Latvia Payroll and Benefits Guide
What global businesses need to know about payroll in Latvia
Geographically, Latvia is the middle of the three Baltic countries, sandwiched between Estonia to the north and Lithuania to the south. The country’s burgeoning economy took a considerable hit from the global economic crisis of the late 2000s, but it has largely recovered well since then, notwithstanding concerns around its proximity to Russia.
Latvia has been a member of the eurozone since 2014, which gives its economy the benefit of a stable currency. International businesses in the Latvian market can benefit from a highly urban population (around two-thirds of its 1.8 million inhabitants live in cities), and relatively low wages compared to the rest of the EU market.
There are some complexities around running payroll in Latvia, including some major recent changes in income tax and minimum wage, and a complicated parental leave system. This, and all the other key facts you need to know, are covered in this guide.
Getting Started
The most likely option for setting up a business in Latvia is a limited-liability company, which comes with a minimum share capital requirement of €2800 (approx. £2,420; $3,250).
To begin, you will need a Memorandum of Association (known as Decision on Foundation) and Articles of Association; as these documents must be in Latvian, you should source the help of local legal professionals for this. Then you will need to set up a temporary bank account in Latvia into which the capital can be transferred.
With this in place, you can submit documents to the Register of Enterprises (this can be done online, although not yet in English at the time of writing). Once your registration is confirmed, you can then open a full corporation bank account, and register with the State Revenue Service for tax, social security and VAT.
Employment Considerations in Latvia
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.
Latvia’s standard working week is eight hours per day, Monday to Friday, for a 40-hour week that’s in line with much of the rest of Europe. However, some hazardous jobs are limited to seven hours per day and 35 hours per week. As an EU country, the Working Time Directive is in place, meaning employees should not work more than an average of 48 hours a week over four months, inclusive of any overtime. Some senior managers may be exempt from this, however, by contractual agreement.
Any work above these levels, and any work on public holidays, is considered overtime and should be paid at 200% of the normal rate (unless collective bargaining deems otherwise). Overtime is limited to a maximum of 200 hours per year, and is banned for employees under 18.
Notice periods are generally one month (but only three days during probation periods). The probation periods themselves are normally three months, but can be extended up to six months through collective bargaining. For fixed-term contracts, probation periods are one month for a contract of up to six months, and two months for a contract of up to 12 months.
Compensation, Bonuses & Severance
The minimum wage in Latvia has more than doubled in the space of just nine years. On January 1 2026, it was increased for the fourth consecutive year, and now stands at €780 per month (approx. £675; $905).
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.
Severance pay starts at one month’s salary for employees with less than five years of service, rising to two months after five years, three months after ten years, and four months after 20 years.
Tax and Social Security in Latvia
Income tax in Latvia is fairly simple to understand, but some major changes were introduced at the start of 2025.
Previously, there were three bands of 20%, 23% and 31%. Now, they have been replaced by two: the lower rate of 25.5% and the higher rate of 33%. The threshold between the two is €105,300 each year (approx. £91,100; $122,400).
Social security contributions are 23.59% by employers, and 10.5% by employees. These rates reduce to 20.77% and 9.25% respectively for employees who are eligible for retirement.
Corporation tax in Latvia currently runs at 25%, which represents an increase on previous lower rates. The standard VAT rate is 21%, with a reduced rate of 12% applicable to a number of goods (although notably, not publications and books in languages other than Latvian, which were moved to the full 21% rate at the start of 2026).
Holidays and Leave
Paid leave entitlement in Latvia starts at four weeks for those employees who have at least six months of service. A minimum of two weeks should be taken in one continuous block (normally for the summer holidays). Employees can carry over a maximum of two unused weeks into the following calendar year, with agreement from their employer.
There are 15 days of public holidays each year in Latvia. The only holidays that are observed with the following working day off in lieu are the Restoration of Independence Day (in May), and Proclamation Day (in November). It’s also common for employees to finish one hour early on the last working day before a public holiday.
Maternity leave is paid at 80% of normal salary by social security, for a minimum of 16 weeks. Two further weeks are provided if the mother is registered as pregnant within the first 12 weeks of conception, and another two in the event of health problems or multiple births. Paternity leave is ten days at the same rate, and should be used within the first two months post-birth.
Parental leave was reformed for parents of children born after January 1 2023, and parents have two choices:
- The 13-month option: nine months taken by one parent during the first year post-birth (inclusive of maternity leave); two months for each parent used at any time before the child turns eight. All time off is paid by social security at 60% of salary.
- The 19-month option: 15 months taken by one parent during the first year post-birth (inclusive of maternity leave); two months for each parent used at any time before the child turns eight. All time off is paid by social security at 43.75% of salary.
Local authorities also provide a one-off childbirth benefit for parents, and this has been expanded over the second half of 2025 and the first half of 2026. In the capital Riga, for example, each parent now receives €450 for a newborn (approx. £390; $525), and higher amounts in the case of multiple and/or premature births.
Sick pay is covered by employers at 75% of salary for days two and three (day one is unpaid), then 80% for the following seven. Social security picks up the tab thereafter.
Latvia payroll: a summary
Latvia isn’t the easiest country in Europe to run payroll in. The rules around maternity and parental leave are complex, the minimum wage continues to increase at pace, and the income tax thresholds have changed substantially. Add in the need to conduct the business set-up process in Latvian, and this is definitely a country where local expertise can help you in many areas. For the payroll parts, a global payroll partner can connect you to that Latvian know-how, as and when you need it.
This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.