The tax system in Latvia consists of state taxes, state fees, local government fees, and social insurance contributions.
There exists a three-tier system of social benefits in Latvia:
1) state social insurance benefits which are earnings related and based on social insurance contributions;
2) state social benefits which are flat-rated and with universal coverage of population;
3) means-tested benefits provided within the system of social services and social assistance.
State social insurance benefits guarantee a person a certain substitute for income in the event of social risk and are provided only for socially insured people. Individuals are insured and social insurance contribution payments are made in respect of those social risks that may actually affect them. Social insurance contributions guarantee security to person in case of old-age, death, unemployment, disability, maternity (paternity), sickness, accidents at work and occupational diseases.
State social benefits provide universal state support in the form of cash payments for certain groups of the population in cases related to the arising of additional expenditures, in which the social insurance system does not provide for security (for example, family benefit, child care and child birth benefits, state social security benefit, that provides security in case of loss a parent etc.).
Housing costs are covered through a separate means-tested scheme in terms of social services and social assistance system. There is a social assistance scheme which guarantees a minimum income for every inhabitant of the country, as also provides other means-tested benefits in special cases as final safety net.
As concerns social benefits, only pensions (old-age pension, long service pension, disability pension, survivor's pension) and sickness benefit are taxable.