Dividend Tax in Latvia 2026: How to Calculate and Pay

EUR 12,500 or EUR 3,000 — that is the tax you pay on a EUR 50,000 dividend distribution, depending on which CIT regime your SIA uses. Same money, same shareholder, two entirely different outcomes. Understanding the mechanics behind each calculation is not optional for anyone running a Latvian company in 2026.

The Standard Regime: The 20/80 Rule

Under the standard CIT regime (used by the vast majority of Latvian companies), dividends are taxed through a gross-up mechanism often called the 20/80 rule.

Here is how it actually works. You do not pay 20% on the dividend amount. You divide the net distribution by 0.8, then apply 20% to the result. The CIT is paid by the company, not the shareholder.

Step-by-step calculation:

Decide the net dividend: EUR 50,000
Gross up: EUR 50,000 / 0.8 = EUR 62,500
Calculate CIT: EUR 62,500 × 20% = EUR 12,500
Company pays EUR 12,500 to the state
Shareholder receives EUR 50,000
Shareholder pays no additional PIT

The effective rate is 20% of the net dividend — or equivalently, 25% of the gross-up base. This confuses people. The company spends EUR 62,500 to deliver EUR 50,000 to the shareholder, with EUR 12,500 going to the state.

When is it due? CIT on dividends must be declared and paid by the 20th of the month following the distribution. If you distribute on March 15, the CIT declaration and payment are due by April 20.

PIT on dividends: Zero. Under the standard regime, shareholders pay no personal income tax on dividends from a Latvian SIA that has paid CIT. This is a significant advantage for resident shareholders and a major selling point of Latvia's tax system.

The Alternative Regime: 6% PIT on Dividends

Under the new alternative CIT regime (available from 2026), the company has already paid 15% CIT on its annual profit. Dividends carry an additional 6% PIT burden.

Calculation:

Company profit: EUR 100,000
CIT paid: EUR 100,000 × 15% = EUR 15,000
Available for distribution: EUR 85,000
Shareholder decides to take EUR 50,000
Dividend PIT: EUR 50,000 × 6% = EUR 3,000
Net to shareholder: EUR 47,000

The company withholds the 6% PIT and remits it to VID. The shareholder does not need to file separately for this.

Side-by-Side: Which Costs Less?

On a EUR 50,000 dividend from EUR 100,000 profit:

| | Standard 20/80 | Alternative 15%+6% | |---|---|---| | CIT | EUR 12,500 | EUR 15,000 | | PIT | EUR 0 | EUR 3,000 | | Total tax | EUR 12,500 | EUR 18,000 | | Shareholder receives | EUR 50,000 | EUR 47,000 |

Standard wins. But only because we are distributing just 50% of profits. At 100% distribution, the alternative wins by nearly EUR 5,000. (See our detailed analysis in the alternative CIT article.)

The key insight: under the standard regime, you only pay when you distribute. Under the alternative, you pay 15% regardless. So partial distributions always favor the standard model.

Dividends from Retained Earnings of Prior Years

A common question: "Can I distribute 2024 profits in 2026 and use the alternative regime?"

The rules are nuanced. If your SIA switches to the alternative regime in 2026, the 15% CIT applies to 2026 profit. Retained earnings from prior years (earned under the standard regime with 0% CIT on reinvestment) are subject to the standard 20/80 rule when distributed, regardless of the current regime.

In practice, this means you may have two layers of dividend taxation in a single year — 20/80 on old retained earnings and 6% PIT on current-year distributions. Your accountant needs to track the source of each distribution carefully.

Common Mistakes

Forgetting the gross-up. Entrepreneurs budget EUR 50,000 for dividends and forget they need EUR 62,500 in total. The additional EUR 12,500 must come from somewhere — either from additional profit or from retained earnings.

Missing the deadline. CIT is due by the 20th of the following month. Miss it by even one day and penalties apply. In our experience, this is the most common procedural error — the distribution is decided in a shareholder meeting, but no one tells the accountant until the deadline has passed.

Distributing without sufficient equity. Latvian commercial law requires that distributions do not reduce equity below the registered capital. Distributing more than available retained earnings is illegal, regardless of bank balance. This is an accounting issue, not a cash issue.

Not considering interim dividends. Latvian law allows interim (mid-year) dividend distributions based on interim financial statements. This can smooth cash flow to shareholders but requires proper documentation — an interim balance sheet and income statement approved by the board.

Dividends to Non-Residents

When dividends are paid to a non-resident shareholder, the standard regime treatment remains the same — 20/80 CIT, no additional withholding (assuming the CIT has been paid). However, tax treaties may further modify the treatment, and the non-resident's home country may tax the dividend receipt.

Under the alternative regime, the 6% PIT on dividends paid to non-residents may be subject to withholding tax treaty provisions. Some treaties cap dividend withholding at 5%, which could reduce the 6% to 5% — but this requires treaty-specific analysis.

In our experience, cross-border dividend planning is one area where professional advice pays for itself many times over. The interaction between Latvian domestic law, EU directives (parent-subsidiary), and bilateral tax treaties creates optimization opportunities that are not apparent from reading any single document.

Planning Your Distributions

A few practical strategies:

Time your distributions. Under the standard regime, bunching distributions into fewer, larger payments reduces administrative work (one CIT declaration instead of twelve). But spreading them can help with personal cash flow.

Consider salary + dividends. Paying yourself a minimum salary (EUR 780/month in 2026) plus dividends creates social protection credits while keeping the overall tax rate low. The salary is deductible for the SIA, reducing the profit base for dividends.

Model both regimes annually. The alternative CIT election is annual. Each December, review your numbers and choose the regime that will cost less for that year. You are not locked in.

Need Help with Dividend Tax Planning?

CORVUS Accounting & Tax structures dividend distributions to minimize tax while meeting all legal requirements. From gross-up calculations to cross-border treaty analysis, we handle the complexity.