Imagine the situation: you rent out an apartment, the tenant transfers the rent to your account every month, and everything seems to be in order. The contract is signed, the keys have been handed over, the money is coming in. But a year or two later, the State Revenue Service raises a question about undeclared income. It turns out that no tax was paid for this entire period, late-payment interest is added, and the convenient extra income suddenly turns into an unpleasant expense.
Most such situations arise not out of bad faith, but out of ignorance - a person simply does not know that rental income is taxable and that the lease can be notified to VID. Moreover, choosing the most suitable tax regime can help make this process simpler. In this article, we look at when a lease must be registered with the State Revenue Service, what options a private individual has, and what is important to do already before renting out.
Why rental income must be declared
In Latvia, income from renting out or leasing real estate is income subject to personal income tax. This is established by the law "On Personal Income Tax", and it also applies to a private individual who rents out a single apartment or even a separate room. It makes no difference whether the rent is received in cash or by transfer - income arises, and tax must be paid on it.
In practice, many landlords believe that a small additional income "is not worth" declaring. In reality, even a small rental income is still taxable. If it remains undeclared and the tax is left unpaid, the tax itself together with statutory late-payment interest may later become due. That is why the question is not whether to declare, but how to do so more simply and conveniently.
What notifying VID of a lease means and when it is required
Here we come to the most important point. VID currently lists three tax regimes: registering economic activity under the general rules, notifying VID that economic activity will not be registered and paying 10% personal income tax, or choosing microenterprise tax. This article focuses on the first two paths. The first - to notify VID of the lease and pay a flat 10% tax. The second - to register economic activity and pay tax at the progressive rate. It is precisely the first path that underlies what is commonly called "registering the lease with VID." Let us look at both options more closely:
The first option: 10% tax and notifying VID of the lease
The law "On Personal Income Tax" provides the option to rent out real estate without registering economic activity in full. In this case, a private individual notifies VID of the concluded rental or lease agreement and pays 10% personal income tax on the rent received.
With this method of applying tax, you do not pay progressive personal income tax and do not have to keep detailed accounting. However, note that under the 10% regime, only documented real-estate tax paid for the property may be deducted from rental income. Repair, insurance, and loan-interest expenses cannot be deducted. The 10% tax is therefore calculated on rental income after deducting the eligible real-estate tax.
Therefore, the first path is most often advantageous for those who have few expenses associated with renting out - for example, when renting out an already well-equipped apartment that has no active loan and no large annual investments.
The second option: registering economic activity
The second option is to register economic activity. In this case, you pay personal income tax at the progressive rate, but you gain the right to deduct from income the justified expenses associated with maintaining and renting out the property. Depending on the situation, you may also have to account for mandatory state social insurance contributions.
This path is often more advantageous when expenses are significant - for example, if the property was just purchased with a loan, repairs are being carried out, or there are other regular costs that reduce the actual profit. The precise choice between the two paths depends on the specific figures, so before deciding it is worth calculating both options or consulting an accountant.
How notifying VID of a lease takes place
If you choose the 10% regime, VID must be notified of the concluded lease within five business days of concluding the agreement. Check the current deadline and rate on the VID website because tax rules can change. The notification is submitted electronically through VID's Electronic Declaration System (EDS). It must include information about the agreement, the parties, and the rent, together with the notice that you are exercising the right not to register economic activity and a copy of the rental or lease agreement.
If the rent is paid by a private individual who does not use the property for economic activity, the landlord reports the income in the annual income declaration and pays the calculated tax. If the rent is paid by a legal entity or by an individual who uses the property in their economic activity, the payer withholds the tax when making the payment and pays it to VID. The landlord does not report that rent again in the annual income declaration, unless filing it to claim the documented real-estate-tax deduction.
Notifying VID is not the same as registering in the Land Register
Here lies a mistake made even by experienced landlords. Notifying VID of a lease concerns taxes. It is not the same as recording the lease in the Land Register, which concerns the legal force of the contract against third parties.
Under the Law on Residential Tenancy, which came into force on 1 May 2021, a residential lease can be registered in the Land Register. Such registration provides additional protection - for example, the contract remains in force even if the property is sold. This option and its legal consequences are set out in the Law on Residential Tenancy. These are two different actions with different purposes, and a professional approach to renting out often means arranging both matters.
Regardless of which of these options you choose, an important prerequisite is a clear and properly prepared lease. It should clearly state not only the rent and the term of the contract, but also the procedure for using the security deposit, the coverage of utility payments, the obligations of the parties, the conditions for using the property, and the procedure for terminating the contract. For more on the terms that are often formulated incompletely or omitted altogether, read our article about common mistakes in apartment rental agreements.
If there is no contract yet, Doqubit - a document creation platform built in Latvia - helps prepare one through a guided process. The user answers questions about the property, the parties to the transaction, and the terms of the agreement, while the system helps organize this information into a document intended for standard rental situations.
On the Doqubit platform it is also possible to prepare an apartment handover-acceptance act, which records the condition of the property, meter readings, the keys handed over, furniture, household appliances, and other essential circumstances at the moment of handing over the apartment. You can learn more about the significance of this document for both the owner and the tenant in the article about the apartment handover-acceptance act.
What happens if the lease is not notified and the income is not declared
Declared and undeclared rental income can lead to very different consequences. The difference is not only in the tax paid - it also matters whether you may later have to cover additional payments, explain the origin of the income, or resolve complications in the relationship with the tenant. The two situations are compared below.
Declared | Undeclared | |
|---|---|---|
Tax position | Tax paid and status clear | Tax for previous periods may become payable |
Additional costs | Tax under the chosen regime | Tax and statutory late-payment interest; other consequences depend on the circumstances |
Relationship with the tenant | Clear, documented agreement | The agreement may be harder to prove in a dispute |
Records and clarity | Income reported and documents organized | Income may need to be explained and records reconstructed |
As can be seen, failing to declare is rarely a genuine saving - it is rather a deferred problem whose cost only grows over time.
Clear rental relationships start with a contract
For the rental relationship to be clear to both parties, first of all a clear written contract is needed, in which the rent, the payment procedure, the security deposit, the obligations of the parties, and the conditions for terminating the contract are clearly established. It is precisely here that many people stop, because templates found online are often too general or incomplete, and they lack exactly those terms that later decide a dispute.
An important advantage of the Doqubit document creation platform is that you do not have to guess yourself which clauses to keep, change, or add - the system asks targeted questions and helps prepare the document in a structured way for a standard rental situation.
Another advantage of Doqubit is speed and flexibility: the finished document can be conveniently edited, reviewed, and sent for signing, and related documents, such as the handover-acceptance act, are also available in one place. Instead of building the lease from scratch or adapting a lease template, you get a clear document that becomes a reliable basis both for the relationship with the tenant and for the subsequent notification of VID or registration in the Land Register.
You can prepare a document on the Doqubit platform immediately - choose the document that best fits your situation from the catalog and prepare your lease in just a few minutes!
This article provides general information and is not to be considered individual tax or legal advice. It is advisable to check the current rates, deadlines, and the solution best suited to your situation on the VID website or by consulting an accountant.