How Income Tax Works in Latvia (2026): 25.5%/23%/33% and the Fixed Allowance
Latvia charges personal income tax (iedzivotaju ienakuma nodoklis, IIN) on a progressive scale for 2026: 25.5% on annual taxable income up to EUR 20,004, 23% from EUR 20,004 to 105,300, and 33% above. Taxable income is gross minus the 10.5% employee VSAOI social contribution and the fixed EUR 550/month non-taxable minimum. Verify current figures with VID (vid.gov.lv).
The 2026 progressive scale
For 2026 Latvia applies three income-tax rates to annual taxable income: 25.5% up to EUR 20,004, 23% from EUR 20,004 to EUR 105,300, and 33% above EUR 105,300. An unusual feature is that the middle band (23%) is LOWER than the entry band (25.5%). This is a deliberate 2026 structure and not an error -- the first slice of income is taxed slightly higher than the next. Income tax is withheld monthly by the employer and reconciled on the annual return. The tax base is gross salary minus the employee social contribution (VSAOI) and the non-taxable minimum (see below). Confirm the current bands with VID before relying on them.
The fixed non-taxable minimum (neapliekamais minimums)
From 2026 the non-taxable minimum is a FIXED EUR 550 per month (EUR 6,600 per year) for every employee, regardless of income. This replaced the previous differentiated minimum that shrank as income rose. The fixed amount simplifies payroll and means higher earners now keep a small allowance they previously lost. A separate, higher minimum applies to old-age pensioners. The allowance is deducted from income (after VSAOI) before the tax rates apply. Additional allowances exist for dependants; this calculator models a single employee with the standard minimum.
Worked example
Illustration only -- confirm with VID or payroll software. Monthly gross EUR 1,500, single employee: VSAOI (10.5%): EUR 157.50 Non-taxable minimum: EUR 550.00 Taxable: 1,500 - 157.50 - 550 = EUR 792.50 Income tax (25.5%): EUR 202.09 Net (take-home): 1,500 - 157.50 - 202.09 = approx. EUR 1,140.41 The effective income-tax rate on gross is well below 25.5% because both VSAOI and the fixed minimum reduce the base first.
FAQ
Why is the 23% band lower than the 25.5% entry band?
It is a deliberate feature of Latvia's 2026 scale: the first EUR 20,004 of taxable income is taxed at 25.5%, the slice from EUR 20,004 to 105,300 at 23%, and anything above at 33%. The rate dips in the middle band by design. Confirm the current bands with VID.
How much is the non-taxable minimum in 2026?
A fixed EUR 550 per month (EUR 6,600 per year) for employees, applied regardless of income level. It replaced the old income-dependent minimum from 2026. Pensioners have a higher minimum. Verify the amount with VID.
Does an employee need to file an annual return?
Employers withhold monthly, but many people file an annual income declaration to reconcile allowances and claim eligible deductions (for example medical or education expenses). Check your situation with VID (vid.gov.lv).
⚠️ Informational estimate, not tax advice. Payroll software may differ in edge cases. Verify with a professional.