On 25 August 2026, Latvia's Cabinet of Ministers approved amendments prepared by the Ministry of Finance to the Personal Income Tax Law. Businesses should note that the changes are not yet in force. The bill must still be considered and adopted by the Saeima.
Certain cashback payments would no longer be taxable income
One of the most practical proposals concerns customer loyalty programmes. Cashback credited to a payment account in connection with purchases would no longer be treated as taxable income.
Certain refunds that effectively represent a discount on a previously purchased product or service would receive similar treatment.
Faster return to the reduced patent-fee regime
The amendments would shorten the period before a person can return to Latvia's reduced patent-fee regime after exceeding the permitted revenue limit.
The current waiting period is five years. The bill proposes reducing it to two years.
New tax obligation for construction contractors
Where a contractor pays wages directly to employees of a subcontractor under the procedure provided by Latvian labour law because their employer has failed to pay them, the contractor would be required to withhold and pay personal income tax on those wages.
Other proposed changes
- the annual tax-free reimbursement limit for volunteer-work expenses would rise from €1,000 to €3,000;
- the range of tax-exempt gifts would be expanded;
- the State Revenue Service would not refund personal income tax overpayments below €1;
- administration of certain deductible expenses would be simplified.
What should businesses do now?
Businesses should not yet change their tax treatment because the Cabinet-approved bill is not law. However, loyalty-programme operators, construction companies and users of the reduced patent-fee regime should assess how their processes may need to change if the amendments are adopted.
The Cabinet has approved the amendments, but the new rules will only apply after parliamentary approval and the law's entry into force.
Frequently asked questions
Is cashback already exempt from personal income tax?
No. The Cabinet has approved a bill, but it still requires adoption by the Saeima.
Has the patent-fee waiting period already been reduced to two years?
No. The reduction from five years to two years is currently contained in the proposed amendments.
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