Taxation and Social Security

Working in Europe | Taxation/salaries | Latvia

        Taxation

                Mandatory State Social Insurance and Contributions

                Value Added Tax

        Social Security

        Pensions

        Health Care System

        Institutions

 

Taxation

[1.] According to the law taxpayers are divided in: residents and non – residents. Latvian residents pay a tax on income earned in Latvia and abroad. Non – residents pay tax in Latvia only on income earned in Latvia.

[2.] A natural person is a resident if:

  1. the place of permanent residence for such person is Latvia; or
  2. such person is present in Latvia for 183 days or longer during any 12 month period which begins or ends in a taxation year; or
  3. person is a citizen of Latvia, employed abroad by the Government of the Republic of Latvia.

[3.] The provisions of the tax conventions regarding double taxation avoidance shall be taken into account to determine the taxable income of non-residents. The full list of the tax conventions, binding to Latvia, is available on the portal of the Ministry of Finance (in Latvian!).

[4.] Personal Income Tax. The rate of Personal Income Tax to be paid from the annual taxable income shall be 23%. From January 1, 2018 a progressive personal income tax system will be introduced in Latvia. According to the progressive personal income tax system the tax rates will be:

  1. income up to EUR 20.000 per year will be subject to a 20 % rate;
  2. income from (it’s difference) EUR 20.000 to 55.000 per year will be subject to a rate of 23%,
  3. income exceeding EUR 55.000 per year will be subject to a rate of 31.4%.

The Personal Income Tax shall be paid from:

  1. employment income;
  2. income from professional activities;
  3. payment for intellectual property (author fees (royalty) for the creation of works of science etc.).

The employer is responsible for withholding personal tax and transferring it to state budget.

 

Mandatory State Social Insurance and Contributions

[1.] A Mandatory State Social Insurance Contributions is a payment, which gives the right to a socially insured person to receive social insurance services:

  • state pension insurance;
  • social insurance in case of unemployment;
  • social insurance in respect of accidents at work and occupational diseases;
  • invalidity insurance;
  • maternity and sickness insurance;
  • parent’s insurance.

[2.] The object of mandatory contributions of an employer and employee shall be all calculated employment income from which personal income tax must be deducted. From January 1, 2018 the mandatory contribution rate shell be 35.09 % from which an employer pays 24.09% and employee pay 11%. Employees make statutory contributions through employers: employers shall deduct the contributions that employees must pay and transfer these amounts to a special budget account. From January 1, 2018 the mandatory contribution rate for author fees (royalty) should be 5%.

[3.] It is important to emphasize the application of the regulation No883/2004 of the European parliament and of the council of 29 April 2004 on the coordination of social security systems. There are cases where an employer has the need to temporarily (for a period of up to two years) send his employee to a specific job in another Member State. If the employee has been sent to work to another Member State for a period less than two years, the employee may continue to pay social security contributions in his own country. If an employee is employed in two or more Member States, the social security contributions will be paid in the Member State in which employee has closer links. In both situations, mentioned above, it is necessary to receive certificate A1 according to the Regulation.

 

Value Added Tax

[1.] The general rate for the value added tax in Latvia is 21%. Reduced rate for the value added tax is 12%. The rate of 12% is eligible for medication, medical equipment, newspapers, hotels, heat energy, etc. Since 1 January 2018 there is reduced rate 5% for the value added tax for fresh fruit, vegetables and berries.

[2.] The exception on the value added tax rate (0 % rate) is applied to international passenger traffic.

 

Social Security

[1.] The application of social security schemes (including pensions) to persons and their family members moving within the EU, European Economic Area and Switzerland is realized according to the principle of equal attitude and taking into account the requirements of EU directives, including the principles of aggregation of insurance and export of benefits.

[2.] The bilateral agreements in the sphere of social security (including pensions), up to the present moment, are concluded between Latvia and the United States (only regarding pensions), Canada and the Ukraine. Regarding the 3rd country persons from other countries and their family members, the legislation of Latvia will be applied concerning the social security.

[3.] Sickness benefits. Sickness benefit, on the basis of sick – leave A, is paid by employer until the 10th day of sickness. Employer pay sickness benefits from its own funds not less than 75% of the average earnings for the 2nd and 3rd day of illness and not less than 80% from the 4th day of sickness. On the basis of sick – leave B, sickness benefit shall be granted from the 11th day of sickness and is 80% from the average contribution wage. Sickness benefit shall be paid for not longer than 26 weeks if sickness is all the time, but on the basis of the State Medical Commission for the Assessment of Health Condition and Working Ability the opinion of the cost of sickness benefits may be temporarily extended to 52 weeks. Sickness benefit on the basis of sick – leave B, is paid from the funds of the State Social Insurance Agency. Sickness benefit for sick child care is granted and paid for the period of Social Security incapacity for work from the 1st to the 14th day and from the 15th to the 21st day, also in the cases when the child receives health care at the hospital.

[4.] Maternity Benefit is paid before and after childbirth and can be requested by expectant mothers who:

  1. are employed and receive a salary;
  2. are self-employed;
  3. are spouses of a self-employed person and have voluntarily joined the social insurance.

The grounds for awarding the benefit are: application for receiving the benefit and sickness leave B (work Disability Form B). An application and sickness leave (Work Disability Form B) you can submit in one of the divisions of the State Social Insurance Agency. The benefit will be paid in two parts – before and after childbirth. The first part is paid for 56 or 70 days of the maternity leave. The benefit for 70 calendar days is paid to expectant mothers who are undergoing medical supervision from their 12th week of pregnancy. The second part – for 56 or 70 calendar days – is paid after childbirth. The benefit for 70 days can be obtained, if: (a) the mother has had health problems during her pregnancy, childbirth or postpartum period; (b) two or more babies are born. The maximum period for which the maternity benefit can be obtained is 140 days. If an employment relationship is terminated due to winding-up of the workplace, the maternity benefit shall be granted, if the maternity leave has started not later than within 210 days after the termination of the employment relationship. The rates of the benefits: the benefit shall be granted in the amount of 80% of the average insurance contributions salary of the applicant. The average insurance contributions salary of an employee is calculated for a period of 12 calendar months ending two months before the month in which the pregnancy leave began. The benefit must be requested within 6 months from the first day of the maternity leave. The benefit shall be transferred to the account in a credit institution or postal payment system (PNS) indicated in your application.

[5.] Allowance for child care. People entitled to receive the allowance for child care: citizens of Latvia, non-citizens, foreigners and stateless persons permanently residing in Latvia, to whom a personal identity code has been granted. The allowance is not granted to people, who have received a temporary residence permit.

[6.] Unemployment Benefit. It is possible to receive this benefit, if:

  1. you have been granted the status of the unemployed (Support for Unemployed Persons and Persons Seeking Employment Law);
  2. Your total insurance (employment) period is not less than one year;
  3. You have made mandatory unemployment social insurance contributions for at least 12 months during the last 16 months prior to the acquisition of the unemployed status.

Unemployed status may be obtained at the State Employment Agency. An application for unemployment benefit you can submit in one of the divisions of the State Social Insurance Agency. The benefit shall be calculated in proportion to the total length of the insurance (employment) record and in accordance with the income from which unemployment contributions have been paid:

  1. from 1 to 9 years (included) - 50% of the average contributions salary;
  2. from 10 to 19 years (included) – 55% of the average contributions salary;
  3. from 20 to 29 years (included) – 60% of the average contributions salary;
  4. from 30 years or more – 65% of the average contributions salary.

[7.] Insurance Indemnity Related to Accident at Work or Occupational Disease include: sickness benefit; compensation for the loss of capacity for work; lump sum benefit; compensation for additional expenses, that are connected with medical treatment and rehabilitation, care, purchasing and repair of technical aids, travel costs for visiting the physician. Persons entitled to receive: socially insured, who due to a job injury or occupational disease who has a temporary incapacity for work, loss of ability to work or death.

 

Pensions

Since July 2001 there is a three tier pension system in Latvia, it includes the 1st tier (state compulsory unfunded pension scheme), the 2nd tier (state funded pension scheme) and the 3rd tier (private voluntary pension scheme). All persons making social insurance contributions are involved in the 1st tier. Social insurance contributions of those who participate in the 2nd pension tier through chosen fund managers are invested into the financial market and saved for the pension of the specific contributor. The third pension tier ensures the possibility for every individual according to his free choice to create additional savings for his pension in the private pension funds.

 

Health Care System

[1.] The medical assistance guaranteed by the state shall be provided to citizens of Latvia, non-citizens, persons with permanent residence permits, EU, European Economic Area and Switzerland Health care system persons who are employed or self-employed in Latvia and their family members. The foreign students and persons, whose remuneration is provided by fellowships, as well as their family members, are not embraced by the state compulsory health insurance!

[2.] The tasks of health insurance in Latvia are to cover the costs of health services provided to insured persons, to prevent and cure diseases, to finance the certain part of medicines and medical products. There is no refund system in Latvia. If the health service provider has a contract with the Health Compulsory Insurance State Agency, all costs incurred are directly reimbursed by the Agency. The patient should pay only the amount of own contribution – the patient fee. Compensation for medicines partly is covered under national social insurance scheme for medicines prescribed by Latvian doctor. The dental treatment expenses are not covered by state with exception for children below 18 years.

 

Institutions

Ministry of Finance

Ministry of Welfare

Ministry of Health

The National Employment Agency

The State Emergency Medical Service

State Revenue Service – a state institution responsible for implementation of customs policy and tax (duty) administration.

State Social Insurance Agency – a state institution performing the public administration function in the area of social insurance and social services.

The National Health Service - The aim of the National Health Service is to implement State policy for availability of health care services.