{"id":5945,"date":"2026-07-09T09:20:14","date_gmt":"2026-07-09T09:20:14","guid":{"rendered":"https:\/\/leinonen.eu\/lva\/?p=5945"},"modified":"2026-07-09T09:20:17","modified_gmt":"2026-07-09T09:20:17","slug":"non-business-expenses-corporate-income-tax-latvia","status":"publish","type":"post","link":"https:\/\/leinonen.eu\/lva\/news\/non-business-expenses-corporate-income-tax-latvia\/","title":{"rendered":"Non-business expenses for Corporate Income Tax (CIT) \u2013 what companies need to know"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">Since 2018, the Latvian corporate income tax (CIT) system has been significantly simplified \u2013 tax is payable when profits are distributed or when certain non-business-related expenses arise. However, in practice, these are non-business expenses that most often raise questions.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What are non-business expenses?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Simply put, these are all expenses that are not directly related to the company\u2019s economic activity. They may include both intentional expenses and situations arising from company decisions or actions.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Most common examples of such expenses are:<\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>entertainment expenses for employees or owners, if personal income tax has not been paid on them<\/li>\n\n\n\n<li>gifts and written-off loans<\/li>\n\n\n\n<li>donations (with certain exceptions)<\/li>\n\n\n\n<li>assets that are not used in business activities<\/li>\n\n\n\n<li>expenses related to luxury cars<\/li>\n\n\n\n<li>excessive contractual penalties or fines<\/li>\n\n\n\n<li>fuel expenses exceeding established consumption limits<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Accordingly, if expenses are not aligned with the company\u2019s business activity, they may create an additional tax burden.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Let\u2019s look at some of the expenses that most often raise questions: representation expenses and employee-related expenses.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Representation expenses<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Representation expenses are recognised as business-related expenses only if:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>together with personnel sustainability expenses, they do not exceed 5% of the previous year\u2019s gross payroll (on which social security contributions have been paid),<\/li>\n\n\n\n<li>and they are clearly recorded separately from other expenses in the company\u2019s accounts.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Representation expenses also include small items bearing the company\u2019s brand that are distributed to promote the business. The applicable tax treatment depends on the value of the item (below or above EUR 20) and whether the recipient can be identified.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Personnel sustainability expenses<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The purpose of personnel sustainability measures is to promote team cohesion and employee well-being. The tax treatment depends on whether the benefit is available to all employees and whether it can be attributed to specific individuals.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>If the benefit is aimed at team cohesion \/ employee well-being and is not attributable to individual employees, payroll taxes do not apply, as the expense is not treated as employee income. \u00a0CIT does not apply if total expenses do not exceed 5% of the previous year\u2019s gross payroll.<\/li>\n\n\n\n<li>If the benefit is available to all employees but is attributable to individuals, the same principle applies: no payroll taxes, as the benefit is provided to all employees.<br>CIT does not apply if the 5% threshold for representation and sustainability expenses is not exceeded.<\/li>\n\n\n\n<li>If the benefit is not available to all employees and is attributable to specific individuals, \u00a0it is treated as a personal benefit to the employee and \u00a0payroll taxes applies. For CIT purposes, such expenses are treated as non-business-related, if they do not qualify as a collective measure.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">In conclusion to avoid unexpected tax consequences:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>clearly document and justify how expenses relate to business activities<\/li>\n\n\n\n<li>monitor the 5% threshold for representation and sustainability expenses<\/li>\n\n\n\n<li>assess whether benefits are attributable to individuals<\/li>\n\n\n\n<li>do not overlook VAT implications, as they may differ even in cases where expenses are considered business-related for CIT purposes.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Proper assessment of transactions at an early stage helps prevent mistakes and tax penalties in the future. We would be happy to assist with advice when needed.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Contact us<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><a href=\"https:\/\/leinonen.eu\/lva\/contacts\/\" target=\"_blank\" rel=\"noreferrer noopener\">Leinonen Latvia<\/a> supports foreign-owned businesses with accounting, payroll, and tax compliance, including the correct classification of non-business expenses for CIT purposes. Reach out to our team to discuss your company&#8217;s specific situation.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Since 2018, the Latvian corporate income tax (CIT) system has been significantly simplified \u2013 tax is payable when profits are distributed or when certain non-business-related expenses arise. However, in practice, these are non-business expenses that most often raise questions. What are non-business expenses? Simply put, these are all expenses that are not directly related to [&hellip;]<\/p>\n","protected":false},"author":42,"featured_media":5947,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":""},"categories":[1],"tags":[],"coauthors":[133],"class_list":["post-5945","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v28.0 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Non-business expenses for Corporate Income Tax (CIT) \u2013 what companies need to know &#8211; Leinonen Latvia<\/title>\n<meta name=\"description\" content=\"Learn which expenses count as non-business for Latvian CIT purposes, including representation and personnel sustainability costs, and how to avoid unexpected tax.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/leinonen.eu\/lva\/news\/non-business-expenses-corporate-income-tax-latvia\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Non-business expenses for Corporate Income Tax (CIT) \u2013 what companies need to know &#8211; 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