Upcoming Tax Changes in 2025

In 2025, significant changes to the tax system are planned in Latvia, which will affect both residents and businesses. The main goal is to ensure income growth for workers and improve tax collection efficiency while maintaining the sustainability of the national budget.

Non-Taxable Minimum and Personal Income Tax (PIT) Rates Up until now, Latvia had a differentiated non-taxable minimum depending on the income level. However, starting from 2025, the government plans to reintroduce a fixed non-taxable minimum for all residents. It is planned to be set at €510 per month in 2025, increasing to €570 by 2027. This change will simplify the tax system significantly, as the non-taxable minimum will apply to all employees regardless of their gross income level. This means that all workers will have the same exemption amount, simplifying salary calculations.

From 2025, there will be two-tier PIT rates:

  • 25.5% on income up to €105,300 per year, as well as most other income that was previously taxed at 20% (23% for non-residents);
  • 33% on income over €105,300 per year.

Additionally, it is planned to introduce a 3% supplemental PIT rate on income exceeding €200,000 per year. This rate will apply to all income, including capital gains, dividends, and other income sources.

Double Non-Taxable Minimum for Pensioners Starting from 2025, the non-taxable minimum for pensioners is planned to increase from €500 per month to €1,000 per month.

Minimum Wage and Social Contributions An increase in the minimum wage is another significant aspect of the planned changes. From 2025, the minimum wage will rise from the current €700 to €740 per month, with further increases in the coming years:

  • €780 in 2026;
  • €820 in 2026;
  • €860 in 2027.

Along with the increase in the minimum wage, it is also planned to raise the threshold for mandatory state social insurance contributions. From 2025, social contributions will be calculated on amounts up to €105,300 per year, instead of the current €78,100. This will affect both employers and employees, as the social insurance contribution threshold will increase, which in turn will enhance future benefits, such as pensions and health care services.

Additional Benefits and Reliefs Starting from 2025, it is planned to expand PIT reliefs for employer payments related to medical, catering, relocation, and accommodation expenses. It will be stipulated that these expenses must not exceed the amount obtained by multiplying the average number of employees by €700 per year.

Additionally, reliefs for childbirth and funeral allowances paid by employers will be increased to €500 per year (from €250 in 2024). The gift limit from employers will also be raised to €100 per year.

Tax Changes for Microenterprises and Royalty Recipients Microenterprise tax payers can expect changes to their status regulations. From 2025, those without turnover will lose their status, but it will be easier to re-register as a microenterprise tax payer after a pause in economic activity or irregular operations. This will provide greater flexibility for microenterprise owners, while ensuring more efficient tax administration. Additionally, the current tax payment procedure for royalty recipients is planned to be maintained until December 31, 2027, allowing them not to register as self-employed individuals. Instead, taxes (PIT and mandatory social contributions) will be withheld at the source at a 25% rate.

Value Added Tax (VAT) The most significant change in the VAT system is the continuation of the reduced 12% VAT rate for fresh fruits, berries, and vegetables until 2028. This ensures lower prices for these products for consumers while promoting a healthy lifestyle.

With the implementation of amendments to the VAT directive, the conditions for applying the VAT threshold will be reviewed, including for business activities conducted in other EU member states.

Excise Duty To promote the transition to environmentally friendly energy resources, from 2025, the excise duty on fuel and natural gas will be increased again, introducing a CO2 component rate – €10 per ton of CO2 emissions, rising to €20 in 2026. This step will encourage the reduction of harmful emissions and help achieve the country’s climate change mitigation goals.

It is also planned to raise the excise duty on non-alcoholic beverages from 2025, and from 2027, on alcoholic beverages, including beer, and tobacco products.

Vehicle Taxes Both the Vehicle Operation Tax (VOT) and the Company Light Vehicle Tax (CLVT) rates will be increased by an average of 10%, with VOT rates starting from 2025, and CLVT rates planned to increase from 2027. This will affect all vehicle owners and encourage the choice of more environmentally friendly means of transportation.

Lottery and Gambling Taxes Taxes on lotteries and gambling will also be raised, including an increase in the lottery tax rate to 15%. This will impact companies in these industries but potentially increase state revenues from these entertainment forms.

Conclusions The planned tax changes in 2025 will significantly affect Latvian residents and businesses. For the majority of workers with gross salaries up to €4,000, the changes will result in an increase in net income, while higher income groups will face a heavier tax burden. The tax changes will also impact microenterprises, vehicle owners, gambling operators, and other business sectors.

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