Income liable to taxation is divisible into income from real estate, income from capital, industrial and commercial profits, salaries and wages, remuneration of the liberal and kindred professions, and miscellaneous income.

Let us now consider the taxes on each of these classes of income, having regard to the origin of the income and the domicile of the recipient.

Income from Real Estate. — This income is in the first place liable, according to its nature, either to the tax on urban properties or to the tax on rural properties. These two taxes are strictly territorial and the domicile of the person who enjoys landed income is of small importance, the necessary and sufficient condition of liability being that the taxable income is derived from real property in Latvia. Income from urban estate is further liable to income-tax, but not the income from rural estate. Landed income from abroad is never liable to income-tax, even if the recipient lives in Latvia.

Landed income includes only income from the property or from a property right to the soil, and the law exempts from income-tax agricultural income and income from similar activities (stock-breeding, market-gardening, fruit-growing, forestry, fisheries, etc.), which also do not come within the scope of the tax on income from rural property.

Income from Capital. — By capital yield is meant all income from shares, bonds and other securities, from deposits, current accounts, loans, etc., to the exclusion of capital which a man invests in his own business or enterprise.

If the income is from securities or interest paid in any form whatever by public enterprises or credit establishments, the tax on income from capital is deducted at the source (subject to various exemptions we shall deal with under the heading of assessment), whatever the domicile or residence of the recipient.

Further, such income, whatever its source, will be liable to income-tax if it accrues to persons domiciled in Latvia. Thus, as regards the first of these taxes, fiscal liability is based upon the source of the income and, as regards the second (in so far as it is imposed on the income now in question), on the recipient’s domicile.

Industrial and Commercial Profits.—This income, which further includes all receipts of whatever origin associated directly or indirectly with the exercise of a business or industry, is liable to the various taxes on trade and industry, which we shall discuss in detail under the heading “Assessment” (pages 289 and 290), and is also liable to income-tax. Both taxes are payable only if the enterprise has its head office or an establishment in Latvia.

The income from participations in such enterprises is taxable under the same conditions as the profits of the enterprises themselves.

Salaries and Wages.—Salaries and wages, which include all kinds of remuneration and advantages arising out of services performed on behalf and under the authority of another person, are liable only to income-tax.

In order that this tax may be due, the taxable remuneration must represent services accomplished in Latvia, or the remuneration must be paid in Latvia.

Income from the Liberal and Kindred Professions.—This heading embraces the remuneration of doctors, lawyers, teachers and persons engaged in artistic, scientific or literary work.

Here, too, only income-tax is collected and it is only due if the person exercise his calling in Latvia.

Miscellaneous Income.—Under this heading are included retiring pensions, various allowances, life annuities paid by insurance companies, author’s copyrights and patent royalties devolving upon heirs, and other income not included under any of the above headings.

Such income is only taxed in Latvia if it accrues to persons domiciled there (this income is liable to no other tax than income-tax), except as regards pensions paid by public banks in Latvia.

Extraordinary income, like single gifts, bequests, dowries, insurance payments and the surplus value of property, also soldiers’ pay on active service, is not taxable. Nor does taxable income include family allowances paid by the State and public corporations to their officials, or insurance benefits paid by the State or insurance funds in case of sickness or accident.