Latvia's Corporate Tax Framework in 2025: A Strategic Overview for International Businesses

As global businesses continue to explore opportunities across Europe, Latvia has emerged as a competitive destination thanks to its transparent and streamlined tax system. This guide outlines the key corporate taxation policies effective in 2025, offering clarity on compliance, rates, and incentives—particularly valuable for foreign investors and multinational enterprises navigating the Baltic region.

Tax System and Administration

Latvia operates under a territorial-based tax regime with elements of a universal taxpayer model, meaning companies are generally taxed on worldwide income, though certain exemptions apply. The State Revenue Service (SRS) oversees all tax reporting, which must be completed online by the 15th of each month. The foundational legal framework is established by the Law on Taxes and Duties, enacted on February 2, 1995. While this law governs general tax principles, specific legislation such as the Value Added Tax Act and the Corporate Income Tax Act take precedence when there’s a conflict.

Main Taxes and Current Rates

Corporate Income Tax

Companies incorporated in Latvia are subject to corporate income tax (CIT) on their global earnings. As of 2025, the standard CIT rate remains structured around profit distribution: 20% applied to gross distributed profits or 25% on net profits after reserves. This dual mechanism encourages reinvestment and long-term capital retention within the business. Detailed application rules can be found under official guidelines issued by the SRS, ensuring consistent interpretation across sectors.

Micro-Enterprise Tax Regime

A favorable alternative exists for small-scale operations through the micro-enterprise tax scheme. Eligible businesses—typically startups or local SMEs—with annual turnover up to €100,000 pay a flat 15% tax on revenue. For those exceeding this threshold but still below €200,000, the rate increases to 20%. This simplified model reduces administrative burden and supports early-stage growth, especially among digital freelancers and service providers.

Personal Income Tax

Individuals are considered tax residents if they spend 183 days or more in Latvia within any 12-month period that includes part of the tax year. Since 2021, Latvia transitioned from a flat 23% rate to a progressive personal income tax structure. As of 2025, the brackets stand at 20%, 23%, and 31.4%, depending on income level, promoting equity while maintaining competitiveness.

Property Tax

All entities—residents, non-residents, individuals, and corporations—owning land, buildings, or construction projects in Latvia are liable for property tax. Rates vary between 0.2% and 3% of the assessed cadastral value, determined annually by local municipalities. Urban centers like Riga may impose higher rates due to infrastructure costs, whereas rural areas offer lower burdens to stimulate development.

Value Added Tax (VAT)

The standard VAT rate in Latvia is 21%, applicable to most goods and services. Reduced rates include 12%, which covers essential items such as baby products, prescribed medicines, and approved medical devices. Some educational and cultural services may qualify for a 5% rate, enhancing affordability and access. VAT registration is mandatory for businesses with taxable supplies exceeding €40,000 annually.

Social Security Contributions

Employers and employees jointly fund Latvia’s compulsory social insurance system. As of 2025, the total contribution stands at 35.09%, split between both parties. These contributions support pensions, healthcare, unemployment benefits, and disability programs. Employers should factor this into payroll planning, particularly when hiring expatriates or managing cross-border employment arrangements.

Excise Duties

Latvia imposes excise taxes on select goods deemed harmful or environmentally impactful. These include alcoholic beverages, tobacco products, energy drinks, motor fuels, and certain luxury vehicles. Rates differ based on product type and volume—for example, per liter for fuel or per kilogram for tobacco—aligning with EU directives aimed at public health and sustainability.

Natural Resource Tax

This levy applies to companies extracting natural resources such as gravel, sand, peat, and timber. It consists of a base tax and an additional surcharge, typically three times the base amount, designed to promote responsible usage and environmental stewardship. Licensing and reporting requirements are stringent, with audits conducted regularly by regional environmental agencies.

Carbon Emission Tax

In line with EU climate goals, Latvia introduced a carbon tax to discourage fossil fuel dependency. From January 1, 2022, the rate increased to €15 per ton of CO₂ equivalent, where it remains in 2025. The tax primarily affects energy producers, heavy industry, and large transport operators. Companies investing in green technologies may qualify for partial offsets or subsidies under national decarbonization initiatives.

Special Economic Zones and Incentives

Legal Basis for Special Zones

Latvia has established several special economic zones governed by dedicated legislation, including the Port Law, the Liepāja Special Economic Zone Act, and the Ventspils Free Port Law. These frameworks provide legal certainty and operational flexibility for logistics, manufacturing, and export-oriented ventures.

Fiscal Incentives

Businesses that commit capital investments in designated zones before December 31, 2035—and secure formal approval and a signed investment agreement—are eligible for substantial tax breaks. Benefits include up to an 80% reduction in real estate tax and corporate income tax over a defined period. These incentives aim to attract high-value industries, boost regional employment, and strengthen infrastructure connectivity.

Overview of Key Economic Zones

Latvia currently hosts five major economic zones:

• Riga Free Port – focused on container handling and multimodal logistics;
• Ventspils Free Port – specialized in oil and bulk cargo;
• Liepāja Special Economic Zone – known for advanced manufacturing and innovation parks;
• Rezekne Innovation Park – targeting IT and tech startups;
• Daugavpils Logistics Center – serving Eastern European trade corridors.

Each zone offers tailored support services, streamlined customs procedures, and proximity to EU and CIS markets.

For international firms evaluating expansion into Northern Europe, Latvia presents a balanced mix of regulatory stability, cost efficiency, and strategic location. With proactive reforms and investor-friendly policies, it continues to build momentum as a gateway between East and West.

Looking ahead, companies seeking seamless integration into Latvia’s business ecosystem can rely on SailGlobal for end-to-end overseas HR solutions—from entity setup and payroll management to compliance advisory and talent acquisition. Our localized expertise ensures smooth market entry and sustainable operations across borders.