On December 11, 2024, Latvia's parliament approved significant amendments to the Personal Income Tax (PIT) Law that will take effect from January 1, 2025. Here's what you need to know about these important changes.
New Tax Rate Structure
The current three-tier progressive tax system will be simplified to two main rates:
- 25.5% for annual income up to €105,300
- 33% for income exceeding €105,300
- An additional 3% tax will apply to total annual income exceeding €200,000
Capital Gains and Investment Income
The tax rate for capital gains and investment income (including dividends, interest, and income from property sales) will increase from 20% to 25.5%.
Fixed Tax-Exempt Minimum
The system is being simplified by replacing the current differentiated tax-exempt minimum with fixed amounts:
- 2025: €510 per month
- 2026: €550 per month
- 2027: €570 per month
Benefits for Pensioners
The tax-exempt minimum for pensioners has been doubled from €500 to €1,000 per month (€12,000 annually). Working pensioners can split this exemption between their pension and employment income.
Employee Benefits and Gifts
- The tax-free limit for employer gifts has increased from €15 to €100 annually
- Funeral and childbirth benefits from employers are now tax-free up to €500 (previously €250)
- New provisions for employee mobility expenses, including relocation, accommodation, and transport costs, with a limit of €700 per employee annually
Changes for Creative Professionals
The special tax regime for copyright holders has been extended until December 31, 2027. This allows them to pay a simplified 25% tax rate without registering as self-employed.
Competition Prizes
A unified tax-free limit of €1,500 per year has been established for prizes received in competitions and contests, regardless of whether they are international or domestic events.
Agricultural Support
Tax exemptions for state and EU agricultural support payments have been extended until 2029, including payments for biodiversity conservation and Natura 2000 projects.
These changes represent a significant simplification of Latvia's tax system while maintaining its progressive nature. The new structure aims to create a more straightforward and efficient tax system while providing additional benefits for pensioners and employees. Businesses and individuals should begin preparing for these changes well before their implementation in January 2025.
Remember to consult with a tax professional for specific advice on how these changes might affect your personal or business situation.