Paying yourself from an SIA in Latvia offers several options, mainly salary or dividends. But which should you choose? Let's break down the taxation, social contributions, and implications for your financial security so you can make an informed choice.
Salary vs Dividends: What Taxation Applies in Latvia?
As the director of an SIA in Latvia, you can choose between paying yourself a salary or opting for dividends. Each of these options comes with its own tax rules.
Taxation of an SIA director's salary in 2026
Salaries in Latvia are subject to personal income tax (PIT) on a progressive scale. In 2026, the rate is 25.5% up to €105,300 in annual income, then 33% above that, with an extra 3 points on the portion exceeding €200,000. Social contributions, detailed below, come on top of this.
Taxation of dividends paid by an SIA
Dividends distributed by an SIA are taxed at the company level, at a nominal rate of 20% applied with a 0.8 conversion coefficient, giving an effective rate of around 25% on distributed profits. An alternative 2026 regime, reserved for SIAs owned solely by individuals, allows taxation of 15% (CIT) + 6% (PIT), often more advantageous for non-resident founders.
Good to know
Dividends are taxed at the company level before distribution. This means only net, after-tax distributions are paid out to shareholders.
Comparison Table of Tax Implications
Here's a comparative overview of the tax implications between salary and dividends:
- Salary: Progressive rate up to 33% (36% above €200,000), with withholding at source.
- Dividends: Fixed rate of 20%, no withholding at the personal level.
Social Contributions: What Impact on Your Pay?
Social contributions are another key factor in the choice between salary and dividends.
Social Contributions on Salaries
In Latvia, social contributions on salaries (VSAOI) total around 34.09% of gross salary: 23.59% paid by the employer and 10.5% paid by the employee. This covers benefits such as social security, health insurance, and pension.
No Social Contributions on Dividends
Dividends aren't subject to social contributions. This means you can potentially increase your disposable income by choosing this method of payment, although it affects your social coverage.
The limit of "100% dividends"
If the SIA's revenue exceeds 5 times the annual legal minimum wage and neither the director nor any employee receives at least the minimum wage (€780/month in 2026), the VID applies a legal fiction: the director is deemed to receive that minimum wage, and the company is automatically taxed on the corresponding social contributions. Paying yourself a small base salary therefore often remains the safest approach beyond a certain revenue threshold.
Worked Example of the Impact on Net Income
Suppose a director with €50,000 in gross income per year:
- Salary: After tax and social contributions, net income is around €32,445.
- Dividends: With a fixed rate of 20%, net income comes to €40,000.
Social Protection: Security or Savings?
Choosing between salary and dividends also has implications for your social protection.
Comparing Social Coverage
Salaries provide full coverage including health insurance, pension, and other social benefits. Dividends, on the other hand, provide no direct social protection.
Long-Term Consequences for Financial Security
Choosing a salary can be more beneficial in the long run if you value financial security and pension benefits. However, if you'd rather maximise your short-term income, dividends can be more advantageous.
Good to know
In Latvia, social benefits include family allowances, unemployment insurance, and a retirement pension, all tied to social contributions paid via a salary.
Tax Optimisation: Strategies for SIA Directors
Maximising your net income requires an optimisation strategy tailored to your personal and professional situation.
Tips for Maximising Net Income
- Balance salary and dividends to optimise taxation while maintaining adequate social coverage.
- Use tax advantages such as deductions for business expenses.
- Plan ahead to take advantage of progressive tax rates and available exemptions.
- Consider a quarterly distribution rather than an annual one to smooth your personal income, with no impact on the total tax owed.
Practical Case Studies by Entrepreneur Profile
Let's look at two entrepreneur profiles:
- Early-stage entrepreneur: prefers to maximise immediate net income to reinvest in the business. Mostly opts for dividends.
- Experienced entrepreneur: seeks long-term security, favouring a balance between salary for social coverage and dividends for tax optimisation.
Common Mistakes to Avoid
- Ignoring the impact of social contributions on your social coverage.
- Not diversifying income sources between salary and dividends.
- Neglecting long-term tax planning.
Salary and Dividends: The Most Common Combination in Practice
In summary, the choice between salary and dividends for an SIA director in Latvia depends on your personal and professional priorities. Salaries offer better social coverage, while dividends often allow you to optimise net income. In practice, most of our clients combine both: a base salary covering at least the legal threshold, topped up with regular dividends.
For an informed decision, it's crucial to consider your specific situation and long-term goals. Our team is available for a personalised consultation to help optimise your pay strategy.