Freelancers work for themselves and are not dependent on an employer to find work. Possible fields include everything from accounting and finance to educational tutoring. It is also possible to hear the terms "contractor," "self-employed person," or "business owner" when referring to a freelancer in Latvia. The obvious benefit to becoming one is being your own boss. In addition, it presents an opportunity to make unlimited income since you are not constrained to a finite amount of working hours per week. Still, being on your own carries certain risks and responsibilities.
Here, discover what it is like to be a freelancer doing business in Latvia. You will also learn how to register your business and what legal obligations exist under Latvian law. Last, you will receive the necessary steps to start your business and how to manage it once you take off.
Benefits of Working as a Freelancer in Latvia
Many freelancers such as photographers, writers, and translators worldwide choose to do business in Latvia. They often enjoy unrestricted creativity and being their own boss. This sense of freedom excites most entrepreneurs here, and it provides opportunities for unlimited income potential as well.
Plenty of Networking Opportunities
Facebook and Meetup groups thrive in Latvia. Plenty of live organizations here share their expertise and client contact information. One freelancer from Riga describes it as "the sense that there's always someone who knows someone who'll have an answer for you."
Superb Infrastructure
WiFi is incredibly fast in Latvia, especially within the large metro areas. You can find plenty of free access in a wide range of public spaces. Moreover, the government here prides itself on maintaining some of the best public transportation available in Eastern Europe.
The Downside To Freelancing in Latvia
The most notable disadvantage to making a living as a freelancer in Latvia is the uncertain regulatory environment. National and local governments are trying to keep up with an ever-changing online world. As a result, tax laws and regulations will evolve over the next several years.
In addition, you are never guaranteed that clients will always make timely payments unless you and your clients have agreed with clear payment terms beforehand. Therefore, while electronic invoicing may seem like a simple solution, it is not without its limits. You should also ensure all tax information is verifiable before billing a client. Otherwise, you could spend most of your precious time correcting invoicing errors.
How to Register Your Freelance Business in Latvia
Anyone performing business functions in Latvia must register with the State Revenue Service. During the initial stage of the process, you must declare the business category and show any applicable certifications. Also, if you plan on using a professional title, you will need to get it certified for your chosen field.
You can register your business online using the SRS Electronic Declaration System. You will find the status of your application on the public website. However, at some point, you must show a form of picture identification, in person, at your local Client Service Center.
Several regulations take effect if you rent space outside your home to conduct business activities. First, you will need documents from your landlord giving written permission to use the premises for business. Next, you will need documentation from all co-owners, including their name, address, and personal identification numbers.
You will have to pay a license fee when registering your business. However, the authorities may reduce it under the following conditions:
- You make less than €3,000 during the previous year
- You receive disability benefits
- You have been granted an old-age pension
Compiling necessary documents and registering a freelance business can be complicated and burdensome with possible legal issues. With Xolo Leap, we’ll help you register your fully-remote EU business-of-one. With an Estonian e-resident business and help of Xolo Leap tools, you’ll be able to send VAT-compliant invoices, deduct business expenses, and manage your business’s financial health. With a team of local compliance and accounting experts, we handle everything from bookkeeping to compiling and submitting your company's tax reports so you say goodbye to frustrating business aspects.
Legal Obligations for Freelancers in Latvia
Once you register your business, you have to make sure you follow all tax reporting guidelines in Latvia. You must also ensure that all accounting and reporting is accurate to file the necessary paperwork at the end of each year.
Personal Income Tax (PIT) for Freelancers in Latvia
Personal income tax (PIT) registration in Latvia is required for all freelancers doing business here. Personal income tax rates for freelancers in Latvia vary from 20 percent to 31 percent, depending on your income level. For example:
- 20 percent: Income under €20,004
- 23 percent: Income between €20,004 and €78,100
- 31 percent: Income exceeding €78,100
You must file a tax return annually between March and June. However, if your income exceeds €78,100, you must file between April and July. Any tax you owe that is below €640 is due June 23. Any tax you owe that is above €640 is due on August 23.
Self-employed Minimum Tax for Freelancers in Latvia
Even if you bring in no annual income, you will still have to pay €50. Also, if your tax liability is less than €50, you will be responsible for paying a minimum of €50. However, some exemptions exist for employers who provide social contributions to employees or themselves.
Mandatory State Social Insurance Contributions (MSSIC) for Freelancers in Latvia
For individual freelancers, the Latvian government classifies you as a "self-employed person." Therefore, you must file an MSSIC contributions report by the 17th of the month following the quarter. In other words, you file the report every quarter.
The current rate is 31.07 percent. However, you can receive a reduced rate if you receive an old-age pension or manage an immovable property. In addition, other exemptions may be available if you have a disability.
Calculate your income for three months to comply with the minimum mandatory contribution. The State Social Insurance Agency (SSIA) will notify you of how much you need to pay for the quarter. However, you probably will not know beforehand because it changes constantly.
Value Added Tax (VAT) for Freelancers in Latvia
Freelancers meeting the minimum threshold of €40,000 must register to pay VAT on all transactions. This goes for persons transacting business within another EU state and those from another country doing business in Latvia.
Current VAT rates for freelancers in Latvia are as follows:
- Standard Rate: 21 percent
- Reduced Rate: 12 percent
- Agricultural Rate: Five percent
International and intra-community transport sectors are exempt from VAT. However, the law still requires you to include tax-exempt records when applicable.
For more information, see our VAT Guide for Freelancers in Latvia.
How To Manage Your Income and Expenses as a Freelancer in Latvia
Freelancers are required to keep accurate records of income and expenses. You do that by keeping a journal, either on paper or electronically. The government supplies the paperwork so you can fill in the required information.
When opting for a paper register, you must number each page in chronological order. You will also have to hole-punch each page and certify it with a signature and stamp.
For electronic journals, you will need to provide the government with a printout upon request. Previous annual reports are placed in a folder and made available as well.
Journals, whether in paper format or electronic, must adhere to these requirements:
- You must establish a new journal for each reporting year
- Cash balances must be equal between the end of the last reporting year and the beginning of the new reporting year
- Each month of reporting requires a new journal page
- Cash balances must be equal between the end of the last reporting month and the beginning of a new month
- Internal and external justification documents must accompany all journal entries
- You must keep a separate journal for personal expenditures.
One Final Thought about Becoming a Freelancer in Latvia
To freelance in Latvia means understanding the complex taxes and regulations here. You also have to comply with every-changing reporting requirement. This means setting up your bookkeeping and accounting journals — one for personal income tax and one for VAT.
Xolo Leap simplifies the process by allowing you to establish an EU-based private limited company which can be managed from anywhere in the world. Reach out to Xolo and open your dream business with e-Residency!
