Latvia Micro-Enterprise Tax Guide 2026

Overview — Micro-Enterprise Tax in Latvia

The micro-enterprise tax regime (Mikrouznemuma nodoklis) was introduced to support very small businesses and encourage entrepreneurship. It is a simplified tax that replaces several separate taxes: personal income tax (IIT), corporate income tax (CIT), and mandatory state social insurance contributions. The regime is optional — eligible businesses may choose between the micro-enterprise tax and the standard tax regime. The regime is administered by VID and is particularly popular among freelancers, sole traders, and very small service businesses.

Tax Rates — 12.5% and 15%

• Revenue up to EUR 25,000: 12.5% of total revenue (covering IIT, CIT, and social contributions)
• Revenue EUR 25,001 to EUR 50,000: 15% of total revenue (12.5% on first EUR 25,000, 15% on the excess)
• Cumulative calculation: The rate applies progressively. For a business with EUR 40,000 revenue: 12.5% x EUR 25,000 = EUR 3,125 + 15% x EUR 15,000 = EUR 2,250. Total tax = EUR 5,375.
• No deductions: The tax is calculated on gross revenue, not profit. Business expenses are not deductible.

What the Tax Covers

The single micro-enterprise tax replaces:

• Personal income tax (IIT): The owner's income from the business is covered — no separate IIT return required for business income.
• Corporate income tax (CIT): If the business is structured as a company, no separate CIT is due on retained or distributed profits.
• Social contributions: Mandatory state social insurance contributions for the owner (pension, health, unemployment, disability) are covered by the single tax.
• VAT: Micro-enterprises are exempt from VAT (no registration required, no VAT charged to customers, no input VAT recovery).

Eligibility Conditions

To qualify for the micro-enterprise tax regime, the business must meet all of the following conditions:

• Maximum 1 employee: The business can have at most 1 employee (in addition to the owner). The employee can be a spouse or a non-related person.
• Maximum revenue EUR 50,000: Annual turnover must not exceed EUR 50,000. If revenue exceeds EUR 50,000, the business is removed from the regime and must switch to the standard tax system.
• Owner's status: The owner may be a natural person (sole trader) or a legal entity (limited liability company — SIA).
• Business types excluded: Certain business types are not eligible for the micro-enterprise regime, including: professional activities (lawyers, notaries, auditors), insurance and finance, gambling, and businesses engaged in prohibited activities.

Registration and Filing

• Registration: Eligible businesses must register for the micro-enterprise tax regime with VID. Registration is done through the EDS portal or by submitting the relevant application form.
• Tax return: The micro-enterprise tax return is filed quarterly (by the 15th of the month following the quarter). The return reports total revenue for the quarter, and tax is calculated and paid at the applicable rate.
• Annual return: An annual summary return must be filed by 30 April of the following year.
• Simplified accounting: The business must maintain records of revenue (income received), but full double-entry bookkeeping is not required.

Advantages and Disadvantages

Advantages:

• Low effective tax rate (12.5-15% of revenue vs standard regime up to 41.5% combined)
• Simplified administration — one tax replaces three separate taxes
• No VAT registration required (no VAT compliance)
• Simplified accounting and record-keeping

Disadvantages:

• No expense deduction — tax is on gross revenue even if profit margin is low
• Revenue capped at EUR 50,000 — business growth may force exit from the regime
• Maximum 1 employee — limits business expansion
• No input VAT recovery (VAT on business purchases is not reclaimable)
• Lower social benefits (pension and health coverage may be lower than standard contributions)

Transitioning Out of the Regime

• Exceeding EUR 50,000 revenue: If revenue exceeds EUR 50,000 in a tax year, the business is removed from the micro-enterprise regime and must apply the standard tax system from the following year.
• Voluntary exit: The business may voluntarily switch to the standard tax regime by notifying VID.
• Consequences of exit: After exiting, the business must register for VAT (if revenue is above the EUR 50,000 threshold), pay standard IIT/CIT, and pay social contributions at standard rates.
• Re-entry: A business that exits the micro-enterprise regime cannot re-enter for at least 12 months.

FAQs

Can I have more than 1 employee in a micro-enterprise?

No, the micro-enterprise regime limits the business to a maximum of 1 employee (in addition to the owner). If you hire a second employee, you must switch to the standard tax regime.

Is the micro-enterprise tax regime available to all business types?

No, certain professional activities are excluded, including legal services, notarial services, audit services, insurance and financial services, and gambling businesses.

What happens if my micro-enterprise revenue exceeds EUR 50,000?

If revenue exceeds EUR 50,000 in a tax year, the business is disqualified from the regime. You must pay standard taxes from the following year. The excess revenue (over EUR 50,000) is subject to standard tax rates for that year.

Disclaimer

This guide provides general information about Latvia micro-enterprise tax for the 2026 tax year. Tax laws and rates may change. Always consult with a qualified Latvian tax advisor (nodoklu konsultants) or VID directly for advice specific to your situation. InvestmentKit does not provide tax advice.