In order to improve companies’ access to financial resources, reduce financing costs, and balance the tax burden between local and foreign investors—natural persons—while simultaneously increasing municipalities’ interest in attracting investment, the Saeima on Wednesday, 3 December, adopted amendments to the Law on Corporate Income Tax and amendments the Law on Personal Income Tax in the final reading.

“This is another step that will foster the development of the Latvian economy. The goal of these changes is to create a fairer tax environment for entrepreneurs, supporting both local and foreign investors. The amendments will not only help companies to attract the necessary financing from various sources and reduce financing costs, but will also promote investment in Latvia’s regions,” said Anda Čakša, Chair of the Budget and Finance (Taxation) Committee, which was responsible for advancing the amendments through the Saeima.

With the adopted amendments, an alternative income tax system to support investors and municipal revenues will be introduced in 2026—namely, a new income tax model for dividends.

Companies whose shareholders are exclusively natural persons will be able to choose either to apply a reduced corporate income tax rate of 15% at the time that dividends are distributed, or to simultaneously apply a 6% personal income tax to dividend recipients.

Under this option, the overall tax burden will remain roughly equivalent to the current level (around 20%). However, it will now be possible to allocate part of the personal income tax to municipal budgets, based on the investors’ declared place of residence or on the company’s place of registration.

Up until now, companies in Latvia paid a corporate income tax of 20% only at the moment of profit distribution, while natural persons—both residents and non-residents—did not pay personal income tax on received dividends. Thus, the total income tax amounted to 20%, regardless of the investor’s place of residence or legal form. This created inequality between local and foreign investors, and did not supplement municipal budgets, since personal income tax on dividends was not allocated at the respective municipal level.

The amendments to both laws will enter into force on 1 January 2026.

Saeima Press Service