Tax Changes 2026: Everything Businesses Need to Know

On January 1, 2026, at least seven significant tax changes took effect in Latvia simultaneously. Some had been debated for years. Others appeared in final legislation barely two months before the deadline. The result: a tax landscape that looks meaningfully different from 2025 — and a lot of confused business owners.

Here is what actually changed, what it means in practice, and what you should do about it.

1. The New Alternative CIT Regime: 15% on Profit + 6% on Dividends

This is the headline change. For the first time since Latvia adopted its distributed-profit model in 2018, companies can opt out of the 20/80 system entirely.

Under the alternative regime, the company pays 15% CIT on annual accounting profit (regardless of whether it is distributed), and shareholders pay 6% PIT when receiving dividends.

Who benefits: Companies that distribute more than 75% of their profits. At full distribution on EUR 100,000 of profit, the alternative regime saves approximately EUR 4,900 compared to the standard 20/80 model.

Who does not: Companies that reinvest heavily. Under the standard regime, reinvested profits face 0% tax. Under the alternative, they face 15% whether distributed or not.

The election is made annually with the corporate income tax declaration. It is not irrevocable — you can switch back to the standard regime in subsequent years.

(Full analysis: Alternative CIT Regime Explained.)

2. VAT Rate Restructuring

The most consumer-visible change. Starting July 1, 2026, food products move from the standard 21% VAT rate to the reduced 12% rate. This applies to unprocessed and processed food items, though the exact scope is defined in supplementary Cabinet regulations.

The super-reduced 5% rate continues to apply to specific categories (certain pharmaceuticals, domestic heating, periodic press publications).

For businesses, the mid-year transition creates practical headaches. Invoices spanning July 1 may contain items at different rates. Accounting software needs updating. Price lists need revision.

In our experience, the VAT rate change itself is straightforward once you adjust your systems. The complexity is in the transition — particularly for businesses with long-term contracts that reference prices inclusive of VAT.

3. Minimum Wage Increase to EUR 780/Month

Up from EUR 740 in 2025. A 5.4% increase.

The ripple effects matter more than the headline number. Minimum wage determines:

The minimum salary base for VSAOI contributions
The threshold for certain micro-enterprise calculations
The minimum director's salary in many SIA structures

For a company paying one employee at minimum wage, the total cost rises by approximately EUR 54/month (EUR 40 gross wage increase plus roughly EUR 14 in additional employer VSAOI at 23.59%). Over 12 months: EUR 648 per employee.

Small numbers individually. Significant if you employ ten people at or near the minimum.

4. Non-Taxable Minimum Raised to EUR 550/Month

The monthly non-taxable minimum for personal income tax increased from EUR 510 to EUR 550 in 2026. This benefits employees and self-employed individuals whose income falls within the progressive reduction range.

At maximum effect (for the lowest earners), this saves EUR 122.40 per year in PIT (EUR 40 × 12 × 25.5%). Not life-changing, but not nothing.

The progressive reduction formula means the benefit phases out as monthly income increases. Above approximately EUR 1,800/month, the non-taxable minimum drops to zero. So this change primarily helps workers earning between minimum wage and roughly EUR 1,800.

(Details and examples: Tax-Free Minimum 2026.)

5. VSAOI Rate Adjustments

The employer VSAOI rate remains at 23.59% and the employee rate at 10.50% for 2026. Self-employed individuals continue at 31.07%.

The solidarity tax threshold — the income level above which the solidarity tax applies instead of standard VSAOI — is EUR 105,300 per year (EUR 8,775/month) for 2026. Income above this threshold is subject to the solidarity tax at 25%, which is split between employer and employee portions similarly to VSAOI but directed differently.

No dramatic changes here, but the thresholds shift annually with wage growth, so last year's calculations need refreshing.

6. E-Invoicing Requirements

Latvia is progressively implementing mandatory e-invoicing for business-to-government (B2G) transactions, with broader B2B requirements on the horizon. In 2026, the scope expands to include additional categories of government suppliers.

If your company contracts with state or municipal entities, verify that your invoicing system supports the required e-invoice format (based on the European standard EN 16931). Non-compliant invoices may face processing delays or rejection.

The full B2B e-invoicing mandate is expected to roll out in phases through 2027–2028, but planning now reduces transition costs later.

7. Micro-Enterprise Tax: Still 25%, But Watch the Limits

The micro-enterprise tax rate remains 25% on revenue for 2026. The EUR 40,000 annual revenue cap and 5-employee limit are unchanged.

What has shifted is the enforcement environment. VID (the State Revenue Service) has increased scrutiny of micro-enterprises that appear to use the regime to avoid standard employment relationships. If your micro-enterprise has a single client providing more than 80% of revenue, expect questions.

The practical implication: micro-enterprise status remains valid and legal, but the regime is narrowing in spirit. Companies approaching the limits should plan their exit strategy rather than engineering ways to stay just under the ceiling.

(Our analysis: Micro-Enterprise Tax 2026.)

What Should You Do Right Now?

If you distribute most of your SIA profits: Model the alternative CIT regime against your 2025 actual figures. If the savings exceed EUR 1,000, the switch is worth the administrative effort. We can run this analysis in under an hour.

If you employ people at minimum wage: Update your payroll from January 2026 to reflect EUR 780. Verify that employment contracts reference the statutory minimum rather than a fixed amount — otherwise you may need to amend contracts.

If you sell food products: Prepare for the July 1 VAT rate change. Update your POS systems, accounting software, and any published price lists. Communicate clearly with customers about price adjustments.

If you are self-employed: Recalculate your quarterly advance payments using the 2026 non-taxable minimum and PIT brackets. The difference is modest but compounds over the year.

If you invoice the government: Confirm your e-invoicing capability and compliance with EN 16931.

Need Help Navigating the 2026 Changes?

CORVUS Accounting & Tax (Russell Bedford network) helps businesses adapt to Latvia's evolving tax environment. Whether you need to model the new CIT alternative, update payroll, or prepare for VAT transitions, our team handles the details so you can focus on your business.

Get in touch →