Social Insurance Payments (Social Tax) in Latvia
The law “On State Social Insurance”, originally passed in 1998, sets out the application of mandatory statutory social insurance payments to salaries received by employees. Social insurance payments are made to the social insurance budget, entitling the contributor to general sickness, pension, maternity and other social benefits.
Social insurance payments are levied on resident employers, employees of Latvian companies, resident employees employed by non-residents, resident expatriates assigned to work in Latvia, and self-employed individuals.
Taxable income, which is subject to social tax, is any income derived from work under contract in Latvia and is subject to personal income tax. The social tax is calculated from wage in full amount before deduction of the non-taxable minimum, tax concessions and eligible expenses for which the taxpayer has the right to reduce the taxable income.
An employer has to withhold social tax on a monthly basis at the rate of 23,59% of gross income. The total tax payable is 34.09%, so the employee must contribute 10,5%.
Expatriates employed by non-resident employers are subject to social taxes of 32%. The self-employed rate for social insurance payments is 31.06%.
Starting from 2014 maximum subject to social tax is set 46400 Euro.
The minimum amount of the object for mandatory contributions of self-employed persons is twelve minimal monthly wages (320 Euro). Such minimum applies proportionally to months the person has been self-employed. For micro company employees minimal amount of social contribution has not been set, but contribution can be made from freely chosen income in amount that does not exceed 720 Euro.
Since January 1, 2010 such maximal and minimal subject does not apply on individuals that performs an economic activity and pays patent fee, i.e. fixed fee set by State that includes personal income tax and social tax payments for individuals’ economic activity. Patent fee can apply only to set professions (in such sectors as different crafts, photography, beauty, housework etc.) and the person does not perform any other economic activity. The fee varies from Euro 43 to Euro 100 per month depending on activity performed and area (Riga or other) where the activity is performed.
Social tax and EU-general principle rates
The social tax shall be paid in a Member State (State), where a person is working, even if he/she resides in another EU Member State or the registered office of the employer is situated in another Member State.
Person has been posted to another State up to 12 months
If a person has been posted to another EU Member State until 12 months, then the social tax may be paid in the Member State from which he/she has been posted.
The provisions for the posted employee:
-when going to another Member State he/she should be registered as socially insured person in his/her Member State (in Latvia, if Latvian person is going to work in another Member State);
-the work abroad should be short-term (12 months with possibility to prolong);
-he/she should be posted by an assignment of the employer from his/her Member State (Latvian, if a Latvian person is going to another Member State);
-during whole posting period the direct link with the employer, who has posted the employee, should be maintained.
E101 certificate shall be arranged.
The E101 certificate is required in order to pay tax only in his/her home State. E101 provides that the employee is registered as socially insured person in his/her State (e.g., in Latvia). A statement should be presented to the competent authority of the employment State, if the authority requests it. The E101 is not given to a person who is going to change another person, whose assignment period has been expired.
Secondment exceeding 1 year
If the duration of the work to be performed due to the unforeseen reason exceeds the initially expected and becomes longer than 12 months, then the exemption may be applied and a person may remain insured in his/her State for the following 12 months. Usually the exemption is not applied for the period exceeding 5 years. The competent authorities (Social Agencies) of both states shall agree on the exemption application. In such case the employer an employee shall request the E101 certificate in due time.
Person working in 2 States
If a person is working in 2 States, than he/she pays the social tax in the State where he/she resides. If the person’s permanent residence is not located in any of the territories of States, where he/she is working, than the person should be insured according to the laws of the state, where the registered office of the company is located. If a person is employed by several employers, whose businesses are located in several States, then the person should be socially insured in the State of permanent residence. Also, in this case E101 form should be arranged.
If the situation arises where a company is registered in one Sate, but the social tax for the employee should be paid in another State, then the company shall be registered in that State where the social tax for the employee should be paid. The company may be registered by itself or through the employee.
The administration of social insurance premiums is the responsibility of the tax authority (State Revenue Service), which determines reporting dates to each company.
Employees must be registered by the 5th day of the following month after an employment contract has been concluded. Resident employers have to submit statements of social insurance contributions by the date set by the tax authority.
Valters Gencs, founding partner and lawyer of the Gencs Valters Law Firm in Riga.
Practising in fields of Social Insurance tax in Latvia, Estonia, Lithuania.
T: +371 67 24 00 90
F: +371 67 24 00 91