Micro-Enterprise Tax: Is It Still Worth It in 2026?

When Latvia introduced the micro-enterprise tax in 2010, the rate was 9% on revenue. Sixteen years and several rate increases later, it sits at 25% — and the question every small business owner asks has flipped from "why wouldn't I use this?" to "does this still make sense?"

The answer depends entirely on your expense ratio. And most people get this calculation wrong.

What the Micro-Enterprise Tax Is

A single tax paid on total revenue (not profit) that replaces:

Corporate income tax (UIN)
Personal income tax (IIN) for the owner and employees
Social contributions (VSAOI) — though at reduced rates

The rate for 2026: 25% of gross revenue.

Eligibility requirements:

SIA only (not IK or self-employed)
Annual revenue cannot exceed EUR 40,000
Maximum 5 employees (including the owner if formally employed)
Shareholders must be natural persons only
Certain activities excluded (financial services, insurance, etc.)

One tax. One declaration. No need to track individual salary taxes or social contributions. That is the appeal.

The Real Cost: Revenue vs. Profit Taxation

Here is where entrepreneurs get confused. A 25% tax on revenue sounds steep — and it can be. But comparing it to the standard regime is not as simple as comparing percentages.

Example 1: Low-expense business (freelance consultant)

Revenue: EUR 35,000. Business expenses: EUR 3,000.

Micro-enterprise: EUR 35,000 × 25% = EUR 8,750 tax. Take-home: EUR 23,250.

Standard SIA (owner takes all profit as dividends):

Profit: EUR 32,000
CIT on full distribution: 32,000 / 0.8 × 20% = EUR 8,000
But add minimum salary requirement: EUR 780/month × 12 = EUR 9,360 gross
Employer VSAOI: EUR 9,360 × 23.59% = EUR 2,208
Employee VSAOI + IIN on salary... the calculation keeps growing

Total standard regime tax burden: approximately EUR 12,500–14,000 depending on exact salary structure.

The micro-enterprise regime is cheaper by EUR 3,750–5,250. Significant.

Example 2: High-expense business (small trade)

Revenue: EUR 38,000. Expenses (goods, rent, utilities): EUR 22,000.

Micro-enterprise: EUR 38,000 × 25% = EUR 9,500 tax. Take-home: EUR 6,500.

Standard SIA:

Profit: EUR 16,000
CIT on distribution: EUR 16,000 / 0.8 × 20% = EUR 4,000
Salary costs (minimum): approximately EUR 4,500 total with VSAOI
Total tax burden: approximately EUR 8,500

Standard regime is cheaper. When expenses consume more than 60% of revenue, the 25% revenue tax becomes punishing because you are paying tax on money you have already spent.

The rule of thumb: If your business expenses are below 30% of revenue, micro-enterprise likely saves money. Between 30–50%, run the numbers carefully. Above 50%, the standard regime is almost certainly better.

The Social Protection Problem

This is the elephant in the room. And for employees, it is the main reason to avoid micro-enterprise employers.

Under the micro-enterprise regime, social contributions are calculated at reduced rates. This means:

Lower pension credits for employees
Reduced sick leave benefits
Lower parental leave payments
Reduced unemployment benefits

For the business owner who is also the sole "employee," this may be an acceptable trade-off (you can supplement with private insurance). For hired employees, it is a real disadvantage that makes recruitment harder.

In our experience, this single factor has driven more companies out of the micro-enterprise regime than the tax rate itself. Talented employees simply do not accept reduced social protection when standard-regime employers offer full contributions.

When to Exit: The EUR 40,000 Question

The revenue limit is absolute. If you exceed EUR 40,000 in a calendar year, you must leave the micro-enterprise regime and pay standard taxes retroactively from the beginning of that year.

This creates a perverse incentive to artificially limit growth — turning down work, delaying invoices to the next year, splitting revenue between entities. All of these carry legal and practical risks.

Our advice: If your revenue has been above EUR 30,000 for two consecutive years and is trending upward, begin planning your exit now. Do not wait until you accidentally cross EUR 40,000 in October and face a painful year-end recalculation.

The transition involves:

Switching to standard CIT regime
Setting up full double-entry bookkeeping (if not already in place)
Registering as a VAT payer if revenue exceeds EUR 50,000 in 12 months
Establishing proper salary payments with full VSAOI
Filing monthly tax declarations instead of quarterly micro-enterprise declarations

This transition takes 1–2 months to execute properly. Starting mid-December because you just crossed the threshold is stressful and error-prone.

Micro-Enterprise vs. Self-Employed: A Common Confusion

Some people confuse the micro-enterprise regime (which requires a SIA) with self-employed status (which does not). They are fundamentally different.

| Feature | Micro-Enterprise SIA | Self-Employed | |---|---|---| | Legal form | SIA (LLC) | Natural person | | Tax base | Revenue | Income (after expenses) | | Tax rate | 25% | PIT 25.5%/33% + VSAOI 31.07% | | Liability | Limited to capital | Unlimited personal | | Employees | Up to 5 | None | | Social protection | Reduced | Full (but expensive) |

For a solo operator with low expenses and income under EUR 40,000, the micro-enterprise can be cheaper. For someone with significant expenses to deduct, self-employed status often wins because you only pay tax on net income.

(Detailed comparison: SIA vs IK vs Self-Employed.)

Is It Worth It in 2026?

For a narrowing set of businesses, yes. The ideal micro-enterprise candidate in 2026:

Solo operator or very small team (2–3 people)
Service-based business with low material costs
Revenue between EUR 15,000 and EUR 35,000
No plans to grow beyond EUR 40,000 soon
Owner accepts reduced social protection (or supplements privately)
Values simplicity and low administrative costs

If you match this profile, the micro-enterprise regime saves EUR 2,000–5,000 per year compared to the standard SIA, primarily through eliminated VSAOI costs. That is real money for a small operation.

If you do not match this profile — and especially if you plan to hire skilled employees or grow revenue past EUR 40,000 — the regime's constraints will cost you more than its tax savings.

Considering Your Options?

CORVUS Accounting & Tax helps micro-enterprises evaluate whether to stay or transition to the standard regime. We calculate both scenarios with your actual numbers and handle the transition paperwork when the time comes.

Talk to us →