1. New tax regime for dividends
From 1 January 2026, a voluntary alternative tax regime will be introduced for capital companies whose shareholders are only natural persons:
- 15% corporate income tax (CIT) is paid at the company level on distributed profits;
- 6% personal income tax (PIT) is withheld from dividends paid to individuals.
What does that mean?
- The company may voluntarily choose the alternative regime or continue with the existing 20% CIT regime.
- Foreign investors (natural persons) in Latvia can use 6% PIT as a tax credit in their country of residence, which is significantly more advantageous than the “standard” 20% CIT regime.
2. New exceptions to thin capitalisation rules for corporate income tax purposes
The amendments to the CIT Law extend the exceptions for including increased interest payments in the CIT tax base in relation to financing attracted from several new alternative sources of financing, namely, the interest limitation does not apply to interest on financing received:
- from securities issued in Latvia, the EU or the EEA and traded on a regulated market;
- through EU/EEA licensed crowdfunding service providers;
- through EU/EEA licensed investment brokerage companies;
- from instruments issued by securitization companies;
- from alternative investment fund loans (except for closed-end AIFs, if they are related to taxpayers).
Importantly, the thin-cap will no longer apply to interest payments on loans received from described institutions via a group company.
What does that mean?
This means that certain interest expenses on loans from these entities will no longer be automatically considered “excessive” under thin capitalization rules and will not be subject to additional CIT.
3. Amendments to transfer pricing regulations
New controlled transaction report
From 2026, Latvia will introduce a requirement to prepare and submit a new structured controlled transaction report on transfer pricing transactions if their total value exceeds EUR 250,000 in the reporting year. It supplements existing master and local documentation and aims at enabling the SRS to better assess price compliance with market principles.
- Who must prepare it: taxpayers whose value of controlled transactions with related parties exceeds EUR 250,000 during the reporting year.
- When to submit: Within 12 months after the end of the reporting year (the first reports for 2025 must be submitted by 31 December 2026).
- How to submit: through the SRS Electronic Declaration System, using a structured data format.
- What should be included in the report: Information on each controlled transaction, including:
-transaction partner identifiers (name, jurisdiction);
-type, direction, and amount of the transaction;
-transfer pricing method used;
-other relevant indicators that allow the SRS to assess whether prices comply with market prices (the arm’s-length principle).
Conditions and exceptions:
- Thresholds: transactions with a value of up to EUR 90,000 are not generally considered significant and do not need to be included in the documentation.
- Master and local transfer pricing documentation requirements are retained, but submission is only required upon request by the SRS.
What else is changing?
In addition to the transfer pricing regulations, amendments have been made to the law On Taxes and Fees, which stipulate:
- to cancel the requirement to submit master and local transfer pricing documentation upon reaching certain thresholds (hereinafter, such documentation will be submitted only upon request by the SRS);
- increase the threshold for preparing master transfer pricing documentation from EUR 15,000,000 to EUR 20,000,000;
- increase the threshold for including transactions (total value) in transfer pricing documentation from EUR 20,000 to EUR 90,000.
Furthermore, if the taxpayer’s functional profile and methodology remain unchanged, the taxpayer will be able to perform a new comparative analysis once every three years, and to update only the previously accepted comparative financial indicators each year.
4. Personal income tax
The non-taxable monthly minimum increases from EUR 510 to EUR 550.
5. Minimum wage
In 2026, the minimum monthly wage will be increased to EUR 780.
6. Corporate income tax
- In parallel with the new 15% CIT + 6% PIT regime, the 20% CIT regime will continue, where profits are taxed only when they are distributed (CIT is not payable on reinvested profits).
- Starting with the reporting year beginning in 2026, port authorities are CIT payers.
7. VAT
From 1 July 2026 to 30 June 2027, VAT on certain food products will be reduced to 12% as temporary support for residents.
8. Gambling tax
From 2026, gambling tax rates will continue to increase for all types of gambling.
9. Excise tax
- As of 1 January 2026, tax rates will be increased on tobacco products and liquids used in electronic smoking devices and their ingredients, as well as tobacco substitutes.
- Increased tax rates for certain petroleum products and natural gas used as fuel or heating fuel.
- As of 1 March 2026, in subsequent periods, the excise tax rate on strong alcoholic beverages will be increased more rapidly, while the excise tax rate on beer will be increased at a slower pace.
10. Vehicle operation tax
On 1 January 2026, amendments to the Law on the Vehicle Operation Tax and Company Car Tax came into force, providing new vehicle operation tax exemptions for persons with disabilities and their families, guardians of persons with Group I or II disabilities, as well as car dealers.
Please be advised that amendments to certain tax related regulations, including Cabinet Regulations issued on the basis of the aforementioned laws, can still be in the drafting stage.
