Self employed persons, individual entrepreneurs

1. Register before starting business activities.

2. PIT on income from business activities is calculated as the difference between revenue and expenses:

• private individuals may include expenses that do not exceed 80% of total business income. Expenses defined by law can be fully deducted (e.g., salary, immovable property tax, depreciation of non-current assets)
• tax rate:
  • 20 % on income under EUR 20 004
  • 23 % on income between EUR 20 004 and EUR 78 100
  • 31% on income over EUR 78 100

3. Bookkeeping entries for income and expenses are recorded in the simple entry system.

4. Annual tax returns are filed between 1 March and 1 June of the year following the taxation year. If total annual income exceeds 78 100 euros, persons may file from 1 April to 1 July.

5.The calculated tax is paid into the single account within 15 days of filing the return. Deadlines are:

• 23 June if tax payable is less than EUR 640
• 23 June, 23 July and 23 August if tax payable is greater than EUR 640 (payable in three installments)
   

6.

The non-taxable minimum amount, tax breaks and justifiable expenses can be applied to business income.

Self-employed pay a minimum of EUR 50 by 23 June if no there was no taxable income or the calculated tax is below EUR 50.

The minimum tax amount of EUR 50 does not apply to taxpayers who pay income tax or social contributions for their employees or for themselves.

Minimum tax is not applied in the taxation year when commercial activity was registered, in the next year and in the year when commercial activity is terminated.

Information can be found on our homepage in the section Taxes > Personal income tax –“Due dates for submitting annual personal tax returns”.

Micro-enterprise tax payed by Micro-enterprise Taxpayers (MET) includes contributions to MSSIC and PIT. An MET may not be registered as a VAT payer. If a MET becomes or is required to become a registered VAT payer in accordance with the Value Added Tax Law, it loses its MET status in the next taxation year.

Micro-enterprise tax rates?

• annual turnover under EUR 25 000 - 25%
• annual turnover over EUR 25 000 - 40%

If in the year when MET status is acquired in the:

• 2^nd quarter, the tax on income under EUR 18 750 is 25%; over EUR 18 750 - 40%
• 3^rd quarter, the tax on income under EUR 12 500 is 25%; over EUR 12 500 - 40%
• 4^th quarter, the tax on income under EUR 6250 is 25%; over EUR 6250 - 40%

Micro-enterprise tax is paid on quarterly revenue:

• submit a MET return by the 15th day of the month following the quarter
• tax calculated must be paid into the single tax account by the 23rd of the month following the quarter, i.e. 23 April, 23 July, 23 October, 23 January.

A MET cannot simultaneously pay personal income tax or the reduced patent fee for economic activity. A MET maintains records on income and expenses.

If a MET hires an employee after 1 January 2021, payroll tax and MSSIC must be paid immediately.

After 1 July 2021, all employee income is subject to labour taxes, i.e., PIT and MSSIC.

A private individual may pay the reduced licence fee if:

• the person has been granted old-age pension and has the right to apply the pensioner’s non-taxable minimum or has been assigned Group I or II disability status
• income from business activities is below EUR 3 000
• the person does not pay micro-enterprise tax or tax on business activities
• the person does not employ others and does not pay salary taxes

The payer of the reduced licence fee need not file an annual tax return.

The reduced licence fee must be paid for six months (EUR 9) or for one calendar year (EUR 17) only.

If income is earned from property (e.g., leasing or renting, selling tenancy rights, sale, or payment for use restriction of use of natural resources), the private individual must inform the SRS within five business days of concluding the contract:

• tax rate on rental income is 10%
• revenue from business activities
• if income from property is obtained from a legal entity, tax must be withheld at the time of payment
• if tax is not withheld, the private individual must calculate the tax and pay as for PIT payments
• annual non-taxable minimum, tax breaks and expenses do not apply
• the private individual is not considered to be self-employed and MSSIC are not paid;
• the person must register as a VAT payer if the total value of transactions subject to VAT within the preceding 12 months exceeded EUR 40 000.

Business income may be exempt if it is derived from a backyard garden or auxiliary farm or from mushrooming, berry-picking, collection of wild medicinal plants and flowers or wildlife farming (e.g., escargot – Helixpomatia) and does not exceed EUR 3000 per year. Accounting records must be kept to determine amount of annual income.

When annual income reaches EUR 3000, this business activity must be reported to SRS within five business days.

A private individual engaged in business activities is considered to be self-employed for the purposes of the Law On State Social Security.

MSSIC contributions

Self-employed individuals must submit a report by the 17^th day of the month following the quarter.

Mandatory contributions, including pension insurance contributions are made quarterly by the 23^rd day of the month following the quarter.

*The following are not subject to mandatory social insurance:

Owners of farming (fishing) enterprises, who receive old-age pension or who have group I or II disability status.

Private individuals who manage their immovable property or are registered as a performer of business activities and receive old-age pension or who have group I or II disability status or whose permanent residence is not in Latvia.

! As of 1 July 2021, the minimum mandatory contribution for a quarter is calculated for three minimum monthly salaries.

Self-employed persons (who are not also employees) must make minimum compulsory contributions to the state pension insurance, according to calculations performed by the State Social Insurance Agency (SSIA). SSIA informs SRS of this sum and SRS informs the taxpayer through EDS.

If a self-employed person has calculated that his/her income will fall below the minimum, then he/she must inform SRS:

simultaneously with the registration of economic activity, by 17 January 2022 for 2022, by 17 January 2022 for the 1st quarter of 2022, by 17 April 2022 for the 2nd quarter of 2022, by 17 July for the 3rd quarter of 2022, by 17 October for the 4th quarter of 2022, and within 15 days of losing employee status.

If the self-employed person has not filed any reports, the SSIA will calculate and inform the SRS of required payment by 20 March 2022.

This minimum payment also applies to METs.

The following Cabinet Regulations prescribe organising of accounting by performers of economic activities as well as the procedure of maintaining of accounting by the simple entry system:

• Cabinet Regulation No. 188 of 20 March 2007 ”Procedure of Maintaining of Accounting by The Simple Entry System by Individual Merchants, Individual Enterprises, Farming and Fishing Enterprises, Other Natural Persons Who Perform Economic Activities“;
• Cabinet Regulation No. 301 of 8 May 2007 ”Regulations on Financial Statements of Individual Merchants“;
• Cabinet Regulation No. 585 of 21 October 2003 ”Regulations on Maintaining and Organising of Accounting“;
• Cabinet Regulation No. 584 of 21 October 2003 ”Regulations on Recording of Cash Operations“.

1. Registering the business activities, the natural person can also get registered at the SRS VAT payer register and make VAT payments irrespective of not achieving the registration threshold of EUR 40 000 set by the VAT law.
2. However if the total value of VAT taxable supplies of goods and services during the preceding 12 months has exceeded EUR 40 000, the natural person is obliged to get registered at the SRS VAT payer register and must charge VAT on the transactions carried out
3. If the natural person acquires goods in the territory of European Union and if the total value of these goods without tax has achieved or exceeds in the current calendar year the amount of EUR 10 000, the person has to get registered at the SRS VAT payer register and charge VAT on the acquisitions made in that period.
4. If the natural person provides services to taxpayers of another EU Member State, the place of supply of which is determined in accordance with Section 1, Art 19 of the VAT law, the person must get registered at the SRS VAT payer register before rendering these services.
5. If the natural person of another Member State or of any third country or territory not doing business in the domestic territory receives services the place of supply for which is determined in accordance with Section 1, Art 19 of the VAT law, the person must get registered at the SRS VAT payer register before receiving these services.
6. The registered taxpayers using simple entry accounting system, use a log to record the VAT. The form of the log is approved by the Cabinet Regulations No.17 of 3 January 2013 “Procedure of application of VAT law provisions and certain requirements concerning payment and administration of the VAT” (Appendix 6 to the Regulations).
7. If the registered taxpayers whose total value of the VAT taxable transactions over the preceding taxation year has not exceeded EUR 100 000, the entries in the log-book of revenues and expenditure of the payers of personal income tax or micro-enterprise tax are made electronically. The taxpayer can instead of keeping the log-book mentioned in Appendix 6 to the Cabinet Regulations No.17 of 3 January 2013 “Procedure of application of VAT law provisions and certain requirements concerning payment and administration of the VAT” make additional boxes in the log-book of revenues and expenditure of the payers of personal income tax or micro-enterprise tax in order to register the calculated tax amounts paid during the taxation period in accordance with the invoices received from other registered taxpayers

Please find the useful information in the SRS homepage section Taxes/Value Added Tax

The reports and returns must be filed electronically using the Electronic Declaration System (EDS). Natural persons can receive free of charge consultations regarding the application of tax legislation electronically, in written form, verbally in person or by phone, or by attending the regular seminars for performers of business activities arranged by the SRS Client Service Centres.