Everyone knows that taxes are an integral part of an adult’s life. Although the payment of taxes cannot be described as pleasant, it is nevertheless vital to the viability of the country and the well-being of its people. If you live in Latvia, paying taxes is simple and straightforward, but what about those who at least partly earn their income abroad?
We can delight you – in many situations you do not have to pay personal income tax when working abroad. Keep reading and find out what the law says about paying PIT to Latvian residents!
Explain the terms: who are PITs and residents?
Personal income tax is one of the basic types of tax that is levied on the income of legal and natural persons. Following the tax reform, a differentiated PIT rate is applied in Latvia.
For natural persons the salary rate of PIT is the most relevant:
- 20% – monthly income up to 1667 dollars ;
- 23% – for a part of monthly income above 1667 dollars.
Royalties and capital gains are taxed at the rate of 20% and annual income from economic activity is subject to progressive personal income tax. Full information on tax rates is available on the SRS website.
Residents are persons declared in the Republic of Latvia as well as persons staying in Latvia for at least 183 days a year. If you work abroad but have not notified the Office of Citizenship and Migration Affairs of your change of residence, the SRS considers you to be a Latvian taxpayer. Does this mean that income tax returns and tax payments are compulsory? Not always – read on to find out if it applies to you!
Income Tax When Working Abroad: Payable or Not?
Personal income tax rates vary across Europe as the EU does not have a single PIT tax policy. Taxes in England range from 20% to 45%, depending on the level of income. Wage taxes in Germany range from 0% to 45%, and interest rates are affected not only by income but also by marital or unmarried status. If you earn most of your income abroad, your foreign employer pays income tax.
And yet many foreign workers are worried about whether taxes in the EU and Latvia are doubling? Do you, as a resident of Latvia, have to pay anything extra? It depends on where you are employed.
When should I pay personal income tax? There are three situations where this is mandatory:
- if you work outside the EU;
- if you are receiving income in a country with which Latvia has not concluded a double taxation agreement;
- if you earn income not from gainful employment, but from economic activity, real estate transactions, dividends, etc.
The good news is that for a couple of years a resident’s income earned abroad does not have to be declared in the SRS electronic system if the money is earned in another EU country. However, we draw your attention to the fact that this relief applies only to wage income, but income from economic activities, dividends, real estate sales must be declared as before.
In order to declare income, a resident must complete an annual income declaration on the SRS electronic system website. As a reminder, the deadline for completing mandatory income tax returns is June 1 each year.
What is a tax on donations?
Many Latvian citizens working abroad send money to relatives who have stayed in Latvia. It is considered a gift, and very often it is not clear to the recipients that the gift is taxable.
In this situation, there are three options for action:
- The recipient does not need to do anything if the gift is transferred to relatives up to the third degree and the money is used to cover household expenses;
- The declaration of a gift is obligatory if it exceeds 4,000 dollars per person per year and if the donor and the recipient have a marriage or affinity but do not have a common household;
- It is mandatory to declare the gift and to pay the PIT for the amount exceeding $ 1425, if the donor and the recipient are not related to the third degree. In this case, the PIT rate is 23%.
The exception is a gift from a third party that is used for educational or medical expenses. When completing the Electronic Income Declaration, the recipient of the gift must submit supporting documents proving the purposeful use of the donation amount.
Additional financial support for those working abroad
Working abroad can be lucrative, but every single person may need a little more from time to time. Ordinary credit abroad is not always available, but it is relatively easy for foreign workers to obtain credit.
Such a loan is a handy service for people who maintain their ties with Latvia, for example, using Latvian banking services. We at Halvard Solness have compiled a list of all non-bank credit institutions that offer credit to overseas employees. Compare and choose the one that suits you best!
As you see, income tax when working abroad does not always mean additional costs. Also educate your friends who have moved or are planning to move to another country – share this post on social networks!