Accounting system for the Latvian self-employed

Self-employment status is common across various fields. Journalism, law, architecture, design, advertising, translation, photo and video services, various expert and consulting services – this is just a small part of the sectors where working as a self-employed person is popular. Even in the construction industry, self-employment is becoming increasingly popular, as contractors often find it more cost-effective to hire workers for a season to perform a specific service rather than maintaining a full-time staff.

The development of technology, changes in the labor market, and the growing desire of workers to have flexible working hours and location, choose their workload, and freely set prices for their services encourage professionals in various fields to move from employment contracts to self-employment.

Social Guarantees

There is a common belief that self-employed individuals are less socially protected than employees. However, it is important to note that by paying their own mandatory social insurance contributions, self-employed persons receive the same social guarantees as employees – such as paid sick leave (excluding sick leave type A), maternity benefits, and childcare benefits. Of course, a self-employed person does not have a mandatory four-week annual paid vacation. On the other hand, they are not tied to an employer’s vacation schedule and can freely choose when to work or rest.

A self-employed person cannot claim unemployment benefits, but at the same time, they are not at risk of sudden job loss. Their income and workload depend not on how their employer’s business is doing, but on how in-demand they are as a professional and how much time and energy they are willing to invest. The absence of accident compensation and occupational disease benefits is only a significant disadvantage in specific industries. In fact, maintaining ergonomics and creating a personalized work environment is often easier for a self-employed individual than for an employee.

Tax Burden

A self-employed person can choose one of the tax regimes provided by law:

• Personal Income Tax (IIN) and Social Security Contributions on business activity;
• Fixed patent fee (available to pensioners and persons with 1st or 2nd group disabilities if their previous year’s business income did not exceed €3000, and expected annual income also does not exceed €3000, and they engage in an activity allowed under this regime);
• Micro-enterprise tax.

In practice, the most beneficial and universal option is the income tax regime. Under this regime, the self-employed must pay income tax by submitting an annual tax declaration, and they are also obligated to pay mandatory state social insurance contributions.

Self-employed individuals earning more than €700 per month must pay social insurance contributions (31.07%) on at least €700 for every month with income. This rate includes coverage for maternity benefits, childcare benefits, sickness, disability, and health insurance. Notably, the size of these benefits may increase depending on the amount paid. Additionally, self-employed persons must pay a 10% pension insurance contribution. This 10% is calculated from the difference between actual monthly income and the amount used for paying the 31.07% contributions.

When evaluating the tax obligations of the self-employed, two main advantages stand out compared to employees:

• First, self-employed persons can deduct business-related expenses, provided they are supported by appropriate documentation. This allows them to reasonably write off expenses that employees usually do not cover themselves (e.g. office rent, electricity, equipment used for providing services, etc.).
• Second, the self-employed can independently choose the income amount from which they will pay mandatory social insurance contributions.

Without a doubt, self-employment comes with responsibilities that may feel unrelated to one's core profession – such as managing one's accounting, submitting reports, and complying with labor safety requirements. For some, these tasks may seem overwhelming. However, technological advances allow us to significantly simplify these obligations.

One such solution is the PATS.lv income and expense tracking system, which allows for automatic tracking of taxes and contributions and prepares all necessary data for reporting. In practice, using this system requires no prior accounting knowledge and enables self-employed individuals to manage their accounting quickly and easily – a solution that makes being self-employed much easier. PATS.LV