Personal income taxpayers in Latvia are:
- Individuals – residents and non-residents who have received income in Latvia and/or abroad during the taxation period (calendar year);
- Individuals – non-residents who have received income in Latvia during the taxation period;
- Individuals – owners of individual enterprises, including farmers and fishermen, for the income of their enterprise (including a farmer’s or fisherman’s household) that is not subject to enterprise income tax;
- Microenterprise owners in accordance with the Microenterprise Tax Law.
It is important to emphasize that in terms of taxation, foreigners can be both Latvian tax residents and non-residents. The criteria according to which a person is considered a resident of the Republic of Latvia are as follows: if the declared place of residence of the person is in the Republic of Latvia, or if the person stays in the Republic of Latvia for 183 days or more in any 12-month period starting or ending in the taxation year, or if the person is a Latvian citizen employed abroad by the Government of the Republic of Latvia.
In situations where it is problematic to determine the residence of a natural person, it is determined according to the criteria specified in conventions, in which country the person has a permanent residence, where the center of vital interests of the person is – closer, personal and economic relations, if it is not possible to determine the country where the person has the center of vital interests, or if there is no permanent residence in either of the two countries, this person will be considered a resident of the country whose habitual abode is, if the habitual abode of the person is both countries or neither of them, then the competent authorities of the countries decide on the determination of residence by mutual agreement.
If income was received in Latvia during the previous taxation period (2023), the obligation to submit an annual income tax return may arise in regulatory enactments. Currently, in Latvia, annual income tax returns can be submitted voluntarily, mandatorily if, based on factual circumstances, the tax has not been fully paid, and the third option is that the State Revenue Service (hereinafter – SRS) taking into account the information available to the SRS prepares the declaration of a natural person, as a result of which a natural person may be obliged to make an additional tax payment to the state budget, or vice versa, to receive a refund of overpaid tax.
Further, we have briefly summarized information on each of the ways of submitting the annual income tax declaration. Every person in Latvia whose income is subject to personal income tax can voluntarily submit an annual income declaration to recover from the state the overpaid personal income tax for justified expenses of themselves and their family members. To receive a tax refund, an annual income declaration must be submitted, and justified expense documents (receipts, invoices) must be attached to it. According to the law, the SRS must make the refund within three months from the date of receipt of the declaration.
On the other hand, residents who have not paid the personal income tax in full during the year must mandatorily submit an annual income tax declaration. Latvian tax residents must submit an annual declaration for the following incomes:
- Income from economic activity (e.g., income from professional activity carried out outside labor legal relations, namely, from consultants, designers, photographers, lecturers, accountants, architects, etc. activities; income from leasing out their own property, etc.);
- Incomes earned abroad;
- Incomes not subject to taxation, if the amount exceeded 10,000 euros in the previous year (e.g., income from the sale of personal property or gifts from close relatives);
- Income from economic activity that is allowed to be unregistered and which is subject to a rate of 10% (e.g., income from renting/leasing real estate, notifying the State Revenue Service of such activity);
- Other incomes if the person who paid these incomes did not withhold tax (e.g., gifts received from persons who are not close relatives).
Since 2022, Automatic Tax Refund is a tax overpayment refund that the SRS makes to the taxpayer in non-cash form if the taxpayer has not submitted a declaration by the date of automatic tax refund and to which the tax declaration exemptions specified in Section 20 of the Personal Income Tax Law apply. The SRS makes automatic tax refunds if it has information about the taxpayer’s current account registered with a credit institution in the Republic of Latvia or with a payment service provider to which the overpayment refund is made, and the taxpayer has no tax debts. It is essential for the SRS to have correct information about the taxpayer’s current account, as the SRS will not make automatic tax refunds if there is information that on the refund date, the taxpayer’s account for which information was provided is closed.
Currently, the submission of annual income tax declarations is in full swing; taxpayers can now submit their Annual Income Tax Declaration for 2023, and the submission period for those persons for whom voluntary declaration submission is justified starts from March 1, 2024, whereas if the declaration must be submitted mandatorily, it must be done from March 1 to June 1, but if the annual income exceeds 78,100 euros, then the declaration must be submitted from April 1 to July 1.
We would like to remind you that declarations can be submitted and amended (additional expense receipts added) for three years. During 2024, a declaration for the year 2023 can be submitted not only for 2023 but also submitted or amended for 2022 and 2021. Meanwhile, the declaration for 2020 can be submitted until July 23, 2024.
There is much confusion about whether foreign taxpayers are required to submit an annual income tax declaration in Latvia. Many foreigners, especially those with a residence permit, wonder whether they need to submit a declaration and pay taxes, or whether they are residents of Latvia or not. Typically, foreigners who are not Latvian tax residents do not submit income declarations (tax declarations), unless otherwise specified by law.
The income of a non-resident subject to personal income tax is specified in the third part of Section 3 of the Personal Income Tax Law and includes:
- Income from professional activity of artists, athletes, or coaches in the Republic of Latvia;
- From performing duties on a board or council;
- From the sale of capital assets;
- From the use of immovable and movable property in Latvia;
- Income from the standing timber of a natural person’s property;
- From the sale of standing timber of a natural person’s property and the sale of timber obtained from it;
- Income from the sale of scrap metal;
- Dividends and dividend-equivalent income if otherwise not specified in Article 9 of the law;
- Pensions paid in accordance with the laws of the Republic of Latvia and income equivalent to pensions;
- Income from leased personnel or income equivalent to it regardless of who receives this income on behalf of the natural person;
- Winnings from lotteries and gambling, if the amount of the prize exceeds 3,000 euros.
As a resident of another EU Member State or European Economic Area State who has received more than 75% of their total income in Latvia during the taxation year and wishes to apply the differentiated non-taxable minimum for the taxation year in accordance with Section 12 of this law, tax exemptions in accordance with Section 13 of this law, and justified expenses in accordance with Section 10, paragraph 4 of this law, then in this case, an annual income tax declaration must also be submitted (Section 20, paragraph 3, point 3).
SIA “INNOVATOR” advises clients on tax legislation issues for individuals and legal entities. If you have additional questions, please contact SIA “INNOVATOR” specialists, and they will be happy to assist you.
©INNOVATOR 02.05.2024.
