As of 1 January 2026, several significant tax changes have come into force in Latvia, affecting corporate taxation, dividends, transfer pricing, VAT, and employment costs. Key developments include the introduction of a new alternative tax regime for dividends paid to individuals, more flexible thin capitalisation rules, revised transfer pricing documentation requirements, an increased minimum wage and non-taxable minimum, and targeted adjustments to VAT rates. This overview summarises the most important Latvian tax changes for the current year.

Alternative Tax Regime for Dividends

Latvian companies whose shareholders are exclusively individuals will be eligible to apply an alternative tax regime to dividends paid to such individuals. Under this regime, distributed profits will be subject to a 15% CIT (calculated as 15/85 on the net amount of the profit distribution) and a 6% PIT, which will be withheld from the amount paid to the individual.

More Flexible Thin Capitalisation Provisions 

From 1 January 2026, the debt-to-equity ratio rule will no longer apply not only to loans from credit institutions but also to:

  • loans issued by AIFs registered and supervised in Latvia or any other EU or EEA country;
  • interest payable on debt securities issued in Latvia, the EU, or the EEA, and traded publicly or on a multilateral trading facility;
  • financing sourced via crowdfunding service providers or investment brokerage services providers registered and licensed in Latvia, the EU, or the EEA.

Furthermore, the debt-to-equity ratio rule will not apply to loans received from a group company that has secured financing for the group’s needs from the aforementioned external sources or credit institutions (which are independent third parties), provided that the interest rate applied complies with arm’s length terms.

New Rules for Transfer Pricing Documentation

Transfer pricing documentation must be submitted to the Latvian tax authority only upon request, within 30 days. However, an annual standardised transfer pricing disclosure must be made electronically within 12 months after the year-end if intercompany transactions exceed EUR 250,000.

New thresholds for the preparation of documentation are as follows:

  • Local File: if transactions exceed EUR 250,000;
  • Master File: if transactions exceed EUR 20,000,000.

Increased Minimum Wage and Non-Taxable Minimum 

The minimum wage for 2026 increased to EUR 780 per month. The non-taxable minimum in 2026 raised to EUR 550 per month.

Changes in reduced VAT rates

The reduced 5% VAT will no longer apply to books, press and other publications in Russian. Publications not published in Latvian, or in the languages of EU or OECD member or candidate states, will be subject to the standard 21% VAT rate.

From 1 July 2026, as part of a one-year pilot project, VAT on bread, milk, poultry meat, and eggs will be reduced to 12%.

Other Tax Changes 

Significant increases in natural resource tax, gambling tax, and excise tax rates.