Finance Ministry proposes letting municipalities set their own property tax rates

Latvia's Finance Ministry (FM) proposes that from 2029 municipalities be obliged to decide on real estate tax (NĪN) rates and/or limits on growth of the tax base. The goal is to prevent new cadastral values from causing a substantial rise in residents' tax payments. The ministry announced the proposal on 6 November.

Why changes are needed

From 2029, the tax calculation is to use a new cadastral value base. In all tax categories – housing, land, commercial buildings and production buildings – it will be considerably higher than the values used now. The ministry notes that a higher cadastral value alone does not determine the tax due, since the rate, tax relief and possible limits on growth of the taxable value also play a role.

What the proposal contains

The proposal is part of an informative report submitted to the government on the 2027–2030 budget baseline and the results of the spending review. The Cabinet of Ministers is expected to consider it shortly. Municipalities would have to set rates and/or growth limits for properties in their territory through binding regulations.

The FM believes municipalities know residents' needs better and have fuller information on the funding their functions require. Their decisions will matter especially because cadastral values of similar properties differ significantly between regions, cities and counties.

The proposal is linked to a planned new municipal financial equalisation model, which would exclude NĪN revenue from the equalisation calculation and leave it fully with the municipality concerned.

Conditions and deadlines

Municipalities would have to observe the principles of autonomy, responsible budget planning, legality and proportionality, and give taxpayers timely and clear application rules. Specific rates and limits are still to be set in later regulation and in municipal decisions.

The FM is to be tasked with preparing proposals for amendments to legislation by 1 March 2027, in consultation with the Latvian Association of Local and Regional Governments. Under the Real Estate State Cadastre Law, the government must approve the new cadastral value base by 15 June 2027.