Latvia’s strategic location in the Baltic region offers a significant advantage for companies expanding into Europe. However, establishing a presence requires navigating the country’s employment and tax laws, including setting up a compliant payroll system. Companies must either establish a local legal entity or partner with an EOR to manage payroll in Latvia.
G-P’s Latvia EOR provides a streamlined alternative. Companies can leverage our existing, compliant entity in Latvia to hire and pay employees quickly, avoiding the time and expense of subsidiary setup
Taxation and social security in Latvia
Latvia operates on a Pay As You Earn (PAYE) system, where employers are responsible for withholding and remitting taxes and social contributions from employee salaries. A thorough understanding of these obligations is essential for compliance.
Personal income tax in Latvia
As of 2025, Latvia applies a progressive personal income tax rate on annual earnings. Employers are responsible for withholding progressive personal income tax rates of 25.5% (for income up to €105,300) and 33% (on income above that threshold) on behalf of employees.
Latvia social security contributions
Both employers and employees contribute to the state social insurance system. For 2025, the standard rates are:
- Employer contribution: 23.59% of the employee’s gross salary
- Employee contribution: 10.50% of the employee’s gross salary
Latvia payroll options for companies
Companies have three primary options for managing payroll in Latvia:
- Internal payroll: This involves running payroll through your own Latvian subsidiary. This approach gives you full control but requires a dedicated local HR and legal team to ensure compliance with all regulations. It is best suited for large companies with a long-term commitment to the country.
- Local payroll processing company: You can outsource payroll calculations to a third-party vendor in Latvia. While this can simplify processing, your company remains legally responsible for all compliance matters, including accurate tax withholding and reporting.
- G-P: Partnering with a global EOR like G-P is the most comprehensive solution. We handle all aspects of Latvian payroll, taxes, benefits, and compliance on your behalf, mitigating risk and freeing up your resources to focus on business operations.
How to set up payroll in Latvia
Before you can hire employees and process payroll, you must have a legal entity registered in Latvia. The alternative is to partner with an EOR like G-P, which allows you to bypass the lengthy process of subsidiary setup.
Payroll administration and reporting
Employers must submit a monthly report to the Latvian State Revenue Service (VID) detailing all income paid and taxes withheld. This report is due by the 17th of the month following the salary payment, with tax payments typically due by the 23rd.
By law, salaries must be paid at least twice a month, although employers and employees can mutually agree in writing to a monthly payment schedule, which is common practice for professional roles.
Payslip requirements
Employers are legally required to provide employees with a detailed payslip for each pay period. This document must clearly state the gross salary, all taxes and social security contributions deducted, and the final net pay.
Entitlement and termination terms
Employment contracts must include key terms related to termination and severance to ensure compliance with the Latvian Labour Law.
- Probation periods: Can be set for up to three months.
- Fixed-term contracts: Are permitted for temporary work and generally cannot exceed five years.
- Notice periods: In cases of dismissal initiated by the employer, a notice period of one month is generally required.
- Severance pay: Employees dismissed by the employer are entitled to severance pay based on their length of continuous service:
- Less than 5 years of service: 1 month’s average salary
- 5 to 10 years of service: 2 months’ average salary
- 10 to 20 years of service: 3 months’ average salary
- Over 20 years of service: 4 months’ average salary
Streamline global payroll management with G-P
G-P simplifies every step of the payroll management process with our market-leading global EOR. Pay your team with confidence anywhere in the world in 150+ currencies with our 99% on-time automated payroll system—all with just a few clicks. Our products also integrate with leading HCM solutions, syncing employee payroll data across platforms automatically to create one reliable, convenient source of truth for HR teams.
Contact us to learn more about how we can support you.