: 67120000; Contact Us [13].
Verbal consultations regarding the application of tax legislation are available at any SRS Client Service Centre [14].