Self-employed or SIA: which option should you choose?

Are you planning to start a business in Latvia, but unsure which legal form and tax regime would suit you best? Making the right choice is the foundation for successful business growth. Learn about the key differences and make an informed decision.

Self-employed + personal income tax regime

This is one of the most popular options if you want to turn your skills or hobby into a source of income. Economic activity must be registered at eds.vid.gov.lv. Personal income tax is paid once a year when submitting the annual income declaration, and reports must be submitted quarterly together with social security contributions:

• Personal income tax: from 25.5% to 33%, depending on the level of income;
• Quarterly social security contributions: 31.07% of income not lower than the minimum wage + 10% for pension insurance; if income is below the minimum wage, only a 10% contribution to pension insurance is required.

Under this tax regime, you may deduct business-related expenses, apply statutory tax allowances and, if necessary, register as a VAT payer.

Micro-enterprise tax payer (MUN)

Tax must be paid quarterly at a rate of 25% of turnover. The key difference compared to a self-employed person under the personal income tax regime is that a micro-enterprise taxpayer cannot be a VAT payer and is not entitled to deduct business-related expenses.

LLC (SIA) owner + corporate income tax regime

The most popular form of business activity, suitable for small, medium and large enterprises alike. You can establish an LLC (SIA) with a minimum share capital of EUR 2,800, or a low-capital LLC with share capital starting from EUR 0.01, provided that the statutory conditions are met. The main differences compared to the previously mentioned forms of activity are:

• registration with the Register of Enterprises;
• application of the corporate income tax regime, with a tax rate of 20%;
• status: legal entity;
• liability: the owner of the LLC is liable for the company's obligations only to the extent of the company's assets;
• extensive documentation requirements: balance sheet, annual report, profit and loss statement, corporate income tax return, general ledger and transaction journal.

Individual merchant

An individual merchant may choose any of the tax regimes mentioned above. To obtain individual merchant status, registration with the Enterprise Register is required.

Key questions to ask yourself before making a choice:

• What are your planned income and expenses?
• Will you have VAT-taxable transactions?
• Do you plan to employ staff?

In short:

• You provide services, have no or very few expenses, and no VAT-taxable transactions? The micro-enterprise tax regime will be the most suitable option.
• You are just starting your business, have significant expenses and VAT-taxable transactions? Become self-employed and choose the personal income tax regime.
• You are planning growth, building a fully-fledged company, rapidly increasing turnover and employing staff? An LLC and the corporate income tax regime will be the most appropriate choice.

Choose the most suitable option in just a few steps!

The fastest way to determine the most suitable business form is the Pats.lv calculator. Enter your income and expenses to learn the key details about tax payment procedures and tax rates.

Simple accounting with Pats.lv

If you choose to become self-employed, a micro-enterprise taxpayer or an individual merchant, manage your accounting with pats.lv. Enter your tax information and record your income and expenses - pats.lv will take care of automatic tax calculations and report preparation.

Pats.lv is also suitable for small Latvian enterprises - SIA owners who, as at the balance sheet date, do not exceed two out of the following three thresholds:

• total assets - EUR 63,000;
• net turnover - EUR 125,000;
• average number of employees during the reporting period - 5.

If you want to automate your accounting as much as possible, try additional features such as bank integration, document scanning, expense analytics and fast payment collection.