It is intended to increase personal income tax rate on capital gains from 1 January 2025.
The Saeima approved amendments to the law On Personal Income Tax in the first reading, which increase the personal income tax (PIT) rate on income from capital (including capital gains).
It is intended to increase personal income tax rate on capital gains from 1 January 2025.
The Saeima approved amendments to the law On Personal Income Tax in the first reading, which increase the personal income tax (PIT) rate on income from capital (including capital gains).*
Currently, income from capital gains, or income from the disposal of capital assets, is taxed at 20%.
Capital assets are:
- Real estate (including rights to acquire real estate);
- Stock, capital shares, investments in partnerships and other financial instruments referred to in the Financial Instruments Market Law;
- A company or part of a company within the meaning of the Commercial Law;
- Investment fund certificates;
- Debt instruments and other monetary instruments traded on money markets, etc.
Also, currently 20% PIT applies to income from capital, which includes:
- Dividends (if the income is not subject to VAT);
- Interest income on deposits and similar income;
- Income from private pension funds;
- Income from endowment life insurance contracts, etc.
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The amendments will increase the rate of personal income tax on such income from 20% to 25.5% from 1 January 2025.
This means that you will have to pay 5.5% more in tax when disposing of shares, stocks, real estate, companies and other assets.
In addition, an additional 3% rate of personal income tax will be introduced for annual income above EUR 200,000. This rate will be applied on a compound basis at the time of the annual income tax return (for the first time in 2026 for the year 2025). Thus, if a taxpayer’s total annual income (including income from the sale of capital assets, dividends) exceeds EUR 200,000, the tax on the excess will be 8.5% higher than at present.
This means that taxpayers who intend to dispose of their shares, stocks, real estate, etc. in the next year or in the following years will have to pay 5.5% or 8.5% (on the excess of EUR 200,000) more in tax than before.
The current 20% PIT will apply to transactions with capital assets that have been initiated but not completed by 31 December 2024, but only if the annex “Information on transactions initiated but not completed in one taxation year” to the return on capital gains for the reporting period is submitted to the State Revenue Service.
What to do?
If you intend to dispose of assets you own, such as shares in a company or real estate, in the foreseeable future, we recommend that you consider starting such transactions this year. Currently, the amendments do not specify what the commencement of a transaction means for the purposes of the regulation, and accordingly, it must be assessed in the context of the specific transaction.
The draft law does not currently provide for transitional provisions for retained earnings from previous years – dividends and liquidation allowances. This means that next year’s distribution of the previous year’s profits could be taxed both at company level (25% CIT) and at individual level (3% PIT on total annual income above EUR 200,000).
* The draft law is expected to be adopted in final reading on 4 December 2024, to enter into force on 1 January 2025. We will follow up and inform you of any changes before the adoption of the draft law.
