Latvia Introduces a More Competitive Dividend Tax Regime

Detailed description of both dividend taxation models in Latvia

Business owners may now choose between:

• the existing 20% corporate income tax (CIT) regime; or
• a split-tax model comprising 15% CIT and 6% personal income tax (PIT) on distributed profits.

This reform directly addresses long-standing concerns raised by foreign investors about Latvia’s dividend taxation framework and its effect on overall investment competitiveness.

The new regime reduces the risk of economic double taxation and strengthens Latvia’s position as a jurisdiction for holding and operating companies.

What will be the benefits for foreign investors from the new dividend taxation model?

Previously, non-resident shareholders were subject to Latvian CIT on distributed profits and, in many cases, additional personal income tax in their country of residence. Although double taxation treaties mitigated some cases, investors from several jurisdictions faced a significantly higher overall tax burden.

Under the new model, non-resident shareholders will generally pay only the difference between the personal income tax rates in Latvia and their country of residence. This substantially reduces total taxation on dividends and increases after-tax returns. The reform reflects the government’s responsiveness to investor concerns and its intention to strengthen Latvia’s attractiveness for foreign direct investment.

For several years, foreign investors have highlighted the lack of competitiveness in Latvia’s business environment, largely attributable to the existing dividend taxation framework. By introducing the alternative dividend taxation regime, the government delivers on its commitment to foreign investors — enabling them to reduce their overall tax burden in their country of residence, enhancing Latvia’s attractiveness as an investment destination, and addressing the previous imbalance related to double taxation of dividends in Latvia and the investor’s country of residence.

Positive fiscal impact for municipalities

The introduction of the PIT component in dividend taxation also creates additional revenue streams for municipalities.

PIT revenues are currently allocated 78% to municipalities and 22% to the state. According to government estimates, non-resident profits alone amount to at least EUR 31 million, generating a minimum of EUR 318 thousand in additional municipal revenue — with further upside potential from Latvian resident entrepreneurs opting for the new regime.

As PIT is allocated based on the shareholder’s declared residence (or company registration location in the case of non-residents), municipalities now have an increased incentive to create an attractive living and business environment for entrepreneurs and their families.

Macroeconomic Perspective

In 2024, investment volumes in Latvia declined by 6.7% to EUR 7.25 billion, while the investment-to-GDP ratio decreased to 22.3%. Although this remains broadly in line with the ten-year average, it trails several neighbouring and EU Member States, constraining long-term competitiveness.

While the medium-term impact on foreign direct investment remains to be seen, the reform represents a strategically positive step toward improving Latvia’s investment climate.