Latvia has become a top destination for entrepreneurs seeking a competitive tax environment within the European Union. But what does Latvian tax law actually say? What are the rates, the obligations, the pitfalls to avoid? This guide provides a complete overview of taxation in Latvia in 2026.
Corporate tax: the Estonian model applied in Latvia
Since 2018, Latvia has applied a unique corporate tax model in Europe. The principle is simple: profits reinvested in the company are not taxed. Tax is only triggered when profits are distributed (dividends, non-business-related expenses, etc.).
- Rate on reinvested profits: 0% — as long as profits remain in the company, no tax is due.
- Rate on distributed profits: 20/80, i.e. 25% effective. The nominal rate is 20% applied on a base of 80%, resulting in an effective rate of 25% on the gross amount distributed.
In practice, if your SIA generates €100,000 in profits and you reinvest them entirely, you pay zero corporate tax. If you distribute €50,000 as dividends, the tax will be €12,500.
This model is particularly advantageous for entrepreneurs in a growth phase who want to reinvest heavily in their business.
VAT in Latvia
The standard VAT rate in Latvia is 21%, comparable to rates in most EU countries. There are also reduced rates:
- 12%: for certain food products, passenger transport, books and press.
- 5%: for fresh fruit and vegetables produced in Latvia.
- 0%: for exports and intra-community supplies (subject to conditions).
VAT registration is mandatory once turnover exceeds €40,000 over a rolling 12-month period. Below this threshold, voluntary registration is possible and often recommended for B2B activities.
Social contributions and minimum wage
Social contributions in Latvia are split between employer and employee. The overall rate is 34.09%, broken down as follows:
- Employer: 23.59% of gross salary.
- Employee: 10.50% of gross salary.
The minimum wage in Latvia is €700 gross per month in 2026. This is the legal minimum for full-time employment. For a SIA director who pays themselves a salary, this is often the reference amount used to optimise social contributions while complying with regulations.
Impact on director's remuneration
An entrepreneur paying themselves the minimum wage will pay approximately €165 in employer contributions per month and €73 in employee contributions. The total employer cost therefore comes to approximately €865 per month, well below what French social charges would cost on an equivalent salary.
The France-Latvia tax treaty
France and Latvia signed a double taxation treaty in 1997, which entered into force in 2000. This treaty is essential for entrepreneurs because it:
- Eliminates the risk of double taxation on business income.
- Clearly defines the rules of tax residency.
- Provides reduced withholding tax rates on dividends, interest and royalties.
- Enables automatic exchange of tax information between the two countries.
In practice, if you are a tax resident of Latvia (declared address, deklareta dzivesvieta, in Latvia, presence of more than 183 days per year, or centre of vital interests in Latvia), your Latvian-source income is taxed in Latvia. The declared address is the most common criterion for entrepreneurs: it establishes tax residency without requiring six months of physical presence. Dividends paid from Latvia to France benefit from a reduced withholding tax rate under the treaty.
The micro-enterprise regime in Latvia
Latvia offers a simplified regime for micro-enterprises, designed for small businesses. This regime allows payment of a single tax of 25% on turnover, which covers corporate tax and social contributions. However, this regime has limitations:
- Maximum turnover: €40,000 per year.
- Maximum number of employees: 5.
- The director must be an individual.
For most entrepreneurs setting up in Latvia with an ambitious project, the standard SIA regime remains far more advantageous than the micro-enterprise regime, particularly thanks to the 0% corporate tax on reinvested profits.
Tax comparison: France vs Latvia
Let's take the concrete example of an entrepreneur who generates €150,000 in net profit and wishes to pay themselves €50,000 in remuneration while keeping the rest in the company.
In France
Corporate tax at 25% on profit: €37,500. Social contributions on remuneration (approximately 45%): €22,500. Flat tax on dividends (30%) applicable on any distribution. Estimated total tax burden: €60,000 to €70,000.
In Latvia
Corporate tax on reinvested profits (€100,000): €0. Social contributions on salary (34.09% of €50,000): €17,045. No additional flat tax on undistributed dividends. Estimated total tax burden: €17,000 to €20,000.
In this example, the tax savings in Latvia amount to between €40,000 and €50,000 per year. Over 5 years, that represents €200,000 to €250,000 in additional capital available to grow your business.
Conclusion
Latvia offers an exceptionally competitive tax framework for entrepreneurs, with one major advantage: 0% corporate tax on reinvested profits. Combined with the bilateral tax treaty, EU membership and moderate social contributions, this regime is one of the best options for legal tax optimisation in Europe.
To fully benefit from these advantages, it is essential to properly structure your setup: tax residency, registered office, compliant accounting. Discover our tax optimisation support to implement the strategy best suited to your situation.