Corporate Income Tax in Latvia: When a SIA Pays 20% and When It Pays Nothing

Ask three advisers what the corporate tax rate in Latvia is and you may hear three answers: 0%, 20% and 25%. All three are correct, which is why the question confuses founders more than it should. Latvia taxes company profit only when it leaves the company, so the rate on reinvested profit is nil. The statutory rate at distribution is 20%. And because that 20% is calculated on the gross amount, a shareholder who wants €80 in hand costs the company €100.

This guide is for foreign owners of a Latvian SIA and for founders weighing the Baltic states against each other. It explains when corporate income tax in Latvia falls due, what the law treats as a distribution, how the alternative regime introduced in 2026 works and what the company files each month. We do not register Latvian companies, but the Latvian tax follows the same distribution model we work with every day, so the questions below are ones we answer often. The figures are current as of October 2026.

When Corporate Income Tax Is Paid in Latvia

Corporate income tax (uzņēmumu ienākuma nodoklis, UIN, usually shortened to CIT in English) is governed by the Corporate Income Tax Law and administered by the State Revenue Service (Valsts ieņēmumu dienests, VID). The current law came into force on 1 January 2018 and replaced the classic annual tax on profit with a tax on distributions. It applies to the SIA and the AS, to partnerships and cooperatives, and to the Latvian permanent establishments of foreign companies.

The practical consequence is that a Latvian company has no annual taxable profit in the usual sense. There is no tax depreciation to calculate, no loss to carry forward and no annual tax computation built on the financial statements. The tax base is formed only by money or value that leaves the company for the benefit of its owners, or that is spent on something the law does not accept as a business purpose. A profitable company that pays its staff, buys what it needs and keeps the rest in the bank has a corporate income tax bill of zero for as long as it does so.

This is why Latvia is so often described as having 0% corporate tax. The description is true only until the first dividend.

The Latvian Corporate Tax Rate: 20% of the Gross, 25% of What the Owner Receives

The rate is 20%, applied to a tax base that the law first divides by 0.8. In plain terms, the net amount paid to the shareholder is grossed up and the tax is charged on the grossed-up figure. A dividend of €40,000 becomes a tax base of €50,000 and attracts €10,000 of tax, so the company spends €50,000 to put €40,000 in the owner’s account. Measured against the net dividend, the tax is 25%; measured against the gross, it is 20%. The tax is paid by the company, not withheld from the shareholder.

The table shows what happens to €50,000 of profit under the three options a Latvian company has.

Under the general regime the corporate income tax is the only tax on dividends in Latvia. A shareholder who is a Latvian tax resident pays no personal income tax on them, and Latvia withholds nothing from a dividend paid to a non-resident unless the recipient is in a listed low-tax jurisdiction. What the owner pays at home is a separate question, and it is the reason the alternative regime exists.

What Counts as Distributed Profit

The tax base has two parts: profit the company actually distributes and profit the law deems to have been distributed. The second part is where most of the surprises are.

Dividends and Deemed Dividends

Distributed profit means dividends, including interim dividends paid during the year. The law adds two payments it treats in the same way: a reduction of share capital that returns earlier capitalised profit to the shareholders, and the liquidation quota paid out when the company is wound up. The tax point is the shareholders’ decision to distribute, not the bank transfer. A dividend resolved in March is declared in the March return even if the money is paid in June.

Some profit can be distributed without tax. Dividends the company has itself received from another company that paid corporate income tax, in Latvia or abroad, pass through to the shareholders without a second charge. The same applies to the gain on shares the company has held for at least 36 months. Together these two rules are what make a Latvian holding company workable.

Conditionally Distributed Profit

The law lists the expenses and transactions that are taxed as if the money had been paid out as a dividend. Latvian accountants call this conditionally distributed profit (nosacīti sadalītā peļņa). Each item is grossed up and taxed at 20%, whether or not the company has any profit at all. Non-business expenses go into the return for the month in which they are booked. Loans to related parties, excess interest, bad debts and transfer pricing adjustments are declared once a year, in the return for the last month of the financial year.

The loan item deserves a word more, because it is where a Latvian SIA differs most from what owners expect. A loan to the shareholder that fits none of the exceptions is treated as a distribution: the amount still outstanding goes into the year-end return, grossed up and taxed at 20%. If the loan is repaid later, the company reduces its tax base by the repaid amount, so the tax is recovered against a later distribution rather than refunded. In the meantime the company has financed the state. The owner who treats the company account as a current account, and the accountant who books the withdrawals as a loan, produce a tax bill of 25% of every euro still outstanding at the year end.

The representation limit works the other way round from what founders assume. Its 5% allowance is calculated on the gross wages of the previous year on which social contributions were paid. A new company, or a company whose owner takes dividends rather than a salary, has a payroll of zero and therefore an allowance of zero. Every client dinner in that company is a non-business expense from the first euro.

The Alternative CIT Regime From 2026: 15% Plus 6% Personal Income Tax

From 1 January 2026 a company whose shareholders are all private individuals may apply an alternative rate to its dividends under an amendment to the Corporate Income Tax Law. The company pays corporate income tax at 15% of the gross amount, with the base divided by 0.85 instead of 0.8, and withholds 6% personal income tax from the dividend it pays. Only dividends are covered; capital reductions, liquidation quotas and deemed distributions stay at 20%. The choice is made for each dividend, not once and for all, so a company can use the alternative rate for one distribution and the general rate for the next. If one of the shareholders is itself a company, the regime is unavailable, whatever the size of that stake.

The reason for the change is a problem foreign owners have had with the Latvian corporate tax since 2018. Corporate income tax paid by the company is not a tax paid by the shareholder, so most countries refuse to credit it against the shareholder’s own income tax on the dividend. A German or Spanish resident who received a Latvian dividend paid 20% in Latvia and then, in most cases, the full home rate on top. A withholding tax on the shareholder, by contrast, is creditable under every double tax treaty. Six per cent is a small amount, but it is six per cent that comes off the home tax bill, and the split gives Latvia the two-layer structure that foreign tax advisers know how to handle.

In Latvia the two regimes cost almost the same. The difference shows up abroad, and only for owners whose home country taxes foreign dividends and gives credit for withholding tax. A Latvian resident gains nothing from switching, and neither does an owner in a country that exempts foreign dividends.

Declaring and Paying Corporate Income Tax in Latvia

The tax period is a calendar month, and the corporate income tax return is filed in VID’s electronic declaration system (EDS). A month with nothing to declare needs no return, with one exception. The return for the last month of the financial year is filed by every company, because the year’s figures and the items declared once a year are confirmed in it.

The minimum tax catches dormant companies and companies run by an owner who takes neither salary nor dividend. It is a small amount, but it means a Latvian SIA is never entirely free of corporate income tax.

For a foreign owner the practical difficulty is not the tax but the system around it. EDS, the return forms and VID’s correspondence are in Latvian, and a board member without a Latvian or EU-qualified e-signature cannot file at all. Almost every foreign-owned SIA therefore has a Latvian accountant who holds the EDS access and files on the company’s behalf. The authority on the other side is not known for flexibility either: in our experience, VID is slow to respond and strict in how it reads the rules. A question about a borderline expense or a loan can take weeks to settle. The practical advice is to decide how each payment will be classified before the money moves, not after.

Tax Planning Help From Eesti Firma

We do not set up companies in Latvia, and if your business is rooted there, a Latvian accountant will serve you best for the monthly returns. Where we can help is before that decision. If what attracts you to Latvia is the tax model, the same model exists in Estonia with a company you can register and run entirely online, and our accountants take care of the returns. Founders choosing between the two countries will find the rest of the picture in our comparison of Estonia and Latvia, and Latvian residents weighing an Estonian company in our guide to an Estonian company for Latvian residents.

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