A collective agreement in Latvia may allow an employer to cover certain employee benefits with an income tax exemption. The expense categories set out in law include meals, medical care, transport between home and work, accommodation and relocation. To use the exemption, the employer must meet the applicable requirements and stay within the combined annual limit.
This option may be relevant to smaller companies as well as larger employers. A collective agreement can be concluded even if the company has no trade union. However, the right to conclude an agreement and the right to use the tax exemption depend on different conditions.
How a collective agreement can provide employee benefits
A collective agreement (darba koplīgums) is a way for an employer and employees to agree on working conditions and additional benefits. In Latvia, it may be concluded by an employer and a trade union, or by authorised employee representatives where employees are not represented by a trade union. A company does not need to establish a trade union to conclude a collective agreement.
If the expenses are included in the collective agreement and the legal requirements are met, an income tax exemption may apply. The exemption is set out in Section 8, Paragraph 15 of the Personal Income Tax Law. Requirements for qualifying expenses and supporting documents are also described in Paragraphs 34.3, 34.4 and 34.5 of Cabinet Regulation No. 899.
Which employee expenses may qualify for the exemption
The law provides for five categories of expenses that an employer may cover if the relevant conditions are met:
| Category | Examples of expenses |
|---|---|
| Meals | Food, prepared meals and non-alcoholic refreshments |
| Medical care | Eligible medical and treatment services |
| Transport | Travel between home and work, including public transport, fuel and taxi |
| Accommodation | Hotel, dormitory or apartment rent |
| Relocation | Expenses related to moving to another residence, including transport of personal belongings |
To qualify, the expenses must be provided for in the collective agreement and supported by documents. The State Revenue Service (VID) guidance, updated on 13 February 2026, explains how the exemption is applied.
How the annual expense limit is calculated
The tax exemption has a combined annual limit. It is calculated using two figures:
- Multiply the average number of employees in the previous year by €700.
- Compare that amount with 5% of the employer’s annual gross payroll fund.
The lower amount is the applicable limit.
For example, a company has 10 employees. Its average employee count in the previous year was also 10, and its annual gross payroll fund is €150,000.
Employee-count limit:
10 × €700 = €7,000.
Payroll limit:
€150,000 × 5% = €7,500.
The lower amount applies. If the other requirements are met, the company may cover qualifying expenses totalling up to €7,000 for the year.
The €700 figure is not an individual allowance or a required payment to each employee. It is used to calculate the employer’s combined expense limit. Benefits can be allocated according to employee needs and the conditions agreed in the collective agreement.
What is the economic benefit for employers and employees
With an ordinary cash payment, part of the budget intended for employees may go toward taxes. When an employer covers expenses that qualify for the statutory exemption, a larger share of that budget may go directly toward employee benefits.
For example, instead of making an additional cash payment, an employer may provide for meal, medical care or transport expenses. Employees can receive help with everyday costs, while the employer can offer a benefits package within its planned budget.
These benefits are not a universal substitute for salary. They must comply with the law, the terms of the collective agreement and employees’ actual needs.
Which employers may use the tax exemption
The exemption may be available to smaller companies as well as larger employers if they meet the legal requirements. The employer must have at least six employees and must have carried out business activity for at least one full calendar year before the tax year in which it starts using the exemption.
The relevant benefits must be provided for in a valid collective agreement. The employer must also meet requirements relating to tax debts and other statutory restrictions. Expenses must be supported by documents and tracked within the applicable limits.
For example, if a company began operating in March 2025, its first full calendar year would be 2026. If it meets the other requirements, it could start using the exemption no earlier than 2027.
The right to conclude a collective agreement should be distinguished from eligibility for the tax exemption. A company may conclude a collective agreement even if it does not meet the conditions for this particular tax benefit.
How to conclude a collective agreement without a trade union
If a company has no trade union, employees may elect authorised representatives. Under Section 10 of the Latvian Labour Law, representatives are elected at a meeting attended by at least half of the company’s employees. The decision is made by a simple majority of those present.
The elected representatives negotiate the terms of the collective agreement with the employer. After it is signed, the agreement is approved at a general meeting of employees. Under Section 22 of the Latvian Labour Law, at least half of the employees must attend, and the decision is made by a simple majority of those present.
The law also sets requirements for the written form, conclusion and amendment of a collective agreement, and for informing employees about its contents. The relevant rules are set out in Sections 10 and 17-24 of the Labour Law.
A collective agreement as part of company benefits policy
A collective agreement can provide a framework for additional employee benefits. It allows the employer to take employee needs into account, agree on how benefits are provided and plan the related expenses.
Employees can take part in shaping the benefits package, while the employer can offer additional support alongside salary. When used in line with the law, this approach may be useful for small and medium-sized companies.
BBCRiga support for introducing employee benefits
BBCRiga has developed a legal solution to help introduce an employee benefits system based on a collective agreement, including for companies without a trade union.
BBCRiga provides a methodology, legal solutions and practical tools to apply this arrangement in light of legal requirements and the employer’s circumstances. If your company is considering additional employee benefits and the tax options provided by law, contact BBCRiga to discuss a suitable approach and its implementation.
This article is for general information and reflects Latvian legislation as of November 2026. Eligibility for tax relief depends on meeting the statutory requirements and on the circumstances of the individual employer.
