The FM explains that the draft law is aimed at increasing the competitiveness of the labor force and reducing the labor tax burden for low- and medium-income workers, as well as simplifying the application of VAT.
Together, all these changes will cause a loss of 191.1 million euros to the state and local government budgets in 2025, a loss of 254 million euros in 2026, a loss of 287.5 million euros in 2027, and a loss of 293.2 million euros in 2028. .
FM indicates that as a result of the changes, the amount of tax payable will decrease for employees whose gross salary is up to 4,000 euros per month, and thus their net salary will increase. The planned labor tax changes will positively affect 95% of workers.
According to the FM, the general changes will also affect the recipients of all types of pensions – about 46.2% of all types of pension recipients will have a positive impact, while the changes will not affect approximately 53.8% of all types of pension recipients, because these persons do not already pay tax from the pension they receive. , but 0.04% will be negatively affected by this change. A positive effect is created for a pensioner with an income of up to 4,200 euros per month.
From 2025, it is planned to set the fixed non-taxable minimum for all salaries in the amount of 510 euros per month, from 2026 it is planned to increase it to 550 euros, and in 2027 – to 570 euros per month. The non-taxable minimum for pensioners is expected to be increased from 500 to 1000 euros per month next year.
Prime Minister Evika Siliņa (JV) said at the government meeting that the State Revenue Service, in cooperation with the Ministry of Welfare and the State Social Insurance Agency, should prepare proposals for more effective administration of the tax-free minimum for pensioners by using digitalization possibilities until the consideration of this bill in the Saeima in the second reading.
The minimum wage in 2025 will increase from 700 to 740 euros per month, in 2026 – to 780 euros per month, from 2027 – to 820 euros per month, and from 2028 – to 860 euros per month.
Balancing the non-taxable minimum with VAT rates and in order to simplify the labor tax system, it is planned to set a VAT rate of 25.5% for income up to 105,300 euros per year or 8,775 euros per month. The solidarity tax of 33% will be maintained for incomes above 8,775 euros per month. As the amount of the non-taxable minimum will remain unchanged in the future, regardless of the amount of salary, citizens will have more money “on hand”, despite the fact that the VAT rate will increase from 20% and 23% currently to 25.5%, FM explains.
In order to introduce greater progressivity for high income recipients, from 2025 it is planned to introduce an additional personal income tax rate of 3% for incomes over 200,000 euros per year, declaring annual income in a summary manner.
The additional rate will apply to taxable income for the tax year, including capital gains and capital gains other than capital gains and exempt dividends and liquidation allowance.
The additional rate of VAT is planned to be introduced from 2025, and it should be applied in summary procedure, when submitting the annual income declaration. Accordingly, the first declaration, in which the income would be taxed with an additional VAT rate of 3%, should be submitted in 2026 for the 2025 tax year.
It is intended to determine that income from capital, including capital growth, income of a professional athlete, income of foreign taxpayers from the professional activities of artists, athletes or coaches and royalties (copyright and related rights) for the creation of literary, scientific or artistic works and remuneration for discovery , creation of inventions and industrial samples will be subject to a tax rate of 25.5%.
The tax rate, which is applicable when tax is withheld from costs for persons who are located, have been established or established in the low-tax and tax-free countries or territories mentioned in the regulations of the Cabinet of Ministers, has been increased from 23% to 25.5%.
If the tax payer’s income exceeds the maximum amount of the object of mandatory contributions specified in the Law “On State Social Insurance” (one 12th of the maximum amount of the object of mandatory contributions), the deductions specified in the law will be deducted from the payer’s annual (payroll tax payer’s – monthly) income until the Law “On State Social insurance” for the maximum amount of the specified mandatory contributions object (one 12th of the maximum amount of the mandatory contributions object).
From the payer’s annual (salary tax payer – monthly) income that exceeds the maximum amount of the object of mandatory contributions specified in the Law “On State Social Insurance”, the deductions specified in the law will be deducted only if with the annual (salary tax payer – monthly) income up to the law “On the maximum amount of the object of mandatory contributions determined by the “state social insurance” is not sufficient to cover the mentioned deductions.
In addition to the aforementioned, the draft law stipulates that a 33% rate will be applied to the portion of income that exceeds the maximum amount of the object of mandatory contributions specified in the Law “On State Social Insurance” (one 12th of the maximum amount of the object of mandatory contributions), but the calculated amount of tax will be reduced by the tax, which is calculated, the amount of deductions that exceeds the maximum amount of the object of mandatory contributions specified in the Law “On State Social Insurance”, multiplied by the tax rate of 25.5%.
Thus, if the application of the deductions mentioned in the law results in an overpayment of tax, the tax will be refunded to the taxpayer at a tax rate of 25.5%.
The draft law provides for the amount of relief for dependent persons to be determined by law and to exclude the delegation given to the Cabinet of Ministers for determining the amount of relief for dependent persons. At the same time, the currently effective amount of relief for dependent persons – 250 euros per month – will be maintained.
Also, the draft law envisages establishing a clear regulation in the law on the application of the non-taxable minimum and relief for dependent persons to the sickness benefit. Accordingly, the State Social Insurance Agency, when calculating the tax from the sickness allowance, will take into account the non-taxable minimum set by the law and the established tax benefits during the period for which the sickness allowance is calculated. On the other hand, the mentioned regulations of the Cabinet of Ministers will determine the wider application procedure of the mentioned regulation.
In order to increase the availability of labor and promote the mobility of workers, the bill envisages expanding the statutory tax relief for payments made by the employer in accordance with the concluded collective agreements for the employee’s food and medical expenses, with moving, accommodation and transport expenses, stipulating that the amount of all employee expenses (the total amount) per year does not exceed the amount obtained by multiplying the average number of employees within the meaning of the Law on Annual Reports and Consolidated Annual Reports by 700 euros.
The mentioned tax relief can be used only if the employer keeps the external justification documents confirming the relevant expenses. At the same time, the current conditions for the application of the relief will also be maintained, including the condition that the expenses paid by the employer for all employees specified in the collective labor agreement do not exceed 5% of the employer’s annual total gross salary fund.
The amount of tax relief per year – the average number of employees multiplied by 700 euros means that the amount of the relief per employee is 700 euros per year on average, but if there is an employee who needs to pay expenses that exceed 700 euros per year, e.g. in connection with the employee’s moving to another place of residence, but on the other hand smaller expenses for another employee, for example transport expenses, which are 400 euros per year, then the employer will be able to pay for a specific employee also larger expenses that exceed 700 euros, but within the framework of the tax year the employer will have to follow together, so that the total amount of expenses of all employees as stipulated by the law is respected.
Also, the draft law increased the amount of reliefs, determining that the tax-exempt amount for child birth allowance and funeral allowance paid by the employer to the employee is 500 euros, while the amount of gifts from the employer – 100 euros per tax year.
The bill will set a uniform limit of 1,500 euros for all material and monetary prizes received in contests and competitions, regardless of whether the prize was received for participation in international contests/competitions or not.
Also, the annual taxable income will not include and are not taxed the winnings obtained in the national lotteries “Sporta Loterija”, “Sporto Visi” and “Senatnes Loterija”.
The draft law provides that the condition of not including the amount received, paid out as state support for agriculture or European Union support for agriculture and rural development, in the taxable income is extended until 2029 inclusive, after which the effectiveness of the said relief will be re-evaluated.
The draft law also provides for extending until December 31, 2027, the time period specified in the transition provisions of the law, during which royalty recipients have the option not to register as economic operators, but the payer of income withholds taxes (both personal income tax and mandatory state social insurance contributions) instead of income payments , applying a tax rate of 25%.
The bill is being advanced in the package of bills accompanying the bill “On the state budget for 2025 and the budget framework for 2025, 2026 and 2027”, which will enter into force on January 1, 2025.