Translated using ChatGPT service.
To develop the crypto-asset sector and the dynamics of the capital market in Latvia, the Ministry of Economics proposes amendments to the law "On Personal Income Tax," stipulating that for the next three years, from January 1, 2025, to December 31, 2027, the 3% tax rate on income from the disposal of crypto-assets shall not be applied to foreign taxpayers (non-residents). The amendments to the law were approved by the Cabinet of Ministers on January 21 of this year; they still need to be adopted by the Saeima.
"With this step, we, as a country, are making a significant move towards creating an innovative and competitive business environment in the crypto-asset sector. I am confident that with these changes, we will not only attract international crypto-asset service providers but also create new, well-paid jobs and foster economic growth," emphasized Minister of Economics Viktors Valainis.
By excluding the application of the 3% rate on non-resident income from the disposal of crypto-assets, it is anticipated that several crypto-asset sector companies will be attracted to Latvia. During the period from 2025 to December 31, 2027, at least 100 new well-paid jobs in the crypto-asset sector are expected to be created, resulting in at least 7 million euros being paid in labor taxes.
To assess the effectiveness of the proposed amendments, the draft law assigns the Ministry of Economics the task of submitting a report to the Cabinet of Ministers by July 31, 2027, on the impact of the legal framework on the development of the crypto-asset market in Latvia – including tax revenues, attracted investments, and newly created jobs for non-resident crypto-asset service providers.
The 3% personal income tax rate on income from the disposal of publicly traded crypto-assets in Latvia has been in effect since 2019, which, in turn, has worsened Latvia's competitiveness among neighboring countries. According to the Ministry of Finance, such a percentage rate is applied only in Spain among EU member states.
Currently, the application of this rate discourages non-resident crypto-asset service providers from obtaining an operating license in Latvia because a double tax is applied. Specifically, all crypto-asset transactions conducted from Latvia with foreign clients would be subject to a 3% tax on the disposal transaction amount, in addition to the applicable capital gains tax in their home country.
In recent years, Latvia has actively worked to improve the business environment for crypto-asset service providers and to position itself as an attractive country for international crypto-asset service providers requiring a crypto-asset service license in the European Union. According to the Crypto-Asset Services Law, which came into force on June 30, 2024, to obtain such a service license, a crypto-asset service provider must submit an application to the Bank of Latvia. The Bank of Latvia has been designated as the supervisory and regulatory authority for crypto-asset service providers. As of December 30, 2024, such service providers can obtain a crypto-asset service license in any EU country and offer services throughout the EU without needing additional approvals in each member state.
As a result, several crypto-asset service providers considered global market leaders are currently evaluating the possibility of obtaining an operating license in Latvia. Consequently, Latvia has the potential to attract a significant number of major crypto-asset market players and become a hub for this industry within the EU, similar to how Lithuania has established itself in the payment services and electronic money sector.