Many respected readers own land – and there are those who, due to historical circumstances, have buildings on it that have long belonged to individuals and legal entities. What should be done about taxes?
The state committed to pay the difference
At a meeting of the Latvian government, Justice Minister Inese Lībiņa-Egnere ("New Unity") announced a project for a completely new Law on Compensation for Legal Use of Land. But, unfortunately, her political party – represented by the Prime Minister – became the initiator of the government’s collapse, and the prospects for this legislative innovation are now unclear.
The goal of the new act was stated as "ensuring landowners the right to receive compensation from the state in the cases established by this Law."
Landowners were entitled to compensation if they owned land with buildings, and the amount of payments for the use of the latter was less than the calculated property tax for the land.
"Compensation is calculated as the difference between the property tax payment at the rate established by paragraph 1 of part 1 of article 3 of the Property Tax Law and the payment for the legal use of the land in the amount established by the Law on the Entry into Force of the Civil Law, proportionally to the area of land legally used by the owner of the building."
In the event that voluntary alienation of the land occurred during the corresponding year for which compensation could be received, the right to payments applied only for the period when the land belonged to the former owner.
It was anticipated that by November 30, 2026, an electronic application could be submitted indicating personal data (for legal entities – name and registration number), address, information about the land and building (cadastral numbers, area of land), calculated amount of compensation, and bank account. "The landowner submits a separate application for each plot of land owned by them." Payments were expected to be made within 2 months of the application submission.
Two cadastral values – a legislative marriage?
Why was all this initiated? The fact is that starting January 1, 2025, amendments to the Law on the State Real Estate Cadastre introduced two cadastral values – fiscal and universal.
It was specifically established that the fiscal cadastral value is used for calculating taxes, state duties, and other payments to the state budget or local government budget (and thus for calculating property tax).
As for the payment for the legal use of land, it was established that the universal cadastral value, objectively updated to correspond to the situation in the real estate market, is used for its calculation.
In cases of forcibly divided land ownership, which is quite characteristic of Latvia, the owner of the plot pays the corresponding tax on their real estate calculated from the fiscal cadastral property, while the payment for the legal use of the land received from the owners of buildings is based on the universal cadastral value. And these amounts can differ significantly!
"A situation may arise where the payment for the legal use of land does not even cover the property tax payments," the Ministry of Justice noted. The Constitutional Court has already considered this collision and, in accordance with article 105 of the Satversme, recognized it as "inconsistent with the principle of proportionality." "Legislators, the judges emphasized, need to adopt legal regulation so that landowners receive fair compensation."
Unfortunately, our parliamentarians are currently engaged, figuratively speaking, in rearranging furniture. They are not focused on resolving land disputes. On April 28, the Legal Commission of the Saeima received a package of draft laws from the Ministry of Justice but did not support their advancement for parliamentary consideration.
Not shifting from one pocket to another
The draft law stipulates that compensation is not provided to state or municipal societies. As explained in the annotation of the draft law, this is done deliberately – "considering the impracticality of redirecting resources from the state budget from one subject of public law to another, as well as the fact that public law legal entities are generally not subject to article 105 of the Satversme."
Article 5 of the draft law clearly specifies the criteria for calculating compensation that landowners must comply with when indicating in the application for compensation calculated according to the provisions of the draft law.
Thus, according to article 5, compensation is calculated as the difference between:
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the property tax payment at the rate established by paragraph 1 of part one of article 3 of the Property Tax Law, i.e., 1.5% of the cadastral value of the land,
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and the payment for the legal use of the land in the amount established by the Law on the Entry into Force of the Civil Law, i.e., 4% of the cadastral value of the land, but not less than 50 euros per year.
According to the Ministry of Justice's project, changes in the cadastral value of the land were to be taken into account, paying compensations proportionally to its fluctuations. In our conditions, these can be quite sharp – for example, if a residential complex or an office skyscraper is built nearby your land, you may be required to pay three times the amount!
Unforeseen cases
"Preliminary calculations showed that compensations for 2025 and the first half of 2026 should be paid in about 201 cases," the Ministry of Justice information states. "This is a very approximate number of possible cases, as there is currently no precise data on the specific number of forcibly divided properties or the areas that are in the use of building owners in each legal respect of the legal use of specific land."
It was planned to cover the difference through the program 99.00.00 "Funds for Use in Unforeseen Cases." Most likely, this legislative marriage falls under such cases.
The department of I. Lībiņa-Egnere naively noted: "The payment of compensations is a one-time implementable measure that does not create long-term obligations. To ensure the implementation of the Constitutional Court's decision, possible scenarios for resolution were carefully studied, and the solution included in the draft law has as little financial impact as possible."
Hence, the initially temporary nature of the draft law arises – it was intended to be introduced on June 1, 2026, and to end on May 31, 2028. As if in two years, the problems with money for land would resolve themselves. Although tax debts and mutual non-payments are one of the characteristic features of the local socio-economic situation, directly affecting the (in)stability of the state…
