Changes in Mandatory Social Contributions and Taxation for Micro and Small Businesses in Latvia

‍

Micro and small businesses form an essential part of Latvia’s economy.
When social contribution rules or tax legislation change, business costs increase immediately.
The 2024–2025 updates affect self-employed persons, micro-enterprise taxpayers and small SIA.
Understanding these rules helps avoid fines and maintain stable operations.

Official source (VID):
https://www.vid.gov.lv

‍

Main Changes Introduced in 2025

‍

• revised mandatory social contribution rules;
• stricter requirements for minimum contribution base;
• changes in micro-enterprise tax regulations;
• new standards for small SIA;
• enhanced reporting obligations;
• stronger checks on employee registration and salary payments.

These updates impact both individuals and companies.

‍

What Changes in Mandatory Social Contributions

‍

Minimum Contribution Base

‍

Social contributions are now linked to the national minimum salary.
If income falls below this base, contributions must still be paid from the minimum amount.

‍

What it means in practice

‍

• contributions increase for low-income self-employed persons;
• businesses must plan reserves for periods with lower income;
• regularity of payments is monitored;
• failure to meet contribution requirements leads to penalties.

Official information:
https://www.vid.gov.lv/lv/socialas-iemaksas

‍

Tax Regimes for Small Businesses: What Has Changed

‍

Latvia offers several tax regimes for small businesses:
micro-enterprise tax (MUN), self-employed regime and full taxation for SIA.
All regimes have been affected by the 2024–2025 updates.

‍

Micro-Enterprise Tax (MUN)

‍

The MUN regime becomes more regulated.

‍

Key updates

‍

• mandatory minimum social contributions regardless of turnover;
• stricter turnover limits;
• controlled number of employees;
• mandatory employee registration before salary payments;
• checks on actual business activity.

Official source:
https://www.vid.gov.lv/lv/mikrouznemuma-nodoklis

‍

Self-Employed Persons (Individual Activity)

‍

Updates for self-employed persons include:

• higher minimum mandatory contributions;
• stricter rules for expense documentation;
• verification of real income;
• need to store proof of all transactions.

Official information:
https://www.vid.gov.lv/lv/saimnieciska-darbiba

‍

Small SIA

‍

Small limited liability companies face additional obligations.

‍

Practical implications

‍

• mandatory social contributions for board members receiving remuneration;
• full accounting requirements;
• strict monitoring of the registered address;
• increased attention to the company’s real activity and turnover.

Official source:
https://www.ur.gov.lv

‍

Documents Required for Compliance

‍

Businesses must maintain a complete set of documents to meet tax and social contribution rules.

‍

Required documents

‍

• company registration certificate (SIA / self-employed / MUN);
• employment contracts;
• payroll records;
• tax declarations;
• bank statements;
• proof of registered address;
• turnover records;
• accounting documents;
• proof of social contribution payments.

Most documents must be stored for at least five years.

‍

How to Prepare for the Changes:

‍

1. Review the current tax regime and its suitability.
2. Check employee registration status in VID.
3. Estimate new social contribution costs.
4. Update all accounting and financial records.
5. Create a financial reserve for periods of low income.

Готов продолжить English Part 2, где будут:

• practical examples (self-employed vs MUN vs SIA);
• cost calculation;
• optimization tips;
• common mistakes;
• conclusion;
• 5 FAQs.

‍

Practical Examples: How the Changes Affect Different Business Types

‍

1. Self-Employed Persons (Individual Activity)

‍

Self-employed persons are most affected by the increased minimum contribution base.

‍

Practical impact

‍

• contributions must be paid even when income is low;
• documentation of every expense becomes essential;
• VID checks income consistency through bank transactions;
• reserve funds are necessary for irregular income cycles.

Official guidance:
https://www.vid.gov.lv/lv/saimnieciska-darbiba

‍

2. Micro-Enterprise Tax Payers (MUN)

‍

The micro-enterprise tax regime is now more regulated.

‍

Main consequences

‍

• mandatory minimum social contributions regardless of turnover;
• turnover limits monitored more frequently;
• all employees must be officially registered before payment;
• VID checks the company’s real economic activity.
• ‍

When MUN is still beneficial

‍

• the business has no employees;
• turnover remains stable and below limits;
• accounting needs are simple.

Official source:
https://www.vid.gov.lv/lv/mikrouznemuma-nodoklis

‍

3. Small SIA

‍

Small SIA face stronger compliance requirements.

‍

Practical consequences

‍

• increased social contributions for board members receiving remuneration;
• need for complete accounting;
• strict monitoring of business operations;
• higher documentation requirements for decisions and payments.

Official source:
https://www.ur.gov.lv

‍

How to Calculate Costs After the Changes

‍

1. Social Contributions

‍

Social contributions depend on:

• actual salary;
• minimum mandatory base (if income is lower);
• upper limits if income is high.

If income rises above the upper threshold, additional contributions do not increase further.

‍

2. Taxes by Regime

‍

Business costs vary significantly by tax regime.

‍

MUN

‍

• fixed percentage of turnover;
• simple accounting;
• best for one-person operations.

‍

Self-Employed

‍

• taxed based on profit;
• requires structured expense records.

‍

SIA

‍

• corporate income tax applied only when distributing profits;
• suitable for reinvestment.

‍

Tips to Adjust the Business to New Rules

‍

1. Reassess the Tax Regime

‍

If turnover increases or the business grows, MUN may become inefficient.
Transitioning to SIA may be more practical.

‍

2. Improve Accounting Accuracy

‍

VID requires proper documentation for all transactions.
Incorrect or missing records increase the risk of penalties.

‍

3. Create a Reserve Fund

‍

Mandatory minimum contributions apply even during slow months.
A reserve fund helps cover these costs.

‍

4. Register All Employees Properly

‍

Employee registration must occur before payment.
VID penalties for unregistered employees are significant.

‍

5. Follow Legislative Updates Regularly

Official information:
https://www.vid.gov.lv
https://likumi.lv

‍

Common Mistakes That Lead to Problems

‍

• no proof of expenses;
• late employee registration;
• delayed tax payments;
• wrong tax regime selection;
• incomplete accounting;
• violations involving the legal address;
• turnover not recorded correctly.

These issues result in fines and loss of beneficial tax status.

‍

Conclusion

‍

The 2024–2025 updates introduce stricter rules for micro and small businesses in Latvia.
Entrepreneurs must follow new social contribution requirements, ensure correct registration of employees and maintain proper accounting.
Choosing the right tax regime and keeping all documentation in order helps avoid penalties and ensures long-term stability.

‍

Frequently Asked Questions

‍

1. Are minimum social contributions mandatory even with low income?
Yes. The minimum base is required regardless of actual earnings.

2. What happens if a micro-enterprise exceeds the turnover limit?
The company loses MUN status and must switch to a standard taxation regime.

3. Must a small SIA pay contributions for a board member?
Yes, if the board member receives remuneration.

4. Can MUN be used if the company has employees?
Yes, but only under strict rules. All employees must be registered, and turnover cannot exceed limits.

5. Is an accountant necessary for small businesses?
Yes. Proper accounting reduces compliance risks and prevents financial penalties.