Tax on Cirsma Sales in Latvia: 25% vs 50% Allowance, the €50,000 VAT Threshold, and When a SIA Pays Off

Important note before reading

Important note before reading. This text is a general overview of Latvian taxation of forest transactions and does not substitute for advice from a licensed tax adviser or an official ruling from the State Revenue Service (VID). Specific rates, thresholds, and allowances are updated periodically. Before entering into any transaction, particularly a large one, verify current values on vid.gov.lv and likumi.lv. All calculations below use the capital-gains income rate as drafted in IIN likums and applicable to 2025–2026; the actual figure on the date of your transaction should be confirmed separately.

TL;DR

• In Latvia, a forest sale by an individual is subject to personal income tax (IIN), but the form of the sale determines the deduction. Cirsma (disposal of standing timber, *augoša meža atsavināšana*) and kokmateriāli (harvested timber) are legally distinct transactions.
• Cirsma: §11.9 of the Personal Income Tax Law (*Iedzīvotāju ienākuma nodokļa likums*, IIN likums) provides a standard expense allowance of 25% of gross revenue (or documented expenses, if higher).
• Kokmateriāli: §11.8 provides a standard expense allowance of 50%, since the owner bears the harvesting costs.
• Rate applied to the taxable base — the special capital-gains income rate under §15 IIN likums. Confirm the exact figure for the year of your transaction with VID or a tax adviser; in our calculations we use a working value of 20% (applicable in 2025–2026 to capital-gains income under Latvian IIN).
• Tax exemption: under §9, paragraph 1, item 33 of IIN likums, where forest property has been held for 60+ months and there are no indicia of business activity, cirsma income may be fully exempt.
• The €50,000 VAT threshold in a rolling 12-month window triggers mandatory VAT registration. For the median mature cadastre in our sample (534 m³) revenue stays below the threshold; for the 75th percentile (1,065 m³) it exceeds it.
• A SIA under the corporate tax (UIN) regime starts to make sense from around 1,500–2,500 m³ of annual turnover: 0% tax on retained earnings, and on dividend distributions 20% applied to a 1.25 grossed-up base (≈25% effective on the net distribution).

Cirsma and kokmateriāli are two different transactions

Many owners use the word "cirsma" as shorthand for "selling forest". Legally, that is not the case. What you actually transfer to the buyer determines the tax treatment, the paperwork, and sometimes even the title to the land.

Most private sellers choose cirsma because it does not require capital investment in machinery or logistics. But the kokmateriāli regime is usually more tax-efficient. Both are covered below.

• Cirsma is the sale of the right to fell a defined volume of standing timber. The buyer brings a harvester, fells, and hauls the timber. You receive payment before a single tree is cut, or in tranches tied to milestones. The land remains yours.
• Kokmateriāli is the sale of already-felled logs. First you (or a contractor) fell, sort into assortments, and stack at the roadside. The buyer then collects by batch and pays per m³ at each grade.
• Sale of the entire cadastre together with the land is a separate category, governed by §11 of IIN likums and taxed as a capital gain subject to the 60-month holding rule.

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 (working value in our calculations — 20%; verify the final figure with VID for the date of your transaction). To compute the taxable base, expenses are deducted from gross revenue. You have two options:

Effective burden under the standard 25% allowance:

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

That means on €40,000 of cirsma revenue, roughly €6,000 goes to the budget and €34,000 stays with the owner.

If you have invoices for €15,000 of expenses against €40,000 of revenue, claim the documented amount (37.5% of revenue) instead of the 25% standard. The effective rate falls to 20% × 62.5% = 12.5%.

• Standard 25% expense allowance — no supporting documents required. This is the baseline scenario for most owners.
• Documented expenses — if they exceed 25% of revenue. Eligible items can include: boundary marking, cadastral work, VMD inventory, legal fees on the transaction, and document preparation.

Alternative: kokmateriāli sale (§11.8 IIN likums)

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

Effective burden under the 50% standard allowance:

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

So on the same €40,000 of revenue, the tax is 10% vs 15% — a difference of €2,000 in favour of kokmateriāli.

But that comparison is purely arithmetic. In practice, when selling kokmateriāli you must:

A harvester contractor typically charges €22–28 per m³, which absorbs roughly 30% of revenue. If you hired a contractor without a formal contract, those costs will not be accepted as deductions.

A simple rule of thumb: kokmateriāli is more tax-efficient only if you (or a trusted contractor) personally fell and deliver to the roadside. If not, cirsma with the 25% standard allowance is simpler and produces a near-identical net result.

• arrange the harvest yourself (or hire a contractor at €18–25 per m³),
• pay for hauling to the roadside (€4–8 per m³),
• sort by assortment yourself (premium pine sawlog, standard sawlog, pulp, plywood billets),
• maintain documentation per batch for the State Revenue Service (VID).

Tax exemption: the 60-month rule

IIN likums provides exemptions under specific conditions. The most relevant for forest owners is §9, paragraph 1, item 33 (for ease of reference we abbreviate this as "§9.33" in the body of the article, but in formal correspondence cite the full notation).

then the proceeds may be fully exempt from tax. This is particularly relevant for owners who received forest through 1990s restitution or inherited a parcel from parents.

Important caveats:

For doubtful cases on a specific transaction, VID issues advance rulings within 30–60 days on request via the EDS system.

• If the forest property has been in your ownership for 60 months or more (5 years) as of 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 holding period runs from registration in the Land Book (Zemesgrāmata), not from the actual physical handover.
• Inherited property carries over the predecessor's holding period — the heir does not "reset the clock" on receipt.
• A sale of the entire cadastre together with the land follows an analogous rule, but with an additional condition: the parcel must not have been used in a business activity.

The €50,000 VAT threshold: when registration becomes mandatory

VAT (PVN) is a separate matter, unrelated to IIN.

Under the Value Added Tax Law (*Pievienotās vērtības nodokļa likums*), §59, an individual or legal entity is required to register as a VAT payer if:

The standard VAT rate in Latvia is 21%. Once registered, you add 21% to the price and must file VAT returns (monthly or quarterly, depending on turnover).

What this threshold means in real numbers. From our VMD sample:

The implication: the owner of a mid-size private forest (from 4–5 ha of mature stand) is highly likely to cross the €50,000 threshold on a single transaction — and therefore must register for VAT.

After registration:

VAT deregistration is possible if turnover falls below the threshold over the following 12 months. The procedure takes 1–3 months.

• the total amount of taxable supplies over a rolling 12-month period exceeds €50,000, and
• the supplies do not fall within an exemption (cirsma generally does not qualify for an exemption).
• Median mature private cadastre: 2.7 ha / 534 m³ → revenue roughly €35,000–43,000 depending on species mix and assortments.
• 75th percentile: 1,065 m³ → revenue €69,000–85,000 — already above the threshold.
• 90th percentile: 2,351 m³ → €153,000–188,000.
• You add 21% to the transaction price. A corporate buyer recovers that VAT as input tax — neutral for you.
• You gain the right to recover VAT on expenses (harvester, roads, legal fees).
• You must file monthly VAT returns with VID, even when there are no transactions.

SIA under the UIN regime: for larger owners

If your stand generates a stable annual turnover of 1,500–2,500 m³ or more (€100–200k of annual revenue), it is worth considering a corporate vehicle.

A Latvian SIA (sabiedrība ar ierobežotu atbildību) has, since 2018, operated under the corporate income tax regime governed by the Corporate Income Tax Law (*Uzņēmumu ienākuma nodokļa likums*, UIN):

Drawbacks:

A simple decision guide:

• 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.
• On dividend distributions the UIN rate is 20% applied to a grossed-up base with a 1.25 multiplier, which produces an effective burden of ≈25% on the net distribution. For the owner this is close to the individual cirsma burden, but it lets the tax burden be spread over time.
• Clean separation of personal and business assets. A forest stand on the SIA's balance sheet is a separate legal subject. The owner's personal risks (divorce, succession, bankruptcy) do not reach the asset directly.
• Cost of running a SIA: bookkeeping €100–250 per month, annual reporting €300–800, registration fees.
• Additional rules where business activity exists: ultimate beneficial owner (UBO) disclosure in Lursoft, social contributions if there is a resident director.
• No 60-month exemption — that relief applies only to individuals.
• Annual revenue up to €30–50k, episodic sales → individual, standard expense allowance.
• Annual revenue €50–150k → individual + VAT registration.
• Annual revenue from €150k upward, or 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 ≈€68/m³ for an average species mix. The capital-gains income rate is 20% (working value for the calculation; verify on vid.gov.lv for your date).

Six common mistakes

• Assuming "cirsma is always taxed at a single fixed rate". The effective burden depends on the chosen expense allowance (25% or 50%) and on the capital-gains income rate applicable on the transaction date. Advertising claims such as "tax of only 5%" or "only 7.5%" are marketing simplifications, not accurate calculations.
• Ignoring the VAT threshold. An owner closes a first large deal, fails to register, 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 — verify with VID or an adviser.
• Not keeping expense documentation. If you have invoices for inventory work, lawyers, or contractors, you can claim documented expenses instead of the 25% standard. Without invoices, only the standard allowance is available.
• Counting the holding period from physical handover rather than from the Zemesgrāmata entry. The period runs from state registration. If documents have been in hand for 4 years but the registration is 3 years old, only 3 years count for the 60-month rule.
• Setting up a SIA "just in case" without sufficient turnover. Running a SIA on revenue below €30,000 per year wipes out the tax saving. Bookkeeper, reporting, audit at certain size thresholds, and the annual registration fee — €1,500–3,500 per year minimum.
• 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 you. 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 (the owner's residence is irrelevant). The Latvian rate applies with the same allowances. If your country of residence has a double-tax treaty with Latvia (which is the case for all EU countries), the Latvian tax paid is credited against your 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 transactions to avoid registration is grounds for VID to assess underpaid tax and impose penalties. If you have two €30,000 deals in the same year, registration becomes mandatory from the second deal.

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

It depends on your 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 completely and is taxed as a capital gain under the 60-month holding rule — after a long holding the tax is often 0%. Indicative prices: cirsma averages €4–9k per hectare of mature stand; sale of the cadastre with land runs €5–18k per hectare (depending on species composition, access, and infrastructure).

Related reading

These articles round out the topic and place it in broader context.

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

Sources

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 above use a working capital-gains income rate of 20%; the final figure for your transaction should be verified separately.

• 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.