International taxation determines the tax charged on income earned by a taxable person or business according to the tax laws of different countries. Tax systems vary from region to region with no general rules. These differences allow for double taxation when the same income is subject to tax in several countries and no taxation when an income is not levied. An income tax system imposes a tax on locally-made income only or global income. Usually, income made in a foreign country receives tax reductions such as foreign credits for taxes paid in a country. The taxation system is governed by Latvian legislation and the requirements stated by the EU.  The diversity of the system of tax rates, relief, and allowances guides taxpayers to choose the right sector for their occupation and management of funds. With the lowest and most effective tax rates in the EU, several areas of trade business offer individual tax privileges such as Liepāja and Rēzekne. 

If you are interested in knowing about the taxes in the country or simply interested in learning more about the taxation system, this article provides information on international taxation and the different type of taxes. 

Taxes in Latvia

Tax principles are governed by the Law on Taxes and Fees. They are usually administered by the SRS. There are two classes of tax: direct and indirect. Direct taxes are charged on taxable income earned by legal persons and corporate bodies. Indirect taxes are charged on goods and services sold in the country. 

Corporate income tax

This is imposed on the taxable income earned by a taxpayer during a taxation period. Adjustments are done so that income is higher than expenses on which tax is not charged. People eligible to pay this tax include local companies operating within the country, organizations funded by the state, foreign companies, business entities, etc. 

Personal income tax

It is paid by self-employed individuals registered as taxpayers. The rates vary from 20 percent to 31.4 percent based on income. Although, it is not charged on all income. 

Social insurance contributions

This mandatory payment is made to a budgetary account which entitles an insured person to social insurance services. The social tax increases the social insurance budget of a state. The standard rate is 35.09%, of which an employer pays 24.09% and the employee 11%. 

Property tax

Every property attracts a tax with a standard rate of 1.5% of the cadastral value of a non-residential property. This used to be a compulsory payment levied on the owners of the land. For residential real estate, the rate depends on the value of the property. 

Value Added Tax (VAT)

As a consumption tax imposed on goods and services bought and sold for use or consumption, this is included in the price of a good or service paid by a consumer. The basic rate is 21%, but reduced VAT rates are varying from 12% to 5% to 0%, depending on the kind of good or service. It is an indirect type of tax. 

Excise duty

Excise duty also known as selective consumption tax is imposed on certain types of produced or imported consumer goods and paid by legal persons. Excise duty was introduced to limit the consumption of goods that can be harmful to human health. It is calculated as EUR per one item of the product or as a percentage based on the product’s price.

Customs duty

Customs duties are charged on goods transported across the borders of the country. The government imposes import duty and export duty on other payments within the customs policy of the republic. The customs duty is added to the cost price of every product. 

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