Introduction

In Latvia,  the accounting practices are primarily governed by national laws which are mostly aligned with EU directives, thus ensuring both local relevance and international compatibility.

This article explores the accounting process in Latvia, outlining the regulatory framework, bookkeeping practices, financial reporting standards, tax obligations, and the role of technology and outsourcing. Whether you’re a foreign investor, a business owner, or an accounting professional, understanding these aspects is crucial for operating effectively in the Latvian business environment.

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Legal Framework

The foundation of the accounting system in Latvia is built upon several key legal documents and institutions.

There are two basic Act that govern the accounting process.

The first is the Accounting Act (Grāmatvedības likums): This law sets out the basic principles for keeping and maintaining accounting records in Latvia. It applies to all companies, including branches of foreign enterprises, self-employed individuals, and NGOs.

The financial reporting obligations are within The Annual Financial Statements and Consolidated Financial Statements Law. This law aligns Latvia’s financial reporting obligations with the EU Accounting Directive (2013/34/EU), defining the content, form, and submission requirements of financial statements.

Regulatory authorities

Most of the businesses are registered with the Enterprise Register of Latvia which eventually publishes the companies’ annual reports.

The most important public is the State Revenue Service (Valsts ieņēmumu dienests or VID) for whom all tax compliance should be done and submitted financial statements.

The other institutions are for example Latvian Association of Sworn Auditors, which also plays role in setting ethical standards and providing training.

The Accounting Process: Step-by-Step

  1. Initial Setup

Every company operating in Latvia must establish a clear accounting system at the point of registration.

The first step is  choosing an accounting method (for most businesses usually the accrual basis is mandatory) and setting up a chart of accounts based on IFRS (for larger companies or groups).

The business should be registered with the Enterprise Register and State Revenue Service (VID) for tax purposes. Also it is recommended considering the registration for VAT as soon as possible.

Nowdays, the accounting is not only paper based anymore, so choosing accounting software compliant with local requirements is important.

  1. Bookkeeping and Record-Keeping

Bookkeeping in Latvia involves the accurate and chronological recording of all financial transactions, including the following principles:

  • Business Transactions. Recognizing and analyzing business transactions that are financial in nature and relevant to the company.
  • Recording Transactions (Journalizing). Documenting the transactions in the journal using the double-entry bookkeeping system. Each transaction includes a debit and a credit entry.
  • Posting to the Ledger. Transferring journal entries to the general ledger, where transactions are categorized into individual accounts.
  • Preparing an Unadjusted Trial Balance. Summarizing all ledger accounts to ensure total debits equal total credits before adjustments.
  • Making Adjusting Entries. Recording adjustments for accrued and deferred items to reflect the accurate financial position at year-end (e.g., depreciation, accruals, advance payments).
  • Preparing Financial Statements. Creating the financial statements: Income Statement (Profit and Loss), Balance Sheet, Cash Flows. Financial statements must reflect the Changes in Equity for the reporting year.
  • Closing the Books (Closing Entries). Closing accounts (revenues, expenses, dividends) to retained earnings to prepare for the next period.
  • Preparing a Post-Closing Trial Balance. Ensuring that only permanent accounts (assets, liabilities, equity) remain open and balanced for the start of the next accounting cycle.

In addition to the standard steps of the accounting cycle, businesses must follow key responsibilities and principles to ensure accuracy, compliance, and transparency in their financial records. Every sale and purchase needs to be properly accounted for and reconciled with bank transactions.

The employee salaries should be calculated according to the legal requirements.

If a business buys equipment or other assets, that also has to be recorded, including how their value goes down over time.

Taxes that are paid or owed must be tracked too. These records help the business stay organised and follow the law. Latvian regulations require that all accounting documents be stored safely for at least 5 years, but payroll – even 75 years.

  1. Payroll Accounting

Handling payroll in Latvia means more than just paying employees. It starts with selecting the appropriate remuneration model: time-based (standard, partial or aggregate working time) or piece-based.

In most cases, the base for the remuneration is time worked, which should be accounted for each employee. Next is, then calculating the required social insurance contributions and personal income tax. In 2025, employers must pay about 23.59% of each salary in social contributions, while employees contribute about 10.5%. After doing the math, businesses must send monthly reports to the State Revenue Service using specific forms. Then, they pay their employees the remaining net salary and send the taxes and contributions to the government.

Employee payroll data must be protected according to privacy laws. Wages must be paid on time, and taxes/remittances submitted within required deadlines.

  1. Monthly and Quarterly Reporting

Latvian companies are required to submit various reports depending on their business activities, including:

  • VAT Returns: Submitted monthly or quarterly, depending on turnover.
  • Payroll and tax declarations: Submitted monthly.
  • Intrastat reports: Required for EU trade above certain thresholds.
  • Corporate income tax (CIT) returns are submitted monthly, provided that there have been taxable transactions, and the annual return is submitted mandatorily.

The CIT declaration is submitted every month. It includes corrections for expenses that are not allowed for tax purposes. Companies also show any income that is not taxed and calculate the final amount that should be taxed. Based on this, the company calculates how much corporate income tax must be paid, considering any tax that was already paid in advance. The declaration also shows if any tax was withheld from payments to foreign companies and if tax must be paid on non-allowed expenses.

At the end of the year, the annual CIT return includes a summary of all monthly declarations, any necessary corrections, and final adjustments for the reporting year — including adjustments related to transfer pricing (for related-party transactions that are not at arm’s length) and loans or interest payments to related parties that do not meet legal criteria.

  1. Annual Financial Statements

At the end of the fiscal year, typically December 31, companies must prepare annual financial statements, including:

  • Balance Sheet
  • Profit and Loss Statement (Income Statement)
  • Cash Flow Statement (for medium/large companies)
  • Notes to the Financial Statements
  • Management Report (for larger companies)

Small businesses may follow simplified reporting rules, while public interest entities and large firms must follow full IFRS standards.

These statements must be prepared in Latvian and submitted to the State authorities (via the EDS system) no later than five months (for micro and small companies) or seven months (for others) after the fiscal year-end.

  1. Audit Requirements

An independent audit is mandatory for companies that exceed at least two of the following thresholds – Net turnover exceeds EUR 4 million, Total assets exceed EUR 2 million, and Average number of employees exceeds 50.

A limited audit is required if at least two of the following thresholds are exceeded: EUR 800,000 in net turnover, EUR 400,000 in total assets, and an average of 25 employees.

Certain other entities, such as public interest entities and parent companies of groups, are also subject to audit.

Taxation and Accounting Interface

Accounting in Latvia is closely tied to the tax system, which includes the following main taxes:

Value-Added Tax (VAT)

  • Standard rate: 21%
  • Reduced rates: 12% (e.g., for some food products and medical supplies)
  • Zero rate: for exports and certain EU intra-community supplies

All companies with a taxable turnover exceeding EUR 50,000 in a 12-month period must register for VAT.

Corporate Income Tax (CIT)

Latvia employs a unique “deferred corporate tax system”:

  • 0% CIT on reinvested profits
  • 20% CIT applied only when profits are distributed (e.g., dividends)

This encourages businesses to reinvest earnings for growth.

Personal Income Tax (PIT)

  • Progressive rates: 25.5% tax on your salary up to €105,300 per year. If you earn more than €105,300 per year, the extra income is taxed at 33%
  • If your total income (salary, business, capital, etc.) is over €200,000/year, you pay an extra 3% tax

Other Taxes

  • Real estate tax
  • Microenterprise tax (for qualifying small businesses, 25% of turnover is applied)
  • Excise and environmental taxes

Digital Accounting and E-Reporting

The taxpayers use the Electronic Declaration System (EDS) that allows companies and individuals to:

  • File tax returns and reports
  • Access their tax account statements
  • Communicate with tax authorities
  • Receive automatic notifications and reminders

Many accounting software providers in Latvia have integrated their products with the EDS system, among the most popular ones are: Tildes Jumis, Horizon, 1C and Navision (Microsoft Dynamics NAV).

These systems help automate tasks like invoice generation, payroll, bank reconciliation, and VAT reporting.

Outsourcing Accounting Services

The small to medium enterprises (SMEs) and foreign-owned companies very often outsource the accounting function to the external accounting firms. The outsourced accounting firms typically offer full-scope assistance; however, they may offer a combination of the below

  • Bookkeeping
  • Payroll
  • Tax compliance
  • Annual report preparation
  • Representation before the VID

The cost of accounting services in Latvia is competitive compared to Western Europe, making it an attractive destination for setting up back-office operations.

Challenges and Best Practices

Challenges

  • Frequent changes in tax legislation and reporting requirements.
  • Language barriers for foreign investors (although many accountants speak English or Russian).
  • Navigating the deferred tax system effectively.

Best Practices

  • Stay updated with regulatory changes via VID and professional associations.
  • Choose experienced accounting partners familiar with local laws.
  • Invest in reliable accounting software that integrates with Latvian systems.
  • Ensure documentation is complete, timely, and in the correct format.

Conclusion

Whether you are launching a startup in Riga or expanding an international business, you need to understand Latvia’s accounting process in order to succeed in the long run. -term success.

The accounting process in Latvia is well regulated and compliant with both national accounting standards, which in turn relies on the standards.

While it presents unique features—such as the deferred corporate tax system and digitised tax administration—it remains transparent, efficient, and business-friendly.

In Latvia, outsourcing, automation, and continuous learning play an important role in accounting. With the right tools and support, handling finances and taxes becomes manageable.