Tax Changes in 2025

🏛️ Tax Changes in 2025

At the beginning of December, the Parlament of Latvia (Saeima) approved next year’s budget in its final reading, along with amendments to several tax laws. This article provides an overview of the most significant changes in the Law on State Social Insurance, the Law on Personal Income Tax, the Value Added Tax Law, and other laws governing indirect taxes.

💼 On State Mandatory Social Insurance Contributions and Personal Income Tax

The amendments to the Law on Social Insurance specify that the maximum amount of annual social contribution will be EUR 105,300 from 2025 onwards (compared to EUR 78,100 as of December 31, 2024). According to information provided by the Ministry of Welfare, the social contribution rates for employers and employees will remain unchanged in 2025.

Following lengthy debates of recent years, the differentiated personal income tax-exempt minimum has been abolished as of 2025. A uniform tax - exempt minimum has been established for all taxpayers. In 2025, this amount will be EUR 510 per month, and for pensioners - EUR 1,000 per month. Additionally, working pensioners have been granted the option to split their tax-exempt minimum evenly between their pension and employment income. However, it’s important to note that this option may result in varying benefits for working pensioners, depending on whether their pension is less than EUR 1,000.

Unfortunately, the legislature has not increased the tax-exempt threshold for employer-provided employee insurance expenses, nor have there been increases in tax relief for dependents or exemptions under the Support Law for Ukrainian Civil Residents.

📊 Personal Income Tax Rates

The amendments introduce higher, progressive tax rates for employment income and income from capital, while maintaining the so-called lower tax rates for certain types of income (for instance, income from the sale of scrap metal and forest assets, as well as income from declared economic activities (10% for property rental). The special tax regime for copyright royalty recipients also remains in place.

For more detailed information on the application of progressive tax rates, please refer to the table below.

The income tax rate applied to the monthly taxable income (excluding non-taxable income specified in Article 9 of the law) is 25.5%. For income exceeding EUR 8,775 per month (EUR 105,300 annually), the tax will be calculated and payable when the individual submits the annual income tax return. Additionally, the tax under the supplementary rate will also need to be paid when submitting the annual income tax return.

According to the transitional provisions of the law, Paragraph 199 specifies that if income from employment, pensions, or benefits is paid for a pre-taxation year, the applicable tax rate will be the one in force during that pre-taxation year. Furthermore, the transitional provisions (Paragraph 196) stipulate that transactions involving capital assets that began but were not completed by December 31, 2024, and for which the respective declaration is submitted in 2025, 2026, or 2027, will be subject to a tax rate of 20%.

Employers are advised to inform their employees about the tax rate changes in advance, ensuring that employees are aware of these changes and, if necessary, can make timely adjustments to their salary book submissions via the State Revenue Service’s Electronic Declaration System (EDS).

💰 Benefits Provided by Employers to Employees

Although the tax relief for dependents has not been increased, several improvements have been introduced for employer-provided benefits, including:
1.    The value of gifts to employees has been increased to EUR 100 annually, funeral allowances to EUR 500, and child birth allowances to EUR 500.
2.    Expenses paid by employers for employee meals, healthcare, relocation to a new residence, accommodation, and transport will be exempt from personal income tax up to an amount calculated by multiplying the annual average number of employees by EUR 700, provided the following conditions are met:

a) These expenses do not exceed 5% of the employer's annual gross payroll, and
b) The employer retains supporting documentation for these expenses.
 

🛒 Value Added Tax (VAT)

The VAT amendments remove the 12% VAT rate for locally grown fruits and vegetables. Several changes in VAT registration rules have also been introduced, including cases where Latvian-registered businesses operate in other EU member states. Additionally, the place of service provision for cultural, sports, education, and similar services has been updated if these services are provided virtually. More detailed information on changes to VAT registration rules will be provided in a separate blog on our website.

💰 Other Indirect Taxes

The excise tax has been increased for non-alcoholic beverages with a sugar content of less than 8 grams, gasoline, diesel fuel, natural gas, and other petroleum products. The exemption for petroleum products used for electricity production and cogeneration has been removed, with the tax rate now aligned with the rate for petroleum products used as fuel. For more information on rates, please visit the State Revenue Service's website: https://www.vid.gov.lv/lv/akcizes-nodokla-likmes.

Vehicle Operation Tax rates have been increased by 10% and Natural Resource Tax Rates have been increased for coal, coke, and lignite.

Should you have any questions, please do not hesitate to contact us at info@orients.lv. We will be glad to assist you.