What to Know About Real Estate Sales Tax in Latvia?

What You Need to Know About Real Estate Sales Tax in Latvia

In Latvia, income from the sale of real estate is generally subject to 20% Personal Income Tax (PIT). However, the tax is calculated not on the total sale price but on the profit (the difference between the sale price and the property’s acquisition value). The acquisition value includes:

• The original purchase price.

• Documented expenses (e.g., registration fees, taxes, renovation costs, or loan interest directly related to the property).

Tax exemptions or reductions may apply under specific conditions. Below are key rules, practical examples, and explanations based on Latvian tax laws and guidelines from the State Revenue Service (Valsts Ieņēmumu Dienests or VID).

Common Tax Exemptions

1. 5-Year Ownership and Primary Residence Exemption

   • No tax is due if:

     • The property was owned for at least 5 years, and

     • It served as the seller’s declared primary residence for at least 12 consecutive months within the last 60 months before the sale.

   • This exemption applies to multiple properties if each meets the criteria.

   • Example: Selling two apartments, each used as a primary residence for 12 months in the last 5 years, qualifies both for tax exemption.

2. Inherited or Gifted Property

   • For close relatives (up to the third degree of kinship), the ownership period is counted from the date the property was registered to the original owner (e.g., the deceased).

   • Example: A daughter inherits a house from her father in 2023 (purchased by him in 2016). If she sells it in 2024, the 5-year ownership period is calculated from 2016, making the sale tax-free.

3. Reinvestment Relief

   • If proceeds are reinvested into a functionally similar property within 12 months, the tax is deferred. Partial reinvestment grants proportional relief.

   • Example: Selling a house for €150,000 and investing €100,000 in a new property means tax applies only to €50,000.

Valuation Rules for Inherited or Gifted Property

• Inherited property:

  • Acquisition value = declared value in the inheritance or cadastral value (if no declared value exists).

  • Example: Inheriting a property valued at €60,000 in the estate but selling it for €130,000 results in taxable profit of €70,000 (tax: €14,000).

• Gifted property:

  • Acquisition value = the gift contract value or cadastral value (if no contract value is stated).

Reporting Requirements

• A tax declaration must be filed with VID if the income exceeds €1,000 in a year.

• Even tax-exempt sales (e.g., under the 5-year rule) must be declared in the annual D1 tax return if the transaction exceeds €10,000.

Practical Examples & VID Guidelines

• VID provides detailed guidance on deductible expenses (e.g., renovation costs, loan interest) and inherited property timelines.

• Example: A gifted property with a cadastral value of €80,000 (no purchase price) is sold for €120,000. Taxable income = €40,000 (20% tax = €8,000).

Key Resources:

• VID’s methodological materials clarify complex scenarios, such as calculating ownership periods for inherited properties or reinvestment rules.

• Always verify calculations using VID resources or consult a tax advisor, as rules depend on documentation, property type, and ownership history.

Note: Tax laws may change. Check the latest updates on VID’s official website.