Latvia, a country with a thriving business landscape, beckons entrepreneurs with its enticing opportunities. As you set your sights on doing business in this Baltic gem, let us guide you through the essential details you need to know.
PopulationApproximately 1.9 million (Source: World Bank, 2023)
| Country |
Latvia |
| Language |
Latvian (62.3%), Russian (37.2%), Other (0.5%) |
| Time in Latvia |
GMT+2 |
| Currency |
(€, EUR) |
| Religion |
Christianity (78.3%), No Religion (18.3%), Other (3.4%) |
| Tax regime |
The tax rate in Latvia varies from 20% to 31.4% |
| VAT |
Value Added Tax (VAT) is levied at a standard rate of 21% |
| Overage salary |
The average salary in Latvia is €1,240 per month (Source: Central Statistical Bureau of Latvia, 2023) |
| Types of incorporations |
Limited Liability Company (SIA), Joint Stock Company (AS), General Partnership (PS), Limited Partnership (KS), European Company (SE), European Cooperative Society (SCE) |
Why Opening a Company in Latvia
Opening a company in Latvia offers numerous advantages for the discerning entrepreneur. The country boasts a strategic location in the European Union, providing easy access to a vast consumer market and an efficient transportation network. Latvia’s favorable tax regime encourages business growth and attracts investors looking for tax optimization opportunities.
Additionally, the country’s business-friendly policies and competitive labor costs make it an ideal destination for startups and companies seeking expansion. The local government’s focus on innovation and technology further bolsters its appeal for tech entrepreneurs seeking to tap into a skilled talent pool. Furthermore, Latvia’s strategic location in the heart of the Baltics offers a gateway to both Eastern and Western markets, making it an excellent choice for entrepreneurs with global ambitions.
Advantages
Strategic Location in the European Union
Latvia’s geographic position at the crossroads of Northern and Eastern Europe provides businesses with a gateway to both EU and non-EU markets. This strategic advantage enables seamless trade and access to a vast consumer base.
Favorable Tax Regime
Latvia offers an attractive tax system, including a competitive corporate income tax rate of 20% on distributed profits and 0% on reinvested profits. Additionally, the progressive personal income tax encourages entrepreneurship and investment.
Business-Friendly Environment
Latvia’s business-friendly policies and streamlined bureaucracy facilitate easy company formation and operational efficiency. The country also offers various incentives and grants to support startups and foreign investments.
Competitive Labor Costs
With a skilled and multilingual workforce, Latvia provides a cost-effective labor pool. The combination of talent and competitive wages makes it an ideal destination for companies seeking to optimize costs.
Access to EU Funding
As an EU member state, Latvia offers access to various funding programs and grants, supporting research, innovation, and business development initiatives.
Growing Economy: Latvia’s economy has been steadily growing, presenting ample opportunities for entrepreneurs to tap into emerging sectors and expand their business ventures.
Disadvantages of Opening a Company in Latvia
Language Barrier
While English is widely spoken in the business community, Latvian is the official language for legal documentation and government interactions. Foreign entrepreneurs may face challenges in navigating legal procedures and contracts in the local language.
Limited Domestic Market
With a relatively small population, Latvia’s domestic market may be insufficient for businesses focused solely on local consumers. Companies aiming for rapid growth may need to explore international markets to expand their customer base.
Seasonal Business Climate
Certain industries, such as tourism and agriculture, may experience seasonal fluctuations due to Latvia’s climate. Entrepreneurs in these sectors need to devise strategies to manage seasonal demand and revenue fluctuations.
Bureaucratic Procedures
Despite efforts to streamline procedures, some bureaucratic processes may still exist, which could prolong the time it takes to establish a company or obtain necessary permits.
Foreign Ownership Restrictions in Some Industries
In some sectors, such as media and defense, foreign ownership may be subject to restrictions. Entrepreneurs looking to invest in these industries should carefully review the relevant regulations.
Labor Mobility
Latvia’s open labor market and its citizens’ willingness to seek work abroad can lead to occasional labor shortages in certain industries.
Types of Company Incorporations in Latvia
Limited Liability Company (SIA)
| Type |
Cost of Incorporation |
Minimum Share Capital |
Taxes |
| SIA |
Low |
€2 |
20% on distributed profits, 0% on reinvested profits |
The Limited Liability Company (SIA) is the most popular and widely used business structure in Latvia. It offers limited liability protection to shareholders, safeguarding their personal assets from business-related risks. The incorporation process is relatively simple and cost-effective, with a minimum share capital requirement of just €2. The SIA is an ideal choice for small to medium-sized businesses, startups, and foreign investors exploring the Latvian market. It provides flexibility in management and allows for smooth decision-making.
Joint Stock Company (AS)
| Type |
Cost of Incorporation |
Minimum Share Capital |
Taxes |
| AS |
Medium |
€25,000 |
20% on distributed profits, 0% on reinvested profits |
The Joint Stock Company (AS) is a suitable choice for businesses planning significant growth and seeking to raise capital through public offerings. The AS requires a higher minimum share capital of €25,000, making it a preferred option for larger enterprises and joint ventures. It offers limited liability protection to shareholders and follows more stringent reporting and disclosure requirements compared to the SIA. The AS is well-suited for companies with a long-term vision for expansion and larger-scale operations.
General Partnership (PS)
| Type |
Cost of Incorporation |
Minimum Share Capital |
Taxes |
| PS |
Low |
Not applicable |
Partners are taxed individually |
The General Partnership (PS) is a simple and affordable business structure suitable for small businesses and startups with multiple owners. In a PS, two or more partners join forces to carry out a business together, sharing both profits and liabilities. The partners are personally liable for the partnership’s debts and obligations. The PS does not require a minimum share capital, offering flexibility and ease of setup. However, partners should carefully consider the legal and financial implications of unlimited liability before choosing this option.
Limited Partnership (KS)
| Type |
Cost of Incorporation |
Minimum Share Capital |
Taxes |
| KS |
Medium |
Not applicable |
General partners are taxed individually, limited partners are taxed on profits received |
The Limited Partnership (KS) is a specialized business structure that combines general partners, who have unlimited liability for the company’s debts, with limited partners, whose liability is limited to their contributions to the partnership. KS is often used for investment funds, real estate ventures, and other projects where investors seek limited involvement and risk. The general partners manage the business, while the limited partners provide capital without participating in day-to-day operations. This structure offers a unique balance of risk and return for different types of investors.
European Company (SE)
| Type |
Cost of Incorporation |
Minimum Share Capital |
Taxes |
| SE |
High |
€120,000 |
20% on distributed profits, 0% on reinvested profits |
The European Company (SE) is a prestigious and versatile business structure that allows companies to operate across multiple EU member states with a single legal entity. The SE is subject to EU regulations and requires a higher minimum share capital of €120,000. It is suitable for large multinational corporations seeking to establish a pan-European presence. The SE structure facilitates streamlined corporate governance and allows businesses to benefit from economies of scale while adhering to European standards and regulations.
European Cooperative Society (SCE)
| Type |
Cost of Incorporation |
Minimum Share Capital |
Taxes |
| SCE |
High |
€30,000 |
20% on distributed profits, 0% on reinvested profits |
The European Cooperative Society (SCE) is a specialized form of incorporation designed for cooperative businesses with a cross-border presence within the EU. It requires a minimum share capital of €30,000 and follows EU regulations for cooperatives. The SCE structure allows cooperatives to operate efficiently across borders, promoting cooperation and mutual benefits among members. This business form is well-suited for cooperative enterprises with international operations, encouraging collective ownership and decision-making.
Common Questions
What are the steps to incorporate a company in Latvia?
Incorporating a company in Latvia involves several essential steps. Firstly, entrepreneurs need to choose the type of company they wish to establish, such as a Limited Liability Company (SIA) or a Joint Stock Company (AS). Next, they must prepare the necessary documents, including the company’s Articles of Association and registration forms.
These documents need to be notarized and submitted to the Register of Enterprises of Latvia. Upon successful registration, the company will receive a registration number and become a legal entity. Additionally, entrepreneurs may need to open a bank account, obtain necessary permits, and fulfill any industry-specific requirements. Engaging a legal advisor or a professional service provider can simplify the incorporation process and ensure compliance with all legal obligations.
What are the capital requirements for setting up a company in Latvia?
The capital requirements for setting up a company in Latvia vary depending on the type of company. For a Limited Liability Company (SIA), the minimum share capital is just €2. However, for a Joint Stock Company (AS), the minimum share capital is €25,000. It is essential to ensure that the required capital is available at the time of registration.
Entrepreneurs should also consider the capital needed to cover initial operational expenses and future growth plans. While a lower share capital requirement in SIA makes it an attractive option for startups and smaller businesses, larger enterprises may find AS more suitable due to its higher capital and potential for public fundraising.
What are the banking options for businesses in Latvia?
Latvia offers a diverse and robust banking sector with various options for businesses. Both local and international banks operate in the country, providing a wide range of banking services tailored to business needs. Entrepreneurs can open business accounts in multiple currencies, access credit facilities, and manage online banking transactions efficiently.
It is advisable to research different banking institutions and compare their service fees, transaction costs, and suitability for specific business requirements. Additionally, many banks offer personalized support and guidance for foreign entrepreneurs seeking to set up businesses in Latvia, making the banking process smoother and more accessible.
What are the accounting and reporting requirements for Latvian companies?
Latvian companies have specific accounting and reporting obligations that must be adhered to. They are required to maintain accurate accounting records and prepare financial statements in accordance with the applicable accounting standards. Annual financial statements must be submitted to the Register of Enterprises and made available to shareholders.
Companies are also required to file tax returns and comply with tax reporting obligations, including Value Added Tax (VAT) returns. Entrepreneurs should engage qualified accountants or accounting firms familiar with Latvian regulations to ensure accurate and timely compliance with accounting and reporting requirements.
What are the employment regulations and labor laws in Latvia?
Latvia has comprehensive labor laws and regulations that govern employment relationships. These laws cover working hours, minimum wages, employee rights, and social benefits. Employers are required to adhere to employment contracts, provide safe working conditions, and comply with minimum wage regulations.
Latvia’s labor market is known for its flexibility and relatively low labor costs compared to other European countries. However, employers must ensure compliance with labor laws and stay updated on any changes to regulations to maintain a productive and legally compliant workforce.
How does the tax system work in Latvia?
Latvia has a straightforward and competitive tax system that attracts businesses and entrepreneurs. Corporate income tax is levied at a flat rate of 20% on distributed profits and 0% on reinvested profits. Personal income tax is progressive, with rates ranging from 20% to 31.4% depending on income levels. Value Added Tax (VAT) applies to most goods and services at a standard rate of 21%. Certain goods and services are subject to reduced VAT rates of 12% or 5%.
Latvia also offers various tax incentives and deductions for specific industries and investments. Entrepreneurs should consult tax advisors to optimize their tax planning and benefit from available incentives.
What are the legal obligations for company directors in Latvia?
Company directors in Latvia have fiduciary duties and legal obligations to act in the best interest of the company and its shareholders. They are responsible for ensuring compliance with company laws, maintaining accurate financial records, and conducting the business ethically and transparently. Directors must avoid conflicts of interest and disclose any potential conflicts promptly.
Additionally, they are responsible for convening and conducting shareholder meetings, ensuring timely filing of statutory documents, and upholding corporate governance standards. Understanding and fulfilling these legal obligations are essential for directors to protect the company’s interests and avoid potential liabilities.
Is it necessary to have a local director or shareholder to register a company in Latvia?
No, Latvia does not require a local director or shareholder for company registration. Foreign entrepreneurs can fully own and manage their businesses in Latvia. This flexibility allows entrepreneurs from around the world to establish companies in Latvia without the need for local partnerships.
Having full control over the company’s management and decision-making process enables foreign investors to implement their business strategies effectively. However, it is essential to comply with all legal requirements and tax regulations applicable to foreign-owned companies in Latvia.
Are there any investment incentives for foreign businesses in Latvia?
Yes, Latvia offers various investment incentives to attract foreign businesses and stimulate economic growth. These incentives may include grants, financial aid, tax credits, and reduced tax rates for specific sectors and regions. The Latvian Investment and Development Agency (LIAA) is the key government organization responsible for promoting foreign direct investment and providing support to foreign entrepreneurs.
They can assist in identifying available incentives and opportunities tailored to the business’s needs. Entrepreneurs should explore the options and incentives provided by LIAA to make informed investment decisions and maximize the benefits of setting up a business in Latvia.
What are the options for business funding and financing in Latvia?
Latvia provides a range of funding and financing options to support businesses at various stages of development. Entrepreneurs can explore traditional bank loans, venture capital funding, and private equity investments. The Latvian Development Finance Institution ALTUM offers various financial instruments, including guarantees, loans, and equity investments, to support startups and SMEs.
Additionally, EU funding programs and grants are available to eligible businesses for research, innovation, and expansion projects. Entrepreneurs should carefully evaluate their financing needs and explore different funding sources to secure the most suitable and cost-effective financing for their business ventures.
What are the popular business sectors in Latvia for foreign investors?
Latvia presents diverse investment opportunities in various sectors, attracting foreign investors from around the world. Key sectors include information technology, manufacturing, logistics, and renewable energy. The IT sector is particularly robust, with a talented tech workforce and a thriving startup ecosystem. The manufacturing industry benefits from Latvia’s strategic location and access to European markets.
The country’s efficient transport infrastructure and logistics capabilities make it an ideal distribution hub. Furthermore, the renewable energy sector is gaining momentum, offering prospects for green investments. Entrepreneurs should conduct market research and consider sectors aligned with their expertise and long-term goals.
What support is available for startups and entrepreneurs in Latvia?
Latvia offers various support programs and initiatives to foster entrepreneurship and support startups. The Latvian Startup Association and startup incubators provide mentorship, networking opportunities, and access to funding for early-stage companies. The Investment and Development Agency of Latvia (LIAA) plays a crucial role in assisting foreign entrepreneurs, offering information, guidance, and access to business networks.
ALTUM provides financial support, such as seed funding and business loans, to innovative startups and SMEs. Additionally, various events, conferences, and hackathons are organized to promote innovation and connect entrepreneurs with potential investors and partners.
How does Latvia promote sustainability and green initiatives for businesses?
Latvia is committed to promoting sustainability and supporting green initiatives for businesses. The country has set ambitious targets for renewable energy generation, with a focus on wind and solar power. The government provides incentives and subsidies for renewable energy projects, encouraging businesses to invest in clean energy solutions.
Additionally, Latvia promotes eco-friendly practices, waste reduction, and resource efficiency. Sustainable business practices are increasingly recognized and appreciated by consumers, leading to greater market appeal and reputation for environmentally responsible companies. Entrepreneurs keen on incorporating sustainability into their business strategies can benefit from the country’s growing focus on green initiatives.
What is the role of the Latvian Investment and Development Agency (LIAA) in supporting foreign investors?
The Latvian Investment and Development Agency (LIAA) plays a crucial role in supporting foreign investors interested in setting up businesses in Latvia. LIAA serves as a one-stop-shop for information and assistance, providing guidance on legal procedures, registration, and investment opportunities. The agency offers tailored support and incentives for foreign direct investments, including grants, financial aid, and tax benefits.
LIAA helps connect foreign entrepreneurs with local partners, suppliers, and customers, facilitating market entry and expansion. Moreover, the agency actively promotes Latvia’s investment potential through international events, trade missions, and marketing initiatives, attracting global investors to explore the country’s business prospects.
