Draft amendments No. 25-TA-157 to the Law “On Personal Income Tax” are currently under the coordination process.
The submitted amendments introduce changes to the application of the 10% tax regime, taxation of capital income, regulation of investment accounts, and the application of the additional 3% rate. The changes will affect real estate landlords, capital gains earners, non-residents, and individuals with high annual income. This article outlines the most important planned amendments and their potential impact on taxpayers.
The amendments provide for the following changes:
I. Declared economic activity (formerly “unregistered” activity)
A new term, “declared economic activity,” has been introduced in Section 11, Paragraph 12 of the law, replacing the previous term “unregistered economic activity.”
At the same time, the application conditions have been clarified:
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according to Section 11, Paragraph 12 and Section 28, Clause 8, the person must notify the Valsts ieņēmumu dienests (State Revenue Service) within the prescribed deadline about the commencement of activity;
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the person may not simultaneously conduct the same type of registered economic activity;
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if the tax authority is not notified in time, Section 11, Paragraph 23 applies, meaning income is taxed under the general procedure until the registration date (applying the rates specified in Section 15, Paragraph 2).
Practical impact:
The 10% regime remains available, but becomes formally stricter. Timely notification and precise compliance will be essential to avoid the risk that income will be taxed under the general regime at higher rates.
Section 11 has also been supplemented with Paragraph 12.¹, establishing that income from declared economic activity does not include payments made to third parties related to the use of property that do not increase its value (for example, utility payments). According to Section 17, Paragraph 10, Clause 7, tax withholding applies only to rental income. Under Transitional Provision 210, this rule will apply from 1 January 2026.
Practical impact:
Landlords will not be required to pay 10% tax on amounts intended to cover utility costs. Only the actual rent will be taxed. This reduces administrative burden and ensures fairer taxation.
Section 8 has been supplemented with Paragraph 2.¹⁷, providing that if a person engaged in declared economic activity enters into transactions with a company or another entity where they are a board member, employee, or related person, and the transaction value exceeds market price, the excess amount will be taxed as employment income.
Practical impact:
If property is rented to one’s own company at an artificially inflated price, the excess may be treated as salary and taxed accordingly. This limits the possibility of substituting salary with rental payments.
II. Clarification of capital gains calculation (Section 11.⁹, Paragraph 7.⁵)
Section 11.⁹ has been supplemented with Paragraph 7.⁵, providing that if the updated cadastral value is used as the deemed acquisition value in calculating capital gains, additional actual investments in the property may not be included.
Practical impact:
When selling real estate, taxpayers must choose either the cadastral value or documented investments. Both methods may no longer be used simultaneously.
III. Changes to the investment account regulation
The amendments provide for:
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Section 19, Paragraph 6, Clause 11 – obligation to attach supporting documents confirming income from the investment account;
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Section 3, Paragraph 3, Clause 10.² – income from an investment account earned in Latvia by a non-resident is taxable in Latvia;
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Section 11.⁹, Paragraph 12.³ – clarification of income determination;
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Section 20, Paragraph 3, Clause 5 – declaration relief does not apply to non-residents earning income from an investment account.
If a non-resident wishes to apply tax treaty benefits, they must be able to prove the type and amount of income to the tax authority.
Practical impact:
Latvian residents will face increased obligations to substantiate investment account income with documentation, while non-residents will face stricter declaration requirements and fewer relief options.
IV. Clarification of the additional 3% rate (Section 15.¹, Transitional Provision 211)
Section 15.¹ provides for a 3% tax on annual income exceeding EUR 200,000. To prevent interpretation risks, Transitional Provision 211 clarifies that in 2025, 2026, and 2027, income from capital gains subject to the special transitional provision rate (20%) is excluded from the calculation of the additional 3% rate.
Practical impact:
Individuals with significant capital gains income will not be subject to the additional 3% rate on such income during the transitional period.
Legislative status
The amendments must still be adopted by the Ministru kabinets and the Saeima.
If the planned changes may affect your tax situation, it is advisable to assess potential risks and tax consequences in advance. Tax consultants at SIA Innovator provide support in evaluating tax implications, selecting appropriate tax regimes, and applying the regulation in practice.
© INNOVATOR 25.02.2026
