Executive Summary
Latvia’s newly formed coalition government has signaled a strict fiscal consolidation path, with Finance Minister Māris Kučiņskis ruling out new taxes, freezing spending at 2026 nominal levels, and imposing a two-year public sector wage freeze. Concurrently, the State Revenue Service (VID) is implementing EU-mandated handling fees of EUR 2 per item on all non-EU shipments effective November 1, 2026, eliminating de minimis relief for low-value consignments. An analytical review underscores that while Latvia’s corporate tax regime remains highly competitive with a 0% rate on reinvested profits, foreign direct investment continues to lag due to geopolitical risk, labor shortages, and administrative complexity.
Important Updates
Finance Minister Confirms Austerity Drive: No New Taxes, Spending Freeze, and Public Sector Wage Freeze
In a definitive policy statement on October 22, 2026, Finance Minister Māris Kučiņskis outlined three pillars of fiscal consolidation for the new government’s term: (1) no new taxes or rate increases, including no expansion of the VAT base or introduction of wealth, digital services, or carbon taxes beyond EU minimums; (2) a nominal freeze on all ministry budgets at 2026 levels, requiring offsetting cuts for any new initiatives; and (3) a public sector wage freeze for 2027 and 2028, suspending inflation indexation for civil servants, teachers, healthcare workers, and state enterprise employees. The Minister also announced a review of tax expenditures to broaden the base and emphasized reliance on enhanced tax administration—including the upcoming mandatory B2B e-invoicing mandate (peppol-based) effective January 1, 2027—to close the estimated 1.8% of GDP VAT gap. Legislative amendments for the wage freeze are expected by December 2026, with the tax expenditure review slated for H1 2027 feeding into the 2028 budget. Businesses should prepare for heightened VAT audit scrutiny in high-gap sectors (construction, hospitality, digital services) and stress-test cash flows against reduced public sector demand.
Sources: LSM.lv
Secondary Regulatory & Regional Updates
Secondary Regulatory & Regional Updates
- EU Handling Fees for Non-EU Shipments Effective November 1: A flat EUR 2 handling fee per individual item (not per consignment) will be levied on all goods arriving from third countries, effective November 1, 2026. The fee covers customs declaration processing, data transmission to VID, and physical handling by postal and express carriers (Latvijas Pasts, DHL, DPD, Omniva). It applies universally to commercial and private imports regardless of value, distinct from customs duties and import VAT. Carriers are responsible for collection and remittance at customs clearance or delivery. Importers should verify logistics partners’ IT systems for per-item fee calculation and update Incoterms with foreign suppliers to clarify liability. Detailed procedural guidelines will be published on vid.gov.lv. LSM.lv
- Latvia’s Tax Competitiveness at Peak but FDI Lags Due to Structural Deterrents: Analysis confirms Latvia’s 0% corporate income tax on reinvested profits and 20% rate on distributed profits (20/80 of net distribution) remains a unique EU advantage, with 0% withholding taxes on dividends, interest, and royalties for EU/EEA recipients. OECD Pillar Two (15% global minimum tax) applies to large MNE groups but preserves the reinvestment exemption for domestic SMEs. However, FDI per capita trails Estonia and Lithuania due to geopolitical risk (proximity to Russia/Belarus), labor shortages, administrative complexity (monthly CIT reporting for distributions), limited double tax treaty network (~60 treaties), and perceived regulatory unpredictability. Ongoing compliance obligations include monthly CIT returns by the 20th of the following month for distributions, transfer pricing documentation thresholds (EUR 250k services/EUR 500k goods), CbCR for EUR 750m+ revenue groups, and DAC6 disclosures. Dienas Bizness
Disclaimer: This article is compiled and summarized by the AI based on publicly available information and is for general information purposes only. It does not constitute any form of formal tax advice, legal opinion, or basis for performance. Please consult a qualified professional tax advisor or legal counsel for tax advice.