Latvia taxes residents on worldwide income and non-residents on Latvia-source income only. Latvia operates a self-assessment system for corporate tax, with a notable structural feature: Latvia's corporate tax generally applies only on profit distribution (deferred taxation model) rather than on profit as earned.
The Latvian tax year is the calendar year. The individual filing deadline is generally 1 June of the following year; corporate tax is due monthly on actual distributions given Latvia's distribution-based system.
Latvia's headline corporate income tax (CIT) rate is 20% (on distributed profits only).
The headline personal income tax (PIT) rate is 36%.
The standard VAT/GST (or equivalent consumption tax) rate is 21%.
A person is a Latvian tax resident if they have a registered (declared) place of residence in Latvia or are present in Latvia for 183 days or more during any 12-month period (using the OECD presence test - arrival/departure days, weekends, and holidays all count; only sub-24-hour transit between two foreign countries is excluded). Center of vital interests can also establish residency. Certain Latvian citizens employed abroad by the Latvian government are automatically resident. Residents are taxed on worldwide income; non-residents only on Latvia-source income. Note: since a 2018 reform, Latvia taxes corporate profits only upon distribution (all undistributed profits, active or passive, are CIT-exempt) - a structure similar to Estonia's, materially affecting how the 20% CIT rate should be read.
A non-Latvian entity has a Latvia permanent establishment through a fixed place of business or a dependent agent habitually concluding contracts in Latvia on the entity's behalf, following the OECD Model Treaty definition as applied under Latvian domestic law and any applicable tax treaty.
Latvia has separate CFC regimes for companies and individuals. For corporate taxpayers (per the CIT Act), a Latvian company owning more than 50% of a foreign company's shares, voting rights, or profit entitlement must pay CIT proportional to that share where the foreign entity is a non-genuine arrangement established for a CIT advantage with no substantial business carried on. For individuals, a CFC regime has applied since January 1, 2013: income from substantial participation (broadly 25%+ capital/voting rights or effective control) in a CFC located in a tax haven is taxed at progressive PIT rates, with exemptions for holdings through EU/EEA-listed companies.
Latvia applies a thin capitalization rule under which excess interest payments are treated as a deemed profit distribution subject to 20% CIT. Separately, Latvia has fully transposed the EU ATAD interest limitation rule: where annual interest expense on borrowings/finance leases from non-credit-institution lenders (outside Latvia, the EEA, or a DTT-partner country) exceeds EUR 3 million, the excess is restricted.
Latvia does not use an elective check-the-box classification system; entity classification generally follows the entity's actual legal characteristics. Latvia has implemented ATAD2-aligned anti-hybrid rules denying deductions for payments producing a hybrid mismatch outcome.
No foreign bank account or foreign financial asset reporting regime exists requiring residents to separately disclose foreign accounts; foreign income is reported through the standard annual tax return.
Latvia does not provide a formal participation exemption regime, but its distribution-based corporate tax system (see Tax System above) achieves a similar practical outcome: dividends received by a Latvian company are generally not taxed until further redistributed, so profits can be reinvested indefinitely without triggering Latvian corporate tax.
Latvia has a real foreign tax credit regime available to both individuals and companies for foreign tax paid on foreign-source income also taxed in Latvia, capped at the Latvian tax otherwise due on that income.
Latvia maintains 63 double tax treaties in force, per the Latvian Ministry of Finance's official list (updated March 2026), covering all EU member states, the US, Canada, Switzerland, and Japan. Two further treaties (Andorra, Pakistan) are signed but not yet in force, and negotiations with Australia remain ongoing.