In 2025, Latvia is planning several significant tax changes aimed at increasing state budget revenues while reducing income inequality. These changes will affect both individuals and businesses, making the tax system fairer and more efficient.
- Changes in the Non-Taxable Minimum One of the most significant changes is the reinstatement of a fixed non-taxable minimum. Starting in 2025, all workers will have a unified non-taxable minimum of €510 per month, which will gradually increase to €570 by 2027. This change will simplify tax calculations and increase the net income for most employees. Additionally, the non-taxable minimum for pensioners will be substantially increased—to €1,000 per month from 2025, doubling the current amount. This change will help reduce income inequality and improve the quality of life for pensioners.
- Revisions to Personal Income Tax Rates From 2025, Latvia will introduce two personal income tax (PIT) rates:
- 25.5% for income up to €105,300 per year (the threshold for social insurance contributions).
- 33% for income exceeding this amount. Additionally, a new 3% tax rate will be introduced for income exceeding €200,000 per year, which will also include certain previously tax-exempt income categories (such as dividends).
- Increase in the Minimum Wage Starting in 2025, the minimum wage in Latvia will be increased from €700 to €740 per month, with further increases planned in subsequent years.
- Social Contributions and Health Insurance It is planned to raise the income threshold up to which state social insurance contributions must be paid. Currently, contributions are calculated from income up to €78,100 per year, but from 2025, this threshold will be raised to €105,300. This will affect both employers and employees by increasing social contributions, but it will ensure greater social security, including pensions and healthcare services.
- Changes to Value Added Tax (VAT) The reduced 12% VAT rate, which applies to fresh fruits, berries, and vegetables, will be maintained until 2028. This rate will help keep lower prices for essential food products, promoting a healthier lifestyle and easing the burden on consumers. With the introduction of VAT directive amendments, the conditions for applying VAT thresholds will be reviewed, including for business operations in other EU member states.
- Excise Duty on Fuel and Natural Gas To encourage a transition to more environmentally friendly energy resources, excise duty on fuel and natural gas will be increased again in 2025, with the introduction of a CO2 component rate—€10 per ton of CO2 emissions, rising to €20 in 2026. This step will promote the reduction of harmful emissions and help achieve the country’s climate change goals. Additionally, from 2025, the excise duty on non-alcoholic beverages will be increased, and from 2027, the duty on alcoholic beverages, including beer, and tobacco products will also be raised.
- Vehicle Taxes Amendments to the Law on Vehicle Operation Tax and Company Light Vehicle Tax foresee an average 10% increase in vehicle operation tax rates starting next year, as well as setting the tax payment deadline as January 31 of the following calendar year. Company light vehicle tax rates will also be increased by an average of 10% starting in 2027.
- Changes for Microenterprises and Royalty Recipients Microenterprise tax payers will find it easier to register as MUN payers after interrupting their business activity or conducting it irregularly from 2025. This will provide more flexibility for microenterprise owners while ensuring more efficient tax administration. Additionally, the current tax payment system for royalty recipients will be maintained until December 31, 2027, allowing royalty recipients to avoid registering as sole traders while taxes (PIT and social insurance contributions) will be deducted at a 25% rate at the source of payment.
Conclusions The tax changes in 2025 will affect both individuals and businesses. The reforms are aimed at reducing income inequality and promoting environmentally friendly policies.
©INNOVATOR 24.10.2024.
