The Latvian tax system is influenced by both Latvian legislation and European Union requirements. It can be called average because each taxpayer contributes an average of 30% of their income to the budget. In addition, Latvia's diverse system of tax rates, tax breaks and allowances allows each taxpayer to choose the optimal sector for their activity and wealth management. The Republic of Latvia has the lowest effective (average) tax rate in the European Union. There are several areas of trade with individual tax breaks - payments that are 80% to 100% lower: for example, Liepāja and Rēzekne have special economic zones, and the free ports of Riga and Ventspils can provide tax breaks.

The tax principles are laid down in the Taxes and Duties Act. Taxes are administered by the State Revenue Service (SRS) and are divided into direct and indirect taxes. Indirect taxes are taxes that are not deducted directly from income and are levied on goods and services. Direct taxes, in turn, are taxes levied on all taxable income of individuals and companies.

Corporate tax
Corporate income tax is the taxable income earned by a taxpayer during a taxable period. The tax base is the legally adjusted financial income of the corporation. The adjustments are made mainly to ensure that revenue exceeds expenditure on which the tax is not levied (e.g. expenditure not directly related to economic activity) or to increase revenue by a certain amount, if appropriate reduce if the law provides for tax relief.

Corporate taxpayers are:

resident or domestic companies engaged in economic activity, organizations and institutions funded from the state budget or municipal budgets and earning income from economic activity;
non-resident or foreign companies, business entities, individuals and other persons;
permanent representative offices of non-resident companies whose income tax rate is 20%.
Individual companies pay income tax, and the tax rate ranges from 20% to 31.4%, depending on the level of income.

Income tax
Personal income tax is one of the most stable sources of income that adds funds to municipal budgets. Personal income taxpayers are self-employed individuals or businesses that are registered as taxpayers, including farms and fisheries. It is intended to return income tax to taxpayers with eligible expenses for education and medical services.

Personal income tax rates vary between 20% and 31.4% depending on income. It should also be noted that the tax is not levied on all income. Instead, some items are deducted from total income before tax is calculated:

Tax-free minimum amount
Deductions for legal guardians of specific persons (e.g. children)
Deductions for people with disabilities
other deductions
Social security contributions (social tax)
Compulsory Social Security Contribution is a compulsory payment to a special household account established by law, which entitles the insured to receive the social security benefits established by law. Social security contributions increase the state social security budget. Therefore, an insured person may receive the following benefits: old-age pension, disability pension, survivor's pension, sickness benefit, maternity benefit, unemployment insurance and death benefit.

The standard social tax rate is 35.09%, divided between employer (24.09%) and employee (11%). A number of deductions can also be applied, mainly various tax reductions for recipients of state pensions.