When selling standing timber, the effective tax rate is 7.5%. When selling forest land, it's 25.5% on the capital gain. The difference comes down to one legal question: what exactly are you selling. We break down both regimes with worked examples.
Why 7.5% and 25.5% are two different worlds
A forest owner who decides to sell typically thinks one thing: "I own a forest, I'll sell it." But the tax system splits that single decision into two entirely different regimes. Which path you take determines whether you hand 7.5% or 25.5% to the state.
First regime: you sell standing timber — growing forest as a raw material. A simple mechanism applies: the buyer withholds 10% PIT, of which 25% is deemed deductible expenses, yielding an effective rate of 7.5% on the transaction amount. No declarations, no registrations — provided you make only one such transaction in any 12-month period.
Second regime: you sell forest land as real estate. This is a capital asset, and from 2025 income from its sale is taxed at a 25.5% PIT rate (up from 20%). The tax applies not to the full sale amount, but to the capital gain — the difference between the sale price and the acquisition cost. And here an important exemption appears: you pay nothing if the property was held for more than 5 years and was the seller's only real estate.
In practice, many owners confuse these two regimes. The result is either an overpayment or an unwelcome appearance on the VID radar with unregistered economic activity. This article walks through both regimes step by step with concrete numbers.
Selling standing timber: 7.5% with no paperwork
If you are an individual with no registered economic activity in forestry and you sell standing timber to a legal entity (logging company), the scheme is straightforward:
The buyer withholds PIT at 10% of the income. But before that, 25% is deducted from the payable amount as deemed expenses. The result: 7.5% of the transaction sum is withheld. You receive the net amount, and the tax obligation is fulfilled — the buyer pays it to VID on your behalf.
Example: you sell standing timber for €20,000. The buyer deducts 25% (€5,000) as deemed expenses. €15,000 remains, from which 10% is withheld = €1,500. You receive €18,500. Effective rate: 7.5%.
This regime works under one important condition: only one such transaction is allowed in any 12-month period. If you sell two or more logging sites within 12 months, VID treats you as conducting economic activity. That means progressive PIT rates (20% up to €20,004; 23% up to €78,100) and possibly VAT registration if transactions exceed €50,000.
One more nuance: if you sell harvested timber rather than standing trees, the deemed expense rate is 50%, not 25%. In that case, the effective tax rate drops to just 5%.
Selling forest land: 25.5% on the capital gain
When you sell forest land as real estate (rather than timber as raw material), the capital gains tax applies. From 2025, the rate was raised from 20% to 25.5%.
The tax base is not the full sale price, but the capital gain — the difference between the sale price and the acquisition cost. For example, if the land was bought for €30,000 and sold for €80,000, the capital gain is €50,000, and the tax is €12,750 (25.5%).
How the acquisition cost is determined depends on how the land was obtained. If purchased — use the purchase agreement amount. If inherited — the cadastral value at the time the inheritance opened. If gifted — the cadastral value. These details significantly affect the final calculation, so consulting VID or an accountant before selling is advisable.
But there is an important exemption. PIT on capital gains is NOT payable if two conditions are met simultaneously: (1) the property was owned by the seller for more than 5 years, and (2) during those 5 years it was the seller's only real estate. This exemption also applies to forest land — if you own only one forest parcel and have held it for 5+ years, no tax is payable on sale at all.
A significant share of Latvia's forest owners live in exactly this situation — one parcel, inherited or bought long ago. But if you also own other real estate (an apartment, a house, another land plot), the exemption disappears and you need to budget for the 25.5% rate.
Three scenarios with real numbers
To make the differences concrete, let's walk through three typical scenarios.
Scenario A: Jānis sells standing timber for €25,000. No registered economic activity, one transaction in 12 months. Buyer withholds 7.5% — €1,875. Jānis receives €23,125. No declarations needed. Fully legal.
Scenario B: Anna sells forest land for €90,000. She bought the land in 2019 for €40,000. Since 2021 she has also owned an apartment in Riga — the sole-property exemption does not apply. Capital gain: €90,000 – €40,000 = €50,000. Tax at 25.5%: €12,750. A capital gains declaration must be filed with VID.
Scenario C: Pēteris sells forest land for €70,000. The land was inherited from his father in 2017, with a cadastral value of €25,000 at the time. Since receiving the inheritance, this has been Pēteris' only real estate. Held for more than 5 years + sole property = exemption. Tax: €0. A declaration must still be filed, but nothing is payable.