Personal Income tax (PIT)

Articles on taxes >> Personal Income tax (PIT)
Taxpayers
· Individuals who are residents and who have obtained income in the Republic of Latvia and/or foreign states during the taxation period
· Individuals who are non-residents and who have obtained income in the Republic of Latvia
· owners of individual enterprises, as well as farmer and fishermen farms, who have obtained income in the Republic of Latvia and who are not subject to corporate income tax
· owners of micro-enterprises in accordance with the Micro-enterprise Tax Law
Tax Base
· Income generated from employment relations
· Income generated from business activity
· Other income as per law
Income from Sale of Real Property
· Income generated by a resident as a result of disposal of real property is subject to personal income tax, save the cases when such real property has been in the possession of the resident for a period exceeding 60 months and at least 12 month prior to the date of signing the disposal agreement has been the registered place of residence of the person (which has not been declared as the additional address of the taxpayer)
· Income generated by the resident as a result of disposal of real property incorporates also income from disposal of shares, stock or other interest in a company incorporated in the Republic of Latvia or abroad, if in the year of disposal or in the preceding year more than 50% of the value of assets of such company is or has been composed, directly or indirectly, of real property situated in the Republic of Latvia
· Income generated by a non-resident as a result of disposal of real property situated in the Republic of Latvia is subject to personal income tax
· Reimbursement payable to non-residents for disposal of real property also includes income from disposal of shares, stock or other interest in a company incorporated in the Republic of Latvia or abroad, if in the year of disposal or in the preceding year more than 50% of the value of assets of such company is or has been composed, directly or indirectly, of real property situated in the Republic of Latvia
Tax Rates
· Salary tax 25%
· 10% for dividends paid to non-residents
· 25 % from income generated by economic activity
· 10 % for passive income from operational activity, e.g., through use or lease of the real property, etc.; income from disposal of growing premises; income from sale of scrap metal
· 2% personal income tax payable by non-residents from reimbursement for disposal of real property situated in the Republic of Latvia
· 10% from income generated by capital, which is not capital increase (dividends and interest income)
· 15% for capital increase
· The law also prescribes a fixed amount of income tax payable by persons engaged in economic activity – the amount of fixed income tax is 5% of the operational income during the taxation period. An additional rate of 7% is applicable to income exceeding LVL 10,000.
Taxable period and declaration date
One calendar year. One calendar month, if income is generated based on employment relations.
The annual income declaration has to be filed with the State Revenue Service from 1 March until 1 June in the year following the taxation year
Deadline for Tax Payment
· Salary tax has to be paid on the next day after disbursement of salary
· Personal income tax deducted at the place of payment has to be paid by the 5th day of the following month
· Personal income tax imposed on economic activity has to be paid within three months of the declaration date prescribed by law
Tax Relief (for Residents) in 2012
· Non-taxable minimum established by the State (LVL 540 p.a., LVL 45 per month)
· With regard to persons that are dependents of the taxpayer (LVL 840 per each dependent a year, LVL 70 per month)
· With regard to disablement (LVL 1,296 for disablement of groups I and II and LVL 1,008 for disablement of group III p.a.)
· For politically repressed persons and participants in national resistance movements (LVL 1,296 p.a.)
Deductible Expenses
· Mandatory state social insurance contributions
· Expenditure for the raising of qualification, acquisition of a speciality, acquisition of education, for the utilisation of health and therapeutic services and health insurance payments to insurance companies in accordance with the Law on Personal Income Tax and Cabinet regulations
· Amounts which in the form of donations or gifts have been transferred to associations, foundations and religious organisations or the institutions thereof registered in the Republic of Latvia, which have been granted public benefit organisation status in accordance with the Public Benefit Organisations Law, and budget institutions;
· Expenditure of the authors of works of science, literature and art, inventions and industrial models which is related to the creation, publication, performance or other utilisation and for which the authors receive author’s fees (royalty), according to Cabinet regulations
· Payments made into the private pension in accordance with the Law on Personal Income Tax
· Payments of insurance premiums made in conformity with a life assurance contract in accordance with the Law on Personal Income Tax
· Payments for the purchase of investment fund investment certificates if such certificates have been owned by an individual for at least 60 months and are treated as investment funds in accordance with the Investment Management Companies Law
Exemptions
· Income from agricultural production and rendering rural tourism services not in excess of LVL 2,000.00 a year
· Insurance indemnity
· Income from the EU member state or the European Economic Area government and local government bonds
· Income generated as a result of inheritance, except author’s fees (royalty), which is paid to the inheritor
· Gift received from individuals
· Allowance (alimony) and amounts received based on a court judgement
· Income generated from the sale of one’s own property, except the income from:
  – selling of products (tangible or intangible) produced or obtained for sale;
  – capital increase and other income from capital
· Income from disposal of real property owned by the taxpayer for more than 60 months as from the moment of registration and being the registered place of residence of the person for at least 12 months (which has not been declared as the additional address of the taxpayer)
· and other exemptions prescribed by law.
International treaties
Income generated by persons permanently residing in the Republic of Latvia is taxable in the Republic of Latvia, except cases when another taxation procedure is established by international treaties.
A taxpayer is entitled to reduce the tax calculated in the Republic of Latvia by an amount that is equivalent to the amount paid abroad. The reduction may not exceed the amount that would conform to the tax calculated in the Republic of Latvia on income generated abroad.
Tax treaties have been made between the Republic of Latvia and the United States of America, Albania, Armenia, Austria, Azerbaijan, Belarus, Belgium, Bulgaria, the Czech Republic, Denmark, South Korea, France, Greece, Georgia, Croatia, Estonia, Iceland, Ireland, Israel, Italy, Canada, Kazakhstan, the People’s Republic of China, Kyrgyzstan, Lithuania, the UK, Luxembourg, Malta, Macedonia, Morocco, Montenegro, Moldova, the Netherlands, Norway, Poland, Portugal, Romania, Serbia, Singapore, Finland, Slovenia, Spain, Switzerland, Slovakia, Turkey, Tajikistan, the Ukraine, Hungary, Uzbekistan, the German Federal Republic and Sweden, and their application has started.