One of the most frequently asked questions from our clients has been, “Why isn’t per diem reflected on pay stubs?” In this article, we’ll explain the rationale in plain language.
Unlike other Baltic states, Latvia does not apply personal income tax or state social security contributions to compensation paid to employees for expenses incurred during business trips.
During a business trip, the following expenses are compensated to the employee:
- Per diem to cover additional expenses incurred during the trip, such as meals and various services. The per diem rates are stipulated in Cabinet Regulation No. 969 and depend on the location of the trip. If the employee receives free accommodation and meals at least three times a day (including from other financial assistance), or if free accommodation is provided in accordance with EU regulations, then with the approval of the institution’s manager, the employee is reimbursed up to 30% of the per diem rate for each day of the trip for additional expenses. The portion of expenses that exceeds the limits set by EU Council, EU, and international institution regulations and documents is subject to personal income tax and state social security contributions. It should be noted that according to Cabinet Regulation No. 969, if the amount of additional expenses calculated for the employee in a month exceeds 70% of the calculated monthly salary and the calculated amount of additional expenses, it is considered that there is no compensation for the excess amount of additional expenses.
- Travel expenses (if supported by relevant justification documents):
- Travel expenses to and from the place of business trip to the permanent place of work. With the manager’s permission, travel expenses from the employee’s place of residence abroad, which is not the place of business trip, to the place of business trip, can be reimbursed if these expenses are economically justified and do not exceed the travel expenses from the place of residence to the place of business trip;
- Travel costs from one foreign country to another (if the employee is assigned to more than one country). With the manager’s permission, travel expenses from the place of assignment in one foreign country to the place of residence not related to the assignment, and from this place of residence to the place of assignment can be reimbursed if the employee is assigned to multiple consecutive assignments and it is not economically beneficial for him to return to his permanent place of work between two assignments;
- For trips by public transport (including taxis) to/from the airport, railway station, bus station, port (including to/from the place of residence), including the cost of mandatory passenger insurance. Taxi expenses, if justified, can be reimbursed with the manager’s permission;
- Fuel (if the employee travels with their or institution’s vehicle) according to the approved route and mileage by the institution’s manager and the required amount of fuel for the respective category;
- Car insurance;
- For the reservation of paid seats in the vehicle (with the manager’s or his authorized person’s permission);
- Expenses for transporting luggage (if supported by relevant documents).
- Hotel expenses, including breakfast at the hotel (with supporting documents).
- Expenses during the business trip for parking and entering places where fees are charged for vehicles, as well as for using toll roads and bridges (with supporting documents).
- Expenses for arranging travel documents (submitting supporting documents).
- Commission paid to a bank when exchanging checks or currency (according to the volume of travel expenses or advance payment).
- Travel expenses abroad if the employee is sent to multiple locations in one or more countries (submitting supporting documents).
- Expenses for trips by public transport (including taxis) in the respective country up to 30% of the total per diem for all travel days (submitting supporting documents). In exceptional cases, when the employee cannot provide supporting documents for local public transport (the ticket was left in the dispatcher’s room), reimbursement can be made with written permission from the institution’s manager.
- Actual expenses for travel within the territory of the Republic of Latvia by public transport (including taxis) if justified, are fully reimbursed (if supporting documents are available).
- Expenses related to purchasing an insurance policy for the duration of the business trip (if supported by relevant documents), insuring risks covered by the employee:
- Medical and travel expenses;
- Costs for insuring luggage against loss, damage, or delay;
- Expenses incurred due to flight delays;
- Civil liability insurance expenses;
- Expenses related to early return;
- Expenses incurred due to unforeseen circumstances;
- Expenses incurred in accidents.
- Costs associated with vaccination.
- Expenses related to participation fees in events (e.g., seminars, conferences).
- In certain cases, according to internal regulations of the institution – expenses for which the employee cannot provide supporting documents due to circumstances beyond his control. According to internal regulations of the institution, the manager approves the list of countries where checks or other service documents are not issued due to lack of appropriate infrastructure and regulations, as well as where there is a risk that service documents will not be issued when the employee is sent on a business trip.
In case of any questions, feel free to consult with Leinonen Latvia team. Further contact details can be found HERE.
