Starting April 1, 2027, residents of Latvia will have access to a new tax regime tailored for small-scale independent earners. Instead of the standard 25% micro-enterprise tax rate, first-time entrepreneurs will be able to pay just 10% of their turnover. The tax will be calculated automatically, and getting started won’t even require filing a separate registration form with the tax authority.
However, there is a major catch: the new tax does not include social security contributions. Because of this, a lower rate doesn’t automatically mean the new system is a better deal than the standard one.
The relevant legislative amendments were passed by the Parliament (Saeima) on September 17. The Ministry of Finance (Finanšu ministrija) released a detailed breakdown on October 27, and the State Revenue Service (Valsts ieņēmumu dienests, VID) included the updates in its November 3 tax review.
Who Qualifies for the 10% Tax Rate
The new regime is officially called iesācēju mikrouzņēmumu nodoklis — the beginner’s micro-enterprise tax.
It is designed for individuals who want to earn modest amounts on their own by selling goods or providing services directly to private customers.
For example, this could apply to someone tutoring on the side, doing yard work, offering household services, or selling handmade goods.
However, not everyone will be eligible for the reduced rate.
Key eligibility criteria:
- Annual turnover does not exceed €12,000.
- Goods and services are sold exclusively to private individuals for personal use, not for business purposes.
- The entrepreneur works entirely solo, without hiring employees.
- At the time of registration, the applicant has no other registered economic activity and has not had any during the previous two calendar years.
- No other parallel economic activity is carried out, except in specific cases permitted by law, such as declared rental income from personal property.
- The individual is not registered as a standard VAT payer, though exceptions apply to certain special VAT registration schemes.
Consequently, anyone providing B2B services to companies will not be able to use the new regime. Nor will it work for those who already run a registered business and do not meet the newcomer requirements.
Keep in mind that the €12,000 cap applies to gross turnover for the calendar year, not net profit after expenses.
How Much You Will Pay: Real-World Examples
Suppose someone does minor home repairs, earns €600 a month for their work, and meets all the criteria for the new regime.
At the 10% rate:
- Received from clients — €600.
- Tax — €60.
- Take-home amount after tax — €540.
If they bring in €6,000 over the course of a year, the tax bill comes to €600. At the maximum turnover of €12,000, the tax is €1,200.
By comparison, Latvia’s standard micro-enterprise tax (mikrouzņēmumu nodoklis, MUN) sits at 25% of turnover. On that same €6,000, the tax would be €1,500.
That is a difference of €900 a year.
Still, looking solely at the tax numbers is misleading: the standard MUN covers social security contributions, whereas the new regime does not.
There is another important detail. The 10% tax is calculated on gross receipts, regardless of any business expenses.
If a maker sells handmade items for €600, spends €400 on materials, and pays €60 in tax, they are left with just €140 in actual profit.
This is just a basic math example rather than a verdict on whether the regime is worth it: if your overhead costs are high, you should compare this option against standard regimes that tax net profit instead of gross revenue.
The Main Drawback: No Social Security Coverage
The lower rate isn’t just about the government wanting to cut red tape for small-scale earners.
According to guidance from the Ministry of Finance, the new tax consists strictly of personal income tax. Zero social security contributions are generated from these payments.
This is a fundamental departure from the standard micro-enterprise tax, where 80% of the payment goes toward mandatory state social insurance.
As a result, income taxed under the new 10% rate does not build toward your state pension or qualify you for social benefits.
If you also hold a regular day job where your employer pays payroll taxes, your social insurance is already covered through that employment. However, the extra side income under the new regime won’t boost your social contributions.
For a small side hustle, that trade-off might be completely fine. But if self-employment is your sole source of income, you need to weigh today’s tax savings against the lack of a social safety net tomorrow.
Fortunately, the law allows you to switch to a different tax regime mid-year if your situation changes.
How to Register
The government promises to make the onboarding process much smoother.
The new regime relies on a dedicated business revenue account — saimnieciskās darbības ieņēmumu konts (SDI konts).
To get started, you simply apply to open this specific account with a participating payment provider and opt into the new tax regime at the same time.
From there, the account provider forwards your details to the VID. As long as you meet the eligibility criteria, the tax authority registers you as a small-scale self-employed operator.
All revenue from your independent work must flow through this dedicated account. If customers pay you in cash, you are required to deposit those funds into the account according to set rules.
Both the calculation and the payment of the tax happen automatically. You won’t need to file the standard quarterly MUN tax returns or manually wire tax payments yourself.
As of November 2026, the VID lists Industra Bank as an active provider of the SDI account service. Before the new regime launches, however, prospective users should check which financial institutions support this specific beginner tier and what their monthly account maintenance fees look like.
What Happens If You Exceed the Limit
The 10% rate only applies as long as you stay within the rules.
If an entrepreneur breaches any of the regime’s conditions — such as crossing the €12,000 annual turnover threshold — an extra 15 percentage points are tacked onto the base rate starting from the date of the violation.
In other words, any revenue earned after crossing the line will be taxed at a combined rate of 25%.
On top of that, you lose the right to use the beginner regime at the end of that year (December 31) and are barred from opting back into it for the next two calendar years.
These penalties are explicitly laid out in the amendments to the Micro-Enterprise Tax Law.
Because of this, if you see your revenue approaching the annual cap, it is smart to plan a transition to another tax regime ahead of time rather than hoping extra payments will slip under the radar.
Who Should Actually Consider the New Regime
The core goal of these changes is to strip away bureaucracy for people making modest money on their own.
Instead of navigating tax registration, filling out quarterly declarations, and calculating tax bills by hand, you let the automated system linked to your dedicated bank account handle the heavy lifting.
This makes a lot of sense for someone testing the waters with a new service, selling homemade crafts, or taking on occasional odd jobs for private clients.
Still, the new regime is not a universal loophole for paying lower taxes.
It is off-limits for B2B work, caps your annual revenue, and leaves you with zero social insurance coverage from that income. Furthermore, paying a simplified tax rate does not exempt you from other industry-specific regulations or licensing requirements.
Starting a small side business in Latvia will definitely get easier on April 1, 2027. When choosing between the 10% rate and other tax setups, however, look beyond the immediate tax bill and factor in your business expenses, growth plans, and long-term social security.