On 4 December 2024, the Saeima (Latvian Parliament) approved amendments to the Law on Personal Income Tax. The aim of these amendments is to improve labour competitiveness in the Baltic region, reduce the labour tax burden for low and medium-income earners, and simplify the application of personal income tax.
The amendments, effective from 1 January 2025, introduce the following key changes:
These personal income tax rates will apply to all taxpayer income, including employment income, self-employment income, intellectual property income paid by collective management organizations, and others, unless otherwise specified by law. At the same time, a fixed rate remains for capital income, including capital gains, employment income of professional athletes, and other income types explicitly specified by law.
For employment income, regardless of the number of income sources, a 25.5% rate will apply at the time of payment. The same rate will also apply to temporary disability benefits and pensions paid by the State Social Insurance Agency (VSAA).
Unified Personal Income Tax Rates for Other Types of Income
Income currently taxed at 20% or 23% will be taxed at 25.5%. This applies to:
To ensure legal certainty, the transition rules are amended to provide that income from transactions involving capital assets initiated but not completed by 31 December 2024, will be taxed at a 20% rate in 2025, 2026, and 2027, provided the taxpayer submits the "Information on transactions started but not completed within a single tax year" annex to the capital gains declaration.
3% Additional Personal Income Tax Rate for Income Above €200,000 per Year
Income exceeding €200,000 per year will be subject to an additional 3% personal income tax rate when filing the annual income tax declaration. The taxable base for the additional rate includes employment income, capital gains, and other capital income (e.g., dividends, interest, income from investment accounts, etc.), business income, and intellectual property income, including tax-exempt dividends and liquidation quotas.
Income excluded from the additional personal income tax base includes other tax-exempt income such as state benefits, gifts, and income from the sale of real estate, provided it meets the criteria for exemption under the Law on Personal Income Tax.
Basic Personal Allowance
The differentiated personal allowance will be replaced by a unified (fixed) allowance for all employees who have submitted their tax book to the employer, regardless of the gross income. In 2025, this will be €510 per month, rising to €550 per month in 2026, and €570 per month in 2027.
Pensioners’ Personal Allowance
The pensioner’s personal allowance will increase from €6,000 per year (or €500 per month) to €12,000 per year (or €1,000 per month). Working pensioners whose pension is less than €1,000 per month can choose to divide the allowance between their pension and salary (e.g., €500 for salary and €500 for pension).
Personal Income Tax Benefits for Employers’ Payments under Collective Agreements
The list of benefits for payments made by employers under collective agreements will be expanded from only employee meals and medical expenses to moving, housing, and transportation expenses. The total annual amount for these employee expenses (in aggregate) will be capped at €700 multiplied by the average number of employees, as defined under the annual financial statements and consolidated financial statement laws.
Employer Childbirth and Funeral Benefits, Employer Gifts
The exemptions for childbirth benefits and funeral benefits will increase from €250 to €500, while the exemption for employer-provided gifts will rise from €15 to €100 per tax year.
Personal Income Tax Exemption for Prizes from Competitions and Contests
A unified exemption limit of €1,500 per year will apply to prizes (both monetary and material) received from competitions and contests.
Exemption for Prizes from National Lotteries
Prizes won in national lotteries, such as “Sporta loterija,” “Sporto visi,” and “Senatnes loterija”, will be exempt from personal income tax.
Removal of Criteria for Agricultural Land Sellers' Personal Income Tax Exemption
The law will remove the criteria for applying tax exemptions to income from the sale of agricultural land, leaving the criteria applicable only to the buyer.
Personal Income Tax Exemption for State Support Payments to Agriculture
From 2025 to 2029, sums received as state or EU support for agriculture and rural development, and other similar support payments for biodiversity conservation from national and EU funds (including the “Natura 2000” project), will not be included in taxable income.
Extension of the Exemption for Royalties Recipients
The period for royalties recipients not needing to register as business operators will be extended until 31 December 2027. During this time, the income payer will withhold both personal income tax and social security contributions at a rate of 25%.
These changes aim to simplify the tax system and reduce the tax burden on middle- and low-income earners while ensuring competitiveness in the region and supporting the agricultural sector.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
