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Hiring in Latvia
Latvia, officially known as the Republic of Latvia, is a country in Europe. Riga is the capital and the largest city of Latvia. Euro is the official currency of Latvia. Latvia is a developed country with a high income economy. Some of the main sectors of Latvia’s economy are agriculture, transport, chemicals and woodworking. Latvia’s main trading partners are Lithuania, Estonia, Russia, Germany and Sweden. Global PEO or Employer of Record (EOR) play a pivotal role in providing companies with services related to hiring employees, and ensuring compliance with Latvia’s legal and tax regulations. Employment regulations including probation, holidays and termination are covered by the Labor Code. Labor Code stipulates that employees are entitle to 4 weeks of annual leave. Income tax is levied at a progressive rate of 20% to 31.4%. Global PEO’s or Employer of Record (EOR) facilitate companies by ensuring compliance with Latvia’s Labor Code and tax laws.
statutory labor requirements
Probation Period
- The maximum length of a probationary period is three months.
Annual Leave
- Employees are entitled to at least 4 weeks of paid annual leave.
Public Holidays
- New Year’s Day (1st January)
- Good Friday (10th April)
- Easter Monday (13th April)
- Labor Day (1st May)
- Declaration of Independence (4th May)
- Midsummer Eve (23rd June)
- St. John's Day (24th June)
- Latvian National Day (18th November)
- Christmas Day (25th December)
- 2nd day of Christmas (26th December)
- New Year's Eve (31st December)
Maternity Leave
- Female employees are generally entitled to 112 days of maternity leave: 56 before the birth and 56 after, although the employee may use all 112 days regardless of how many she used before the birth.
- Social insurance covers the employee’s wages during leave if she is insured.
Paternity Leave
- Fathers are generally entitled to 10 days of paternity leave to be taken with two months of the child’s birth.
Sick Leave
- Employees are generally eligible for 10 days of employer paid sick leave.
- The second are third days should be paid at least 75% of regular wages, and the 4th through 10th days at least 80%.
- The State Social Insurance Agency pays for sick leave from the 11th day through 26 weeks at 80% of the regular wages.
Work Hours
- In general, Latvians work 40 hours per week with 5, 8-hour days.
Overtime
- Work exceeding the daily working time of 8 hours is considered to be overtime.
- It is interpreted restrictively and, for instance, where the duration of working time is reduced by agreement, overtime is still computed only after 8 hours of work.
- The limit of allowed overtime hours is laid down in Section 136 (5) of the labor Law stipulating that overtime work may not exceed 48 hours within a four-week period and 200 hours within a calendar year.
Notice Period
- The minimum notice period to be provided by the employer is one month, unless the employment contract or collective bargaining agreement provides for a longer period.
Severance
- Employees are generally eligible for severance payment as follows:
-
- up to 5 years’ service: one month’s wages
- 5-10 years’ service: two month’s wages
- 10-20 years’ service: three month’s wages
- 20+ years’ service: four month’s wages
13th / 14th Month Pay
- No
- There is no statutory requirement to pay the 13th or the 14th month salary.
- Bonuses are generally given monthly and they are given to management level employees.
- Only a small percentage of employees receive the 13th month salary.
income tax
- Latvia has adopted a progressive PIT system from 1 January 2018. Unless the law provides for a different rate, the progressive rate is based on the level of annual income as follows:
- A rate of 20% applies to income up to EUR 20,004.
- Any portion of income between EUR 20,004 and EUR 62,800 attracts a rate of 23%.
- Any income over EUR 62,800 attracts a rate of 31.4%.
- PIT on dividends is 20%. However, where a company has already charged its profits to CIT, there will be no PIT to pay.
- This applies to Latvian companies, European Union (EU)/European Economic Area (EEA) companies, and others, except for companies from tax havens and MBT payers.
- To zero-rate dividends for PIT, evidence of PIT or CIT paid abroad should be presented.
- Before 31 December 2017, dividends attracted a 10% PIT. dividends were paid out of profits already charged to a 15% CIT, thus dividends were first charged to CIT and then to PIT.
- The current regime allows a two-year period of transition, during which dividends paid out of profits appearing on the balance sheet as at 31 December 2017 may be distributed at a 10% PIT (applicable for dividends calculated until 31 December 2019).
- In case the dividends from the profits accumulated till 31 December 2017 are distributed on 2020 and later, the PIT at a 20% rate is applicable.
- Other income from capital, including interest, also attracts a fixed PIT rate of 20%. No period of transition applies.
- From 1 January 2018, the rate on income from capital gains is 20%.
- As of 2019, the Latvian PIT Act defines cryptocurrency as a capital asset subject to the general capital gains tax rules. The only difference is the requirement to match capital gain with the capital loss from cryptocurrency to assess annual total gain or loss from the trading in cryptocurrency. Other capital assets should not be matched and can be set off against each other.
- Latvian tax resident recipients of royalties are subject to progressive PIT rates, while Latvian taxpayers need to withhold a fixed rate of 20% on resident's royalties. Non-residents attract a fixed rate of 23%.
|
Personal Income Tax Rate |
|
|
Income |
Tax Rate |
|
Up to EUR 20,004 |
20% |
|
Income between EUR 20,004 and EUR 62,800 |
23% |
|
Income over EUR 62,800 |
31.4% |
deductible expenses
Residents may deduct the following non-business expenses:
-
- Compulsory NSIC (employee part) paid on income subject to Latvian PIT. NSIC is payable in Latvia and EU/EEA/Organization for Economic Co-operation and Development (OECD) countries.
- Spending on education and medical services (including dental services and scheduled operations), donations to public benefit organizations, and donations to political parties of up to 50% of the person’s annual taxable income, capped at EUR 600 a year for each family member.
- Amounts paid by the individual during the year to an insurance company registered in Latvia or the EU/EEA of up to 10% of their total gross taxable income for the tax year are not subject to payroll taxes. The policy should mature in at least ten years.
- Contributions to private pension funds and endowment insurance at 10% of taxable income, capped at EUR 4,000.
A person planning to deduct expenses for completing their children’s interest-related programs should consider the following factors:
-
- These expenses do not apply to any income a micro-business employee and owner derives from the micro-business, any borrowing treated as income, any income from capital (other than capital gains), any income from property, seasonal farm workers’ income, or any business income for which so-called 'patent fees' are paid.
- These expenses are not deductible if covered out of funds received from public benefit organizations or as a gift.
- Residents and non-residents (who are residents of EU/EEA member states and earn at least 75% of their worldwide income in Latvia) can deduct these expenses from their total taxable income, except for income from capital and capital gains.
- If a person is registered as a sole trader, business expenses are deductible, provided that appropriate supporting documents are in place and the expenses do not exceed 80% of the individual’s total operating revenue.
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Personal Deductible Expenses |
|
immigration
- A residence permit is required if a foreigner wants to reside in Latvia for a time period exceeding 90 days within a half year, beginning from the date of first entry.
- EU citizens are not required to obtain a residence permit.
- However, they must register and obtain a residence card or permanent residence card (with the exception of an EU citizen who works in Latvia but travels back to his or her residence country on a weekly basis).
- Residency permit for non-EU citizens.
- Non-EU citizens can obtain five-year residency permits in Latvia, which allow unrestricted travel within the territory of Schengen member states.
- An individual can apply for a residency permit if he or she makes the following investments in Latvia and complies with certain criteria provided by law:
-
- Investment in a company
- Purchase of real estate
- Investing in a bank’s subordinate capital (deposit)
- EU Blue Card
-
- To live and work in Latvia as a highly-qualified worker you may apply for an EU Blue Card.
- To qualify for the Blue Card, you must hold a university or college diploma from an educational programme that lasted three years or more.
|
Type of Visa/Permit |
Documentation |
Validity |
Eligibility |
|
Residence Permit |
|
5 years |
|
|
EU Blue Card |
|
5 years |
|
value added tax
- Latvian VAT rules are based on regulations drawn up by the EU, of which Latvia was a founding member.
- The Standard Latvian VAT rate is currently 21%, with a reduced rate of 12%. As an EU member, Latvia is obliged to implement the EU’s VAT Directives which provide guidance on VAT.
- Where there is a conflict, the European Directive takes precedence.
|
VAT Rates |
|
|
Standard rate |
21% |
|
Reduced rate |
12% |
withholding tax
Dividends
- Latvia does not levy withholding tax on dividends, except for dividends payable to persons’ resident in black-list jurisdiction, which are subject to a 20% withholding tax
Interest
- Latvia does not levy withholding tax on interest, except for interest payable to persons’ resident in black-list jurisdiction, which is subject to a 20% withholding tax.
Royalties
- Latvia does not levy withholding tax on royalties, except for royalties’ payable to persons’ resident in black-list jurisdictions, which are subject to a 20% withholding tax
Technical service fees
- Latvia does not levy withholding tax on technical service fees
|
WHT |
|
|
Interest |
20% |
|
Dividends |
20% |
|
Royalties |
20% |
|
Technical Service Fee |
N/A |
termination
- A contract of employment can be terminated either at the initiative of an employer or an employee.
- A contract of employment may also be terminated by expiry of a fixed-term contract, by mutual consent of employer and employee, or pursuant to the request of a third party.
- Pursuant to Section 101 of the labor Law, an employer has the right to give a written notice of termination of a contract of employment only on the basis of circumstances related to the conduct of the employee, his or her abilities, or of economic, organizational, technological measures or measures of a similar nature
- Prior notice is required to terminate a contract of employment concluded for an indefinite period as well as a fixed-term contract where an employer intends to terminate such contract before the expiry of the term.
- An employer, when giving a notice of termination of a contract of employment, shall comply with different time periods, depending on the grounds of dismissal.
- The notice of dismissal will take effect either immediately, or 10 days after the notice, or one month after the notice, accordingly to Sections 103 and 101 of the labor Law
- In all cases when giving a notice of termination, an employer has a duty to notify an employee in writing those circumstances that serve a basis for the notice of termination of the contract of employment.
- The employer has to pay severance pay in accordance with the law
statutory benefits
- These are benefits as postulated by law
- These include probationary period, annual leave, public holidays, maternity leave, paternity leave, sick leave, notice period, and severance pay
- Statutory benefits also include social security benefits
|
Statutory Benefits |
|
Probationary Period |
|
Public Holidays |
|
Annual Leave |
|
Sick Leave |
|
Maternity Leave |
|
Paternity Leave |
|
Notice Period |
|
Severance Pay |
|
Social Security Benefits |
payments and invoicing
- The tax year in Latvia is the calendar year.
- Employers must withhold taxes and social security contributions on personal salary and then remit the withheld amounts to the fiscal authorities monthly on the same day the salary is paid.
- Individual taxpayers must submit an annual tax return, but they may authorize a certified auditor to submit the return on their behalf.
- For income received after 1 January 2018, in general, the tax return must be filed during the period of 1 March to 1 June of the year following the tax year.
- However, if income for the tax year exceeds EUR62,800, the tax return must be filed during the period of 1 April to 1 July of the year following the tax year.
- A nonresident who permanently leaves Latvia before year-end must file an annual tax declaration within 30 days after he or she stops receiving income.
- If the tax payable exceeds EUR640, the tax may be paid in three equal installments.
- These installments are due on 16 June, 16 July and 16 August of the year following the tax year if the filing deadline is 1 June.
- If the filing deadline is 1 July, the installments must be paid by 16 July, 16 August and 16 September.
ease of doing business
- The ease of doing business index is an index created by Simeon Djankov, an economist at the Central and Eastern Europe sector of the World Bank Group.
- Higher rankings (a low numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights.
- According to the World Bank Latvia ranked 19th in the World in 2019 in terms of ease of doing business.
employee accruals
| Christmas Bonus% |
0% |
| Christmas Bonus Over Vacations % |
0% |
| Severance per Year % |
Employees are entitled to severance pay equal to one month's pay after completion of one year of employment (8.33% of annual salary) |
| Vacations % |
Employees are normally entitled to 20 days of annual holiday leave each year (5.49% of annual salary)
|
|
Notice %
|
Employees are entitled to 30 days of notice period for one year of service or more (8.24%). This does not apply to employees who are members of a trade union.
|
|
Christmas Bonus Over Notifications%
|
0%
|
|
Vacations Plus%
|
0%
|
|
Total percentage of Salary (yearly)
|
The total employment accruals as a percentage of salary per anum are equal to 22.15%
|
employer accruals
Additional information (Country Accruals)
| Social security | 24.09% |
| Vacations | 8.77% |
| Description | There is an income cap for social security contributions of EUR62,800. Employment income above EUR62,800 is subject to solidarity tax. The solidarity tax is paid on monthly basis in the same manner and at the same rate as for the social security contributions. The solidarity tax rate is 25.5 percent. By 1 March of the year following the taxation year the solidarity tax will be recalculated by applying the 25.5 percent rate. The overpayment will be repaid to the employer by 1 September of the year following the taxation year. |
Employer Accruals Additional information
| Employment Accruals | ||
| Annual Leave | Employees are entitled to at least 4 weeks of paid annual leave. | This equals 7.69% (4/52 weeks) of annual income |
| Maternity Leave | Female employees are generally entitled to 112 days of maternity leave: 56 before the birth and 56 after, although the employee may use all 112 days regardless of how many she used before the birth. | This equals 30.68% (112/365 days) of annual income |
| Paternity Leave | Fathers are generally entitled to 10 days of paternity leave to be taken with two months of the child’s birth. | This equals 2.7% (10/365 days) of annual income |
| Sick Leave | Employees are generally eligible for 10 days of employer paid sick leave. | This equals 2.7% (10/365 days) of annual income |
| Overtime | The limit of allowed overtime hours is laid down in Section 136 (5) of the labor Law stipulating that overtime work may not exceed 48 hours within a four-week period and 200 hours within a calendar year | Normal Hourly wage is around 8 LVL. Overtime is paid at an additional 4 LVL. |
| Severance | Employees are generally eligible for severance payment as follows: • up to 5 years’ service: one month’s wages • 5-10 years’ service: two month’s wages • 10-20 years’ service: three month’s wages • 20+ years’ service: four month’s wages |
This equals 8.33% (1/12 months) of annual income |
| Social Security | Employers and employees make social security contributions on monthly salaries at general rates of 24.09% and 11%, respectively. | This equals 24.09% of annual income |
