New Alternative CIT Regime: 15% + 6% Explained

For eight years, Latvia had one corporate tax model: 0% on reinvested profits, 20/80 on distributions. Clean. Predictable. Starting in 2026, there is now a second option — and it changes the math for a significant number of companies.

The alternative CIT regime taxes annual accounting profit at 15%, regardless of distribution. Dividends paid to shareholders carry an additional 6% personal income tax. No gross-up formula. No 20/80 calculation.

Simple in concept. The question is whether it saves you money.

How the Alternative Regime Works

Under the standard model, your SIA pays CIT only when distributing profits. The tax base is the net distribution divided by 0.8, multiplied by 20%. Reinvested profits sit at 0%.

The alternative flips this logic. The company pays 15% on its entire annual profit — distributed or not. When dividends reach shareholders, they pay 6% PIT on the amount received.

Key mechanics:

• CIT applies to annual accounting profit, not taxable profit (though certain adjustments apply)
• The 15% rate is flat — no gross-up
• Dividend PIT of 6% is the shareholder's obligation, withheld by the company
• Election is annual, made with the CIT declaration
• Switching back to standard regime is permitted in subsequent years

The Math: When Does 15% + 6% Win?

Let's work through three scenarios with EUR 100,000 in annual profit.

Scenario A: Distribute 30% (EUR 30,000)

Standard regime:

• CIT: 30,000 / 0.8 × 20% = EUR 7,500
• Shareholder receives: EUR 30,000
• Total tax: EUR 7,500

Alternative regime:

• CIT: 100,000 × 15% = EUR 15,000
• Dividend PIT: 30,000 × 6% = EUR 1,800
• Total tax: EUR 16,800

Standard wins by EUR 9,300. Not even close.

Scenario B: Distribute 75% (EUR 75,000)

Standard regime:

• CIT: 75,000 / 0.8 × 20% = EUR 18,750
• Total tax: EUR 18,750

Alternative regime:

• CIT: 100,000 × 15% = EUR 15,000
• Dividend PIT: 75,000 × 6% = EUR 4,500
• Total tax: EUR 19,500

Standard still wins, but by only EUR 750. We are approaching the crossover.

Scenario C: Distribute 100% (EUR 85,000 after CIT)

Standard regime:

• CIT: 100,000 / 0.8 × 20% = EUR 25,000
• Shareholder receives: EUR 100,000 (company pays EUR 25,000 CIT from gross-up)
• Total tax: EUR 25,000

Alternative regime:

• CIT: 100,000 × 15% = EUR 15,000
• Available for distribution: EUR 85,000
• Dividend PIT: 85,000 × 6% = EUR 5,100
• Total tax: EUR 20,100

Alternative wins by EUR 4,900.

The break-even: Around 78–80% distribution ratio, the two regimes produce roughly equal tax. Above that, the alternative regime is cheaper. Below it, the standard model wins.

(In our experience, the exact break-even shifts slightly depending on the profit level, because the standard regime's gross-up creates a non-linear cost curve.)

Who Should Consider the Alternative Regime?

Three profiles where the switch typically makes sense:

Owner-operators who live off dividends. If your SIA is essentially a personal income vehicle — you earn through it and take most of the money out — the alternative regime reduces your combined tax by EUR 3,000–8,000 annually on profits of EUR 80,000–200,000.

Companies with stable, predictable profits. The 15% applies to annual profit whether you distribute or not. If your profits swing wildly year to year, you might pay 15% in a good year and have no ability to distribute (because of a bad year following), creating a timing mismatch. Stable businesses avoid this problem.

Multi-shareholder companies with regular dividend policies. When all shareholders expect annual distributions, the alternative regime makes the planning cleaner and often cheaper.

Who Should Stay on Standard?

Growth-phase companies. If you reinvest 70%+ of profits, the standard regime's 0% on retained earnings is unbeatable. Paying 15% on profit you plan to keep in the business is pure cost.

Companies with variable distribution patterns. Some years you distribute heavily, some years you retain everything. The standard regime lets you pay tax only when money actually leaves. The alternative charges 15% regardless.

Holding companies. If your SIA holds subsidiaries and receives dividends from them (which may already carry CIT from the lower level), the interaction between the alternative regime and the participation exemption needs careful analysis. In most holding scenarios, the standard regime remains preferable.

Practical Considerations

Timing of election. You choose the alternative regime when filing your annual CIT declaration. This means you are electing for a tax year that has already ended — you can see your actual numbers before deciding. This is a significant advantage. Run both calculations on your 2025 results, then choose.

Accounting profit vs. taxable profit. The 15% applies to accounting profit with certain adjustments (non-deductible expenses, exempt income, etc.). Your effective base may differ from the profit shown in your financial statements. Your accountant needs to calculate the adjusted base before you compare regimes.

Impact on advance payments. Under the alternative regime, CIT advance payments may be required during the year based on prior-year profits. This changes your cash flow timing compared to the standard regime (where CIT is due only in the month following a distribution).

Interaction with tax treaties. If your shareholders are non-residents, the 6% PIT on dividends may be reduced under an applicable tax treaty. Latvia's treaties typically cap dividend withholding at 5–15%, but the interaction with the new 6% domestic rate varies by treaty. This requires treaty-by-treaty analysis.

A Worked Example: EUR 150,000 Profit, 90% Distribution

A common profile for a successful consulting firm with one or two owners.

Standard regime:

• Distribution: EUR 135,000
• CIT: 135,000 / 0.8 × 20% = EUR 33,750
• Net to shareholder: EUR 135,000
• Total tax: EUR 33,750 (effective rate: 22.5% of profit)

Alternative regime:

• CIT: 150,000 × 15% = EUR 22,500
• Available for distribution: EUR 127,500
• Dividend PIT: 127,500 × 6% = EUR 7,650
• Net to shareholder: EUR 119,850
• Total tax: EUR 30,150 (effective rate: 20.1% of profit)

Annual saving: EUR 3,600. Over five years, that is EUR 18,000 — enough to pay for quite a lot of professional advisory time.

But note: the shareholder receives EUR 119,850 under the alternative vs. EUR 135,000 under standard. Wait — that does not look right. Under the standard regime, the company pays CIT of EUR 33,750 from the gross-up, not from the EUR 135,000. The shareholder receives the full EUR 135,000. Under the alternative, CIT of EUR 22,500 comes off the top, leaving EUR 127,500, minus 6% PIT of EUR 7,650 = EUR 119,850 net.

So the shareholder takes home less under the alternative regime? Yes — but the company also paid less total tax. The difference is that under standard, the EUR 33,750 CIT is the company's cost on the gross-up, while EUR 135,000 goes to the shareholder. Under alternative, EUR 22,500 is the company's cost and EUR 7,650 is the shareholder's cost. The total tax burden is lower, but it is split differently.

This distinction matters for tax planning between company and personal finances.

Our Recommendation

Do not switch blindly. The alternative regime is better for a specific profile — high-distribution, stable-profit businesses. For everyone else, the standard regime remains the default for good reason.

Run the numbers on your actual 2025 data. If the alternative regime saves more than EUR 1,500 annually, the switch is clearly worthwhile. If the savings are marginal (under EUR 500), the complexity may not justify the change.

And remember: the election is annual. You can try the alternative for one year and revert if it does not work.

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Want Us to Model Both Regimes for Your Company?

CORVUS Accounting & Tax runs side-by-side comparisons of the standard and alternative CIT regimes using your real financial data. One consultation, one clear answer.

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