With a population of just under 2 million, Latvia boasts a strategic location in Northern Europe and an open economy that’s increasingly integrated with the European Union. As of 2024, Latvia’s GDP stands at approximately EUR 43 billion, with a stable growth trajectory driven by manufacturing, logistics, ICT, and financial services. The country is also known for its ease of doing business, transparent tax system, and growing pool of multilingual, highly educated professionals.

The Latvian workforce is shaped by strong vocational training programs and EU labor mobility, with employment costs remaining relatively competitive when compared to Western Europe. These factors, coupled with government support for foreign direct investment, make Latvia an attractive hub for regional headquarters and remote teams alike.

For foreign investors seeking to do business in Latvia, understanding the local payroll and income tax framework is essential for compliance, cost efficiency, and employee satisfaction.

What is Payroll Tax in Latvia?

In Latvia, the term “payroll tax” refers to the set of statutory deductions and employer obligations that apply to employee compensation. These include:

  • Compulsory National Social Insurance Contributions (NSIC), paid by both employers and employees.
  • Personal Income Tax (PIT) withheld from employees’ salaries.

Employers are legally required to calculate, withhold, and remit these amounts to the State Revenue Service (VID) each month. Failure to comply can result in penalties, interest charges, and reputational damage.

While Latvia doesn’t impose a single, standalone payroll tax, the cumulative burden of these deductions forms the foundation of payroll taxation in the country.

Social Security Contributions in Latvia

In Latvia, the NSICs are mandatory payments made by both the employer and the employee to fund state benefits such as pensions, health insurance, unemployment, maternity leave, and disability support. These contributions are administered by the State Social Insurance Agency (VSAA).

As of 2025, the standard social security contribution rates are:

Contribution TypeRate
Employer’s Share23.59%
Employee’s Share10.5%
Total NSIC Burden34.09% of gross salary

These contributions apply to most employees. However, there are reduced rates for specific groups, such as pensioners, self-employed persons, and those under special employment statuses.

Breakdown of Employer Contributions

Employers in Latvia are required to contribute 23.59% of each employee’s gross salary toward state social insurance, and here’s how that total is broken down:

Contribution Type Rate (% of Gross Salary)
Pension Insurance 14.00%
Unemployment Insurance 1.00%
Sickness and Maternity Insurance 1.47%
Disability Insurance 3.10%
Occupational Accident Insurance ~0.80%
Parental Insurance 1.00%
Health Insurance 2.02%

The rate for Occupational Accident Insurance varies depending on the risk level associated with the industry. The State Revenue Service assigns a risk category to each employer.

Personal Income Tax in Latvia

Latvia applies a progressive Personal Income Tax (PIT) system, with rates depending on the employee’s annual income:

Annual Income Bracket PIT Rate
Up to 105,300 25.5%
More than 105,300 33%

PIT is calculated after deducting the employee’s mandatory social security contributions (10.5%) and applicable non-taxable minimums or allowances (if any). This means the employee’s taxable income is reduced before PIT is applied.

It is important to note that in Latvia, and as is the case in most countries, PIT contributions vary for tax residents and non-residents. While tax residents are taxed based on progressive rates, non-residents are generally taxed at a flat 20%. Non-residents are also only taxed on income earned within Latvia, unlike residents who are taxed on global income earnings.

That said, only tax residents enjoy the perks of tax deductions. While tax residents are taxed on worldwide income, non-residents are taxed on only income earned within Latvia. That said, tax residents get to enjoy perks like tax deductions.

Here are some of the allowable tax deductions residents enjoy:

  • Non-Taxable minimum up to EUR 500/month, depending on income level.
  • Dependent Allowance up to EUR 250 per month for each dependent.
  • Education and medical expenses up to EUR 600/year for tuition, medical bills, or health insurance premiums.

So, what makes a person a tax resident, anyway? An individual is considered a Latvian tax resident if any one of the following applies:

  1. They reside in Latvia for more than 183 days in any 12-month period starting or ending in the tax year.
  2. They are a Latvian citizen employed abroad by the Latvian government (e.g., embassies, military, etc.).
  3. They have a permanent home available to them in Latvia.

If, for example, a tax resident employee earns EUR 3,000 monthly, here’s what a breakdown of his taxes would look like. For this example, we’re not considering any of the aforementioned deductions.

Calculation Step Amount
Annual Gross Salary EUR 3,000 × 12 = EUR 36,000
Employee Social Insurance Contributions (10.5%) EUR 315 × 12 = EUR 3,780
Taxable Income EUR 36,000 − EUR 3,780 = EUR 32,220
PIT on EUR 32,220 @ 25.5% EUR 8,216.10
Total Personal Income Tax EUR 8,216.10 annually (≈ EUR 684.68 per month)

Use our Payroll Calculator Instead

Now, imagine manually doing this for 10 or 50 employees. The smartest of us would make a costly mistake sooner or later. It’s why you should use our Remote People Global Payroll Calculator.

It’s free, always up-to-date, and super easy to use. Simply select the country (Latvia), input the gross salary, choose the employee type (local or expat), and let the system handle the rest. 

Employer and Employee Responsibilities

Employers in Latvia shoulder a wide range of legal and administrative obligations when it comes to payroll. They are required to:

  • Calculate and withhold PIT from employees’ gross wages each month before disbursing salaries.
  • Withhold Employees’ social contributions and remit them to the VID
  • Pay Employer 23.59% Contributions of gross salary
  • Submit detailed payroll and tax reports to the VID via the Electronic Declaration System (EDS) by the 17th of the following month.
  • Register Employees with the VID before employment begins

Meanwhile, employees are required under Latvian law to:

  • Provide Correct Personal Information
  • Declare Multiple Sources of Income
  • File a voluntary annual tax return to claim deductions (e.g., for education, dependents, or medical expenses) or recover overpaid taxes.
  • Inform Employers of Relevant Changes.

Double Taxation Agreements (DTAs) in Latvia

Latvia has signed over 60 Double Taxation Agreements (DTAs) with countries across Europe, Asia, and beyond. These agreements are designed to prevent individuals and companies from being taxed twice on the same income.

Key treaty partners include Germany, France, the United Kingdom, the United States, Canada, China, Russia, Nigeria, Singapore, and the UAE.

DTAs usually cover tax residency rules, reduced withholding tax rates on dividends, interest, and royalties; and relief from double taxation via tax exemption and foreign tax credits.

Industry-Specific Tax Rates & Incentives in Latvia

Latvia offers several tax reliefs and incentives to attract investments and support specific sectors. Below are notable examples:

  • Special Economic Zones (SEZs) & Free Ports: Companies operating in SEZs (like Rezekne, Liepaja, and Latgale) or free ports enjoy up to 80% corporate income and real estate tax relief.
  • Research & Development (R&D) Incentives: Eligible R&D expenses can be deducted at triple the amount for corporate income tax purposes. They also enjoy reduced employer social security contribution rates.
  • Start-Up Law Benefits: Qualifying start-ups may receive state aid covering a flat social tax instead of the standard employer contribution, and a PIT exemption for eligible employees.
  • Companies in priority sectors (like IT, biotech, and advanced manufacturing) may access EU-funded grants or co-financing schemes through the Latvian Investment and Development Agency (LIAA).

Common Payroll Errors & Compliance Tips in Latvia

Handling payroll in Latvia involves staying compliant with evolving tax laws, social contributions, and mandatory reporting standards. Here are some common pitfalls:

  • Misclassifying employees as independent contractors
  • Incorrect PIT or NSIC calculations. 
  • Missing submission deadlines

Misclassification can lead to back taxes, SSC liabilities, and legal disputes, while incorrect calculations and missed deadlines can attract fines of up to EUR 700 for each missed deadline or incorrect submission

Here are some useful compliance tips:

  • Always verify employee residency status for tax purposes
  • Stay current with changes to minimum wage and SSC thresholds.
  • Use government e-services for streamlined declaration submission and tax payments.
  • Automate payroll where possible to reduce human error and improve accuracy.

Simplify Payroll and Tax in Latvia with Remote People

Navigating payroll and tax compliance in Latvia can be daunting, from shifting residency rules to mandatory social contributions and evolving tax brackets. But it doesn’t have to be.

Remote People takes the complexity out of payroll so you can hire confidently. Whether you’re a local business expanding or a global company onboarding Latvian talent, our Global Payroll Calculator helps you compute taxes, net pay, and contributions in seconds.

Need to hire without setting up a local entity? Our Employer of Record (EOR) service handles contracts, payroll, and compliance end-to-end.

Focus on growing your business. Let Remote People handle the rest.