Tax on cirsma sales in Latvia: 25% vs 50% allowance, the €50,000 VAT threshold, and when a SIA pays off

Who this affects and at what scale

A forest sale by an individual in Latvia is subject to personal income tax, but the final figure is driven not by the headline rate but by the form of the transaction. Cirsma — the sale of the right to fell standing timber — and the sale of harvested logs are, in legal terms, two distinct transactions with statutory expense allowances of 25% and 50% respectively. Mandatory VAT registration kicks in at €50,000 of turnover within a rolling 12-month window. In our VMD sample, that level is reached at the 75th percentile — one in four private forest transactions gets there. With 60 or more months of continuous ownership, some owners can declare the income with no tax at all.

Key takeaways

- Cirsma (§11.9) and kokmateriāli (§11.8) are two separate tax regimes: 25% or 50% expense allowance

- Effective rate: 15% of gross (cirsma) versus 10% (kokmateriāli)

- VAT registration is mandatory from €50,000 of turnover; the median deal stays below the threshold, the 75th percentile does not

- 60 months of ownership can produce full personal income tax exemption

- A SIA pays off from €150,000 per year, or when consolidating a portfolio

Cirsma and kokmateriāli are two different transactions

Many owners use the word "cirsma" as shorthand for "selling forest". Legally that is wrong. What you transfer to the buyer determines the tax treatment, the required paperwork, and sometimes even title to the land.

Cirsma is the sale of the right to fell a defined volume of standing timber. The buyer brings a harvester, fells, and hauls the logs; payment arrives before a single tree is cut, or in tranches tied to milestones. The land stays with the seller. Kokmateriāli is the sale of already-felled logs: first the owner or a contractor fells, sorts by assortment and stacks at the roadside, then the buyer collects batches and pays per m³ at each grade. Sale of the entire cadastre together with the land is a third, separate category, governed by §11 of IIN likums and taxed as a capital gain under the 60-month holding rule.

Most private sellers choose cirsma because it requires no capital outlay for machinery or logistics. The kokmateriāli regime is usually more tax-efficient, but comes with operational requirements. Both are examined below.

Base case: cirsma sale (§11.9 IIN likums)

When you sell a cirsma, the proceeds count as capital-gains income. The special rate under §15 IIN likums applies; in calculations we use a working value of 20%, applicable in 2025–2026, but the final figure on your transaction date should be confirmed with VID. The taxable base is gross revenue minus expenses, and the owner has a choice: the statutory 25% expense allowance with no supporting documentation, or documented expenses if they exceed 25% of revenue (boundary marking, cadastral work, VMD forest inventory, legal fees, document preparation).

Under the 25% allowance the effective burden works out to a direct multiplication:

20% × (1 − 0.25) = 15% of gross revenue.

On €40,000 of cirsma revenue, roughly €6,000 goes to the budget and €34,000 stays with the owner. If the owner holds invoices for €15,000 of expenses — 37.5% of €40,000 in revenue — those should be claimed instead of the standard allowance: the effective rate falls to 20% × 62.5% = 12.5%.

Under §11.9 of IIN likums, a cirsma sale in Latvia is taxed at a 20% capital-gains rate (working value for 2025–2026) after deducting the 25% statutory expense allowance — an effective burden of 15% of gross revenue (VID, vid.gov.lv).

Alternative: kokmateriāli sale (§11.8 IIN likums)

The sale of harvested timber carries a different statutory expense allowance — 50%. It compensates for the actual harvesting costs: harvester contractor, forwarder, roads, stacking, and assortment sorting.

Under the 50% allowance the burden is:

20% × (1 − 0.50) = 10% of gross revenue.

On the same €40,000 of revenue, the tax is 10% versus 15% — a €2,000 difference in favour of kokmateriāli. That comparison is purely arithmetic, though. In practice, a kokmateriāli seller arranges the harvest themselves or hires a contractor (€18–25 per m³), pays for hauling to the roadside (€4–8 per m³), sorts by assortment (premium pine sawlog, standard, pulp, plywood billets), and maintains per-batch documentation for VID. A harvester contractor typically charges €22–28 per m³, absorbing around 30% of revenue. If the contractor is hired without a formal contract, those costs will not be accepted as deductions.

The simple principle: kokmateriāli is more tax-efficient only when the owner personally — or through a trusted contractor — fells the stand and delivers to the roadside. Otherwise, cirsma at the 25% allowance is simpler and the net result is almost the same.

Tax exemption: the 60-month rule

§9, paragraph 1, item 33 of IIN likums grants the most significant exemption available to forest owners. If the forest property has been in the owner's name for 60 months or more on the cirsma sale date, and the income shows no indicia of business activity (occasional transaction, no more than 1–2 cirsma sales per year), the proceeds may be fully exempt from tax. This matters most for owners who received forest through 1990s restitution or inherited a parcel from parents.

Three caveats determine the outcome. The holding period runs from registration in the Land Book (Zemesgrāmata), not from physical handover: if documents were in hand for 4 years but registration is 3 years old, only 3 years count for the 60-month rule. Inherited property carries over the predecessor's holding period — the heir does not "reset the clock" on receipt. A sale of the entire cadastre with the land follows an analogous rule, with the additional condition that the parcel must not have been used in business activity.

For doubtful cases on a specific transaction, VID issues an advance ruling within 30–60 days on request via the EDS system. A large transaction without that prior answer carries real risk.

The €50,000 VAT threshold

VAT (PVN) is a separate matter, unrelated to IIN. Under §59 of the Value Added Tax Law (Pievienotās vērtības nodokļa likums), an individual or legal entity is required to register as a VAT payer once the total amount of taxable supplies over a rolling 12-month period exceeds €50,000. A cirsma transaction does not generally fall within any exemption. The standard VAT rate in Latvia is 21%.

What this threshold means in real numbers: from our VMD sample, the median mature private cadastre is 2.7 ha or 534 m³, with revenue of €35,000–43,000 depending on species mix and assortments — still below the threshold. At the 75th percentile the volume is already 1,065 m³, which gives €69,000–85,000 — above the threshold. At the 90th percentile — 2,351 m³, or €153,000–188,000. In practice, the owner of a mid-size private forest with 4–5 ha of mature stand is highly likely to cross the €50,000 threshold on a single transaction.

After registration, the operating model of the deal changes. 21% is added to the price; a corporate buyer recovers that VAT as input tax, so it is neutral for the seller. The seller simultaneously gains the right to recover VAT on expenses (harvester, roads, lawyers) and the obligation to file monthly or quarterly VAT returns depending on turnover — including in periods with no transactions. Deregistration is available if turnover stays below the threshold for 12 consecutive months, but the procedure takes 1–3 months.

In Latvia, VAT registration becomes mandatory once taxable supplies over a rolling 12-month period exceed €50,000 (§59 Pievienotās vērtības nodokļa likums). The 75th percentile of our VMD sample — 1,065 m³, revenue €69,000–85,000 — already exceeds this threshold.

When a SIA starts to make sense

At a stable annual turnover of 1,500–2,500 m³ (€100,000–200,000 of revenue per year), a corporate structure is worth considering. A Latvian SIA has operated under the corporate income tax (UIN) regime since 2018, with three defining features.

First: 0% tax on retained earnings. While the cash stays inside the company and is reinvested — acquiring a neighbouring parcel, infrastructure, equipment — no tax is due. Second: on dividend distributions the UIN rate is 20% applied to a grossed-up base with a 1.25 multiplier, producing an effective burden of around 25% on the net distribution. That is close to the individual cirsma burden, but lets the tax be spread over time. Third: clean separation of personal and business assets — a forest stand on the SIA's balance sheet is a separate legal subject, and the owner's personal risks (divorce, succession, bankruptcy) do not reach the asset directly.

The drawbacks appear from the other direction. Running a SIA costs €100–250 per month for bookkeeping, €300–800 for the annual report, plus registration fees. Where business activity exists, ultimate beneficial owner disclosure in Lursoft and social contributions (if there is a resident director) are layered on. Most critically, the 60-month exemption does not apply to legal entities at all.

A simple decision guide: revenue up to €30,000–50,000 per year with episodic sales — individual, standard expense allowance. From €50,000–150,000 per year — individual plus VAT registration. From €150,000 per year, or with plans to consolidate a 100+ ha portfolio — SIA under UIN, with a salaried accountant.

Five real-world scenarios

All examples are drawn from the distribution of private cadastres in our VMD sample — 81,575 mature private cadastres. We assume average 2026 stumpage prices: pine sawlog €75/m³, mixed sawlog €60/m³, pulp €30/m³ — weighted to roughly €68/m³ for an average species mix. The capital-gains income rate is a working value of 20% for the calculation.

Three things stand out. The choice between cirsma and kokmateriāli changes the tax by a factor of 1.5: €5,447 versus €3,631 on the median transaction. Above €50,000 of revenue, VAT registration is mandatory and rewrites the operating model. From €150,000 upward, the gap between an individual and a SIA already covers the legal-entity overhead within the first year.

Six common mistakes

The first is to assume cirsma is always taxed at a single fixed rate. The effective burden depends on the chosen expense allowance (25% or 50%) and the capital-gains rate in force on the transaction date. Advertising claims like "tax of only 5%" or "only 7.5%" are marketing simplifications, not calculations.

The second: ignoring the VAT threshold. An owner closes a first large deal, skips registration, and a year later receives a VID notice about missed registration, a penalty, and back-assessed VAT. Penalty amounts are governed by the Law on Taxes and Duties (Likums par nodokļiem un nodevām) and depend on the circumstances.

The third: not keeping expense records. With invoices for inventory work, lawyers, and contractors, the owner can claim documented expenses instead of the standard 25%. Without invoices, only the standard allowance is available.

The fourth: counting the holding period from physical handover rather than the Zemesgrāmata entry. The period runs from state registration. If documents were in hand for 4 years but registration is 3 years old, only 3 years count for the 60-month rule.

The fifth: setting up a SIA "just in case" without real turnover. Running a SIA on revenue below €30,000 per year wipes out any tax saving: bookkeeper, reporting, audit once certain size thresholds are met, and the annual registration fee — at least €1,500–3,500 per year in total.

The sixth: signing a cirsma contract without specifying volume and assortment breakdown. The common practice of "selling forest for €25,000" with no link to m³ is the leading source of disputes after extraction. The contract should state: total volume in m³, breakdown by assortments, price per assortment, term, and the measurement procedure after felling.

FAQ

If I sold a cirsma and registered for VAT, can I claw the tax back?

No. VAT registration is an obligation, not an option. Once turnover exceeds €50,000 over a rolling 12-month period, registration is mandatory from the moment of crossing. You can deregister later if turnover stays below the threshold for 12 consecutive months.

I inherited the forest two years ago. How is the holding period counted?

In Latvia, inherited property carries over the predecessor's holding period for IIN purposes. If a parent owned the forest for 30 years before death, the 60-month rule is automatically satisfied for the heir. The supporting evidence is a Zemesgrāmata extract showing the ownership history.

I live in another EU country, the forest is in Latvia. Where do I pay tax?

In Latvia. Income from a cirsma sale is treated as Latvian-source income, and the owner's residence is irrelevant. The Latvian rate applies with the same allowances. If the country of residence has a double-tax treaty with Latvia — which is standard for all EU member states — the Latvian tax paid is credited against the home-country liability.

Can I split a cirsma into several deals to stay below the VAT threshold?

Legally, no. The calculation runs on a single 12-month rolling basis, aggregating all transactions of one person. Structuring deals to avoid registration is grounds for VID to assess underpaid tax and impose penalties. With two €30,000 deals in the same year, registration is mandatory from the second transaction.

Which is more profitable: selling a cirsma or selling the whole cadastre with the land?

It depends on the goal. A cirsma yields cash quickly, but the cadastre keeps growing and another harvest is feasible in 8–15 years. Selling the cadastre with the land closes the position entirely and is taxed as a capital gain under the 60-month holding rule — after a long holding period the tax is often 0%. Indicative prices: cirsma averages €4,000–9,000 per hectare of mature stand; sale of the cadastre with land runs €5,000–18,000 per hectare, depending on species composition, access, and infrastructure.

Related reading

• Cadastral revaluation 2025–2028 and NĪN
• EUDR from 30.12.2026 for private owners
• Valuation vs sale price: five discounts

Sources

• Personal Income Tax Law (Iedzīvotāju ienākuma nodokļa likums), §§ 9 paragraph 1 item 33, 11.8, 11.9, 15, 16 (likumi.lv).
• Value Added Tax Law (Pievienotās vērtības nodokļa likums), §59 (likumi.lv).
• Corporate Income Tax Law (Uzņēmumu ienākuma nodokļa likums) (likumi.lv).
• Law on Taxes and Duties (Likums par nodokļiem un nodevām) — general rules on penalties and interest (likumi.lv).
• VID (Valsts ieņēmumu dienests) — guidance on personal income tax for individuals (vid.gov.lv).
• VMD Meža valsts reģistrs, 2026 Q2 release (our sample: 81,575 mature private cadastres averaging 534 m³).
• LVM, 2024 annual report — average assortment prices.

Disclaimer

This article is not tax advice. Specific rates, deductions, and regimes may change, and an individual situation may call for a different interpretation. Before any transaction, consult a licensed tax adviser or file an advance ruling request with VID through the EDS system. All calculations in this article use a working capital-gains income rate of 20%; the final figure for your specific transaction should be verified separately.