Understanding Payroll in Latvia: What Global Companies Need to Know About Latvia's Payroll
Jul 25, 2017
Latvia is a beautiful country in the Baltic region, known for being home to a number of rare animals like the black stork and European wolves. The Baltic has charm to spare for both for its citizens and foreign businesses who choose to open up shop in their country. Latvia shows their support of business with a 15% corporate business tax, and a cooperative attitude towards newcomers. Latvia has just under 2 million people living in the country, and a GDP of $27 billion.
Latvia's economy is made up primarily of service industries, wood products, and metals. The country is still somewhat dependent on the strength of Russia's economy, though they're trying to stand on their own as much as possible. While Latvia may have a low corporate tax, their tax structure can get complicated quickly. Having a global payroll provider on you side can be useful to help navigate the tax structure.
To begin, you will need a Memorandum of Association (known as Decision on Foundation) and Articles of Association, but also the proper equity capital before you are able to fully register. The first step will be contacting the Commercial Registry of Republic of Latvia and the State Revenue Service (tax officials.) If you register as an LLC (known as an SIA in Latvia), you will also need to register with VAT. Businesses will need a corporate bank account, which can be opened quickly providing you have the required documentation.
Employment Laws/Employment Rights
Collective bargaining is alive in the public sector, but you'll find very little union influence in the private sector. You will need employee contracts drawn up for all workers that stipulate the nature of the employee/employer relationships. This is a good time to discuss expectations for both parties, and to hammer out as many stipulations as possible. Probationary periods are allowed, but cannot go past 3 months. During the probationary period, a company can typically terminate an employee for any reason.
Latvia keeps general business hours Monday through Friday, and they operate on a 40 hour work week. However, for particularly risky jobs, the hours are capped at 7 hours and 35 minutes a day. Anything over the standard hours will be paid overtime at double time. Any employee working more than two hours at night (between 10 pm and 6 am) will need to be paid a premium as well.
Compensation, Bonuses, Severance
The minimum monthly wage in Latvia is around €380 ($447, £340). Bonuses, raises, and additional compensation are generally agreed to when contracts are first drawn up. There are no rules requiring raises or bonuses, though most companies will reward an employee's loyalty with additional consideration on a yearly basis.
Employees can be terminated for failing to meet the terms of their contract, but employers will need to provide notice. This notice can be immediate, but is generally given either 10 days or 30 days in advance. In the case of severance or redundancy pay, Latvia requires one month of wages if the employee has worked at the company for less than 5 years (two months pay if the employee has been there longer than 5 years.)
If you are not a permanent establishment in Latvia, you are only subject to taxes on sourced income from Latvia. Corporate tax is 15%. However, if you are located in a special zone (typically neighborhoods that need to be revived), it can be as low as 3%. Standard income tax is a flat 23% in Latvia regardless of salary, and must be withheld from employee paychecks. Capital gains are taxed at 15%, and VAT is 21% (though this may be reduced, depending on your industry.) Employees pay 11% into social security, while employers pay 24.09% into the system. Social security is also withheld from employees at the source. A global payroll company can manage and organize all of these payments, and ensure they are all paid on time.
Leave – Sick, Maternity, Vacation, Absence, Holidays
Employers must pay their employees for the first 10 days of an illness. Anything longer than this is generally paid for by the government. Vacation time is typically four weeks long, and there are 13 national holidays in Latvia. The day before all public holidays, the workday must be reduced by at least one hour. Employers cannot require employees to work holidays, though they can entice them to do so with additional pay. Maternity leave is generally 112 days. Women are required to take off at least two weeks before giving birth, and two weeks after. Paternity leave is 10 days.
|Date||Latvia's Public Holiday Schedule|
|January 1st||New Year's Day|
|Friday before Easter Sunday||Good Friday|
|Monday after Easter Sunday||Easter Monday|
|May 1st||Labor Day|
|May 4th||Declaration of Independence Day|
|June 23rd||Midsummer Eve|
|June 24th||St. John's Day|
|November 18th||Latvian National Day|
|December 25th||Christmas Day|
|December 26th||2nd day of Christmas|
|December 31st||New Year's Eve|
Latvia is still in a building period right now, so there's opportunity to spare for businesses of all kinds. This country prizes education, and the people here feel free to speak their mind. Long meetings are not welcome, so business leaders should keep their messages short and sweet.
There are going to be a lot of payroll regulations to contend with should you choose Latvia as the place to do business. The larger a company, the more chances there are a mistake will be made somewhere down the line. A company needs not just legal help, but financial advice to ensure everyone gets their fair share of the pie. An international payroll solution can be just what you need to simplify it all.