In Latvian business culture, many organisations choose to disburse cash bonuses or non-cash gifts at Christmas. Though Christmas bonuses are not required, they are greatly appreciated by employees.
If you plan to provide Christmas bonuses, it is vital you understand the implications for accounting, payroll and tax in Latvia. By staying compliant, you will avoid troublesome fines and penalties, while also boosting your reputation as a reliable employer.
In this article, Leinonen experts will share the basics you must know as a foreign-owned business in Latvia.
How are Cash Bonuses and Non-cash Gifts Classified in Latvia?
- Cash bonuses are defined as salary
- Non-cash gifts are defined as benefits
Disbursing Christmas Bonuses in Latvia
When Should Christmas Bonuses be Calculated and Disbursed?
In Latvia, Christmas bonuses are typically expected in December. While they can be disbursed in January, this is uncommon and shifts the tax year of the bonuses.
How Should Christmas Bonuses in Latvia be Recorded?
Christmas bonuses in Latvia are typically recorded in the regular payroll, but can be recorded separately if desired.
What Supporting Documentation is Required?
Payroll records are required to support the payment of both cash bonuses and non-cash gifts provided as Christmas bonuses in Latvia.
Taxation of Christmas Bonuses in Latvia
Small gifts up to 100 EUR- VAT cannot be deducted, but CIT does not increase on this expense. All other bonuses (including cash bonuses and non-cash gifts) are taxed as salary.
This means they are subject to:
- 25.5% personal income tax (PIT)
- Social contributions (23.59% from employer, 10.5% from employee)
Are Christmas Expenses tax Deductible in Latvia?
No, Christmas expenses are not tax-deductible.
What Reporting Obligations do Companies Have Surrounding Christmas Bonuses in Latvia?
Christmas bonuses in Latvia should be reported via the company’s monthly filings to SRS. Late reporting or incorrect classification can result in penalties.
Cash Bonuses or Non-cash Gifts: Which is the Best way Forward for Foreign-owned Businesses in Latvia?
Both cash bonuses and non-cash gifts can be a great approach if you choose to provide Christmas bonuses in Latvia. While cash bonuses are simpler, gifts under the €100 threshold are more tax efficient.
Explore Christmas Bonuses with Leinonen Latvia
When operating a foreign-owned business in Latvia, staying up to date on ever changing payroll, tax and accounting regulations can be overwhelming. Leinonen has specialised in supporting foreign-owned businesses in Latvia for more than 30 years.
Our local experts will take care of the intricacies that are easy to miss when operating a foreign-owned business in Latvia. 260+ clients already trust Leinonen Latvia to keep their payroll, tax and accounting efficient and compliant while they focus on running a thriving business.
Contact Leinonen Latvia to organise a consultation. We will work with you to develop a tailored Christmas bonus strategy; one that is compliant, tax efficient, and valuable for both you and your employees.
