Latvia is a small European country located at the crossroads of Northern and Eastern Europe. Latvia is a full member of the European Union and is part of the Schengen area.
The business climate in this Baltic country is assessed by experts as favourable. Latvian authorities do not impose impenetrable restrictions on foreign investors in matters related to property acquisition and business registration. Therefore, foreign entrepreneurs are increasingly considering Latvia as a promising place to register a company.
Imperial & Legal believe that Latvia has many more advantages for business than can fit into one short article. Therefore, we have selected for you only 7 of the most interesting arguments in favour of registering a Latvian company.
Latvia has a good business reputation. Partners and competitors respect a company registered in an EU country, especially if this jurisdiction has never been a grey zone or a tax haven for offshore structures.
Latvia’s tax system is one of the most balanced in Europe. Corporate taxation in this country is built on principles that allow ambitious entrepreneurs to significantly reduce the fiscal burden and spend the freed up funds on the development of their business.
Traders value Latvia for its compactness and favourable location at the crossroads of East-West trade routes. The Republic of Latvia has a transport infrastructure in line with international standards, including deep-water seaports, an extensive railway network and motorways.
Although the local sales market does not strike the entrepreneur’s imagination with its scope, a company registered in Latvia gets the opportunity to sell its products and provide services in a vast area including the European Union countries.
Latvian authorities set a reasonable minimum of requirements for future entrepreneurs. The procedure of company registration in Latvia is quite simple and does not take much time and money from a businessman. Having applied for assistance to professional business registration agents, even a non-resident is guaranteed to be able to launch his business in the Republic of Latvia within a short period of time.
The state shows sufficient loyalty to small and medium-sized businesses and does not burden them with frequent inspections. Compared to other European jurisdictions, Latvia has much lower company maintenance costs.
Although all document circulation in the country is carried out in Latvian, Latvian officials, as a rule, speak one or two other languages of international communication, which significantly simplifies their communication with foreign entrepreneurs.
Foreign businessmen who have obtained an electronic digital signature are able to effectively manage a Latvian company from abroad by means of electronic document management.
Successful foreign entrepreneurs who are ready to invest substantial sums in their Latvian company can apply for Latvia Golden Visa and residence permit in this Baltic country. Long-term stay in Latvia in the prestigious status of investor (if a number of conditions are fulfilled), gives the opportunity to obtain the status of permanent resident and European citizenship.
Over the years of being in the European Union, the Latvian government has significantly streamlined its corporate legislation, bringing it in line with the standards generally accepted in Europe. A foreign businessman can choose from several types of legal entities to register his business in Latvia. The most popular among investors are:
Limited Liability Companies;
Shareholding companies;
Partnerships;
Branches;
Representative offices of a foreign company.
SIA is the most common corporate form for business registration in Latvia. One founder is sufficient to open such a company. It can be an individual or a company of any state and tax affiliation.
The liability of the owners of such a company is limited to their share in the authorised capital. The minimum authorised capital of a SIA is €2,800, half of which must be deposited in a temporary bank account in a Latvian bank before the company is officially registered.
A Latvian limited liability company is managed by the Management Board and the Council of Founders. The Council of Founders fulfils a supervisory function over the Management Board. The Board is also convened when strategic decisions need to be made within the company that significantly affect its further development. The management board may consist of only one director. The functions of a director in SIA can be performed by either a founder or an employee. You do not have to be a Latvian resident to manage a Latvian limited liability company.
If an entrepreneur has a brilliant idea for a business but does not have enough funds to pay the authorised capital, he/she can register a limited liability company in Latvia without minimum capital requirements.
In such an organisation, the founders can contribute between 1 and 2,799 euros as a share capital. In addition to the possibility to conduct business without an initial contribution, there are a number of restrictions:
Only natural persons can be founders of SIA without minimum capital requirements;
There cannot be more than 5 shareholders in such a company;
Only the founder can be a director of a SIA without minimum capital requirements.
To make it easier for you to navigate, we have compiled a small comparison table:
Joint stock companies are chosen for business registration in Latvia by experienced entrepreneurs who have enough resources to fully cover the minimum allowed share capital, which is at least €25,000.
The liability of shareholders for the performance of AS extends only to an amount equal to the market value of the shares they hold. The authorised capital of such an organisation is usually equal to the total nominal value of the issued shares and another 10 cents.
A joint-stock company may issue only one type of share:
Name shares, which are assigned to the owner in the shareholder register;
Bearer shares that are deposited in a securities depository and can be freely traded on the stock market.
The Shareholders’ Meeting may decide to convert bearer shares into registered shares and vice versa. When a decision is made to convert shares, the Articles of Association are amended accordingly.
This type of corporate structure is considered more prestigious than SIA, but due to its complex structure, it is much more expensive for the founders to set up and administer a joint stock company.
A partnership in Latvia is established when more than 2 partners decide to do business together. The key difference between this legal form and corporate structures is that a partnership is not a separate tax resident, so income tax is charged to each partner separately, after they receive their dividends. The founders of the partnership are jointly and severally liable for the debts of the partnership.
It is possible to register in Latvia:
An equity partnership in which all partners have unlimited liability for all debts and liabilities incurred by their joint business;
A limited liability partnership where all participants are divided into general partners and limited partners.
General partners can manage their organisation and are liable for all its debts. Limited partners cannot manage the company, but in the event of bankruptcy they are only liable for the amount invested when the partnership was formed.
The founders of a partnership are not required to reside in Latvia or be its citizens. There are no requirements for the minimum amount of authorised capital to be paid in order to register a Latvian partnership.
If you already have an existing company abroad, you can open a branch or representative office in Latvia.
Both branches and representative offices are not considered to be separate legal entities from their parent company located abroad. Therefore, a foreign company that has opened a branch or representative office on Latvian soil will be fully liable for its debts and obligations.
On the one hand, Latvian branches are subject to the same corporate tax rates as Latvian limited liability companies. The same can be said about financial reporting and auditing requirements. On the other hand, profits earned by the subsidiary can be remitted to the parent company without taxation.
A representative office is not allowed to engage in any income-generating activities in Latvia. Foreign business owners open a representative office if their main purpose is to conduct marketing research and promote the products of the parent company. A representative office has no taxable income, so it does not need to submit a declaration and financial report every year.
The Commercial Register does not impose any additional requirements for the amount of the authorised capital of branches and representative offices of foreign companies in Latvia. In order to start such a company, at least one founder is required, which can be the head office abroad. The company must be managed by at least one director, whose functions can also be successfully performed by a legal entity registered abroad.
For the sake of clarity, we will consider the registration of a limited liability company in Latvia, because most foreign entrepreneurs choose this legal form to start their business.
Latvian companies are registered in the official commercial register. In fact, this is the final stage of the registration process, and all other stages are just a prelude. However, let’s not get ahead of ourselves and tell you about everything in order.
You know exactly what kind of business you are going to do with the help of a company registered in Latvia and have chosen the most convenient type of organisation for this purpose.
The only thing left to do is to find and check a suitable name for your company. The requirements are simple — the name of your company must not repeat the names of already registered in the country enterprises and trademarks, contain misleading words and inadmissible expressions. At the end you must add an indication of the legal form of the company, either in full or by abbreviation. In our example it is SIA.
The business registration agent prepares the statutory documents:
The Memorandum of Association or the decision on the establishment of the company (if the company is opened by one founder);
Statutes.
The listed documents should contain information on the name and type of company, founders, appointed board members, amount of authorised capital, number of issued shares, their distribution among the founders, etc.
The statutory documents are signed by all founders of the company and certified by a Latvian notary.
Among the company documents to be provided to the Registrar, the following should be emphasised:
Register of Constituents;
Register of beneficial owners of the company.
The first includes information on all founders of the company, including personal details, number of shares held and their nominal value.
The register of beneficial owners of a company contains information on persons who directly or indirectly have significant control in the registered organisation.
Each Latvian company is registered at some address that actually exists in the country, which will be its legal address, where correspondence from official bodies comes.
Fortunately, in order to register a company in Latvia, a foreign businessman does not necessarily need to buy or rent office premises. A “virtual office” — an address provided by an intermediary company — can be specified as the legal address. The owner of the office:
Will give you written consent to use your address as your address of record;
Will forward incoming official correspondence to you.
Your company’s representatives (director or authorised board members) must open a special corporate account in a Latvian bank and transfer to it at least €1,400, i.e. half of the minimum allowed share capital.
The financial institution must submit a document addressed to the Commercial Register of Latvia, which confirms the fact of payment of the authorised capital.
The business registration agent completes the application for registration in Form KR4, after which it is signed by all the founders of the company or their legal representatives.
Next, you will need to pay the company registration fee via bank or online application. The payment must be made 2 days before submitting the application for registration.
The completed application for registration together with accompanying documents may be sent to the Registrar in 3 ways:
Through the government online service portal (this option assumes that the owners of the company have an electronic digital signature);
Via email;
By paper documents by post to the Registrar of Companies.
Whichever way you choose, the involvement of a professional business registration agent will eliminate accidental errors. Therefore, your application will be approved within 3-4 working days of receiving the documents, and the company will be registered and entered in the commercial register.
A huge advantage of the tax system of this country is the principle of corporate income tax. In Latvia, the base for corporate tax is only that part of the company’s profit that was distributed among the founders, as well as other expenses not related to commercial activities and further development of the business.
In this way, the government encourages its entrepreneurs to invest more in the development of the company. If a Latvian company does not pay dividends, but invests the profits into the business, no corporate tax is payable at all.
The tax base for corporate tax in Latvia is:
Profits distributed to the owners of the company in the form of dividends or extraordinary dividends;
Any other payments by the firm equivalent to dividends;
Expenses not related to the company’s business activities;
Higher interest payments on loans;
A loan to a related person of the company;
Unsecured debtors’ debts;
Income not earned or increased costs resulting from commercial relationships between the company and other independent parties;
Benefits provided by the parent company to employees and members of the management board of a representative office in Latvia (irrespective of the tax affiliation of the recipients of these benefits);
Liquidation quotas.
The official corporate income tax rate in Latvia is 20%. According to the rules in force in the country, in order to calculate the amount of payment, the resulting corporate tax base must first be divided by a coefficient of 0.8. Therefore, the real corporate tax rate in the country is 25%.
In exceptional cases, Latvian entrepreneurs have the possibility to apply tax discounts. For example, when assessing corporate tax in Latvia, discounts may be applied:
Donor Discounts;
Discounts to businessmen engaged in agricultural activities;
Discount on tax paid abroad;
Discount on income from the sale of shares;
Carry forward of losses of the entity arising in previous reporting periods.
The meaning of the micro-enterprise tax in Latvia is that a start-up entrepreneur makes a single payment, which already includes:
Contribution to compulsory state social insurance, income tax and entrepreneurial risk tax (for employees of microenterprises);
Income and profit tax of micro-enterprise (for the founder).
In Latvia it is possible to pay taxes under the micro-enterprise regime:
Individual Entrepreneurs;
Individual farms and fish farms;
Individuals registered with the state tax service as subjects of commercial activity.
The listed persons must not be registered as VAT payers. They cannot be members of partnerships. Their business income in the reporting period must not exceed €50,000.
The object of taxation of microenterprises in Latvia is its turnover in the reporting period. The official tax rate for microenterprises in 2024 is 25%.
If the micro-enterprise had no turnover in the tax period or the calculated tax amount was less than €50, the taxpayer is obliged to send €50 to the budget.
The current VAT rate in Latvia is 21%. For certain groups of goods and services, value added tax may be charged at a reduced rate or not at all.
Latvian companies also pay property tax and stamp duty on the purchase of immovable property. There are also fiscal payments related to the operation of vehicles by the company, as well as solidarity tax.
If you employ employees in Latvia, in addition to the salary, you will have to set aside the costs of paying tax to the social insurance funds. The tax rate for Latvian social insurance funds is 34.09%, of which 23.59% is paid by the employer and 10.5% is withheld from the employee. It should be taken into account that the salary of a Latvian employee after deduction of personal income tax is taken as the base for calculating the social insurance tax.
In order to optimise the fiscal burden on your business in Latvia and take advantage of all, sometimes unobvious opportunities for tax optimisation, make an appointment for a consultation with our company’s specialists.
In order to ensure that starting a Latvian company will not be remembered as an extremely time-consuming and costly endeavour, it is better to seek support from experienced corporate law specialists from the very first steps. Professional legal support from Imperial & Legal will save you time and money. With us you will not only quickly register your business in Latvia, but also fully realise all the opportunities for tax optimisation provided by Latvian laws.
An analysis of the tax legislation in force in the country suggests that the most profitable areas of business in the coming years will be trading activities and provision of services outside Latvia.
Logistics and cargo storage, as well as the activities of holding companies are still profitable areas. The Latvian IT industry has received quite a significant impetus for development.
The criteria for applying the favourable corporate tax rate of 15% instead of the standard rate of 20% are as follows:
The annual turnover of the company must not exceed €40,000;
Only natural persons can become founders of a company;
Only the founders are involved in the management of the company;
Employees’ salaries do not exceed €720 per month.
In the favourable small enterprise regime, the employer is exempt from paying social tax. This regime is also characterised by more frequent payment of corporate tax — once a quarter (instead of the standard frequency of once a year).
The main difference is that a branch can engage in full-fledged commercial activities and, as a consequence, must prepare annual financial statements, as well as submit tax returns and pay taxes.
A representative office may promote the goods and services of its foreign parent company and may engage in market research in Latvia. In other words, it does not sell anything on its own, which means that it has no income in the country and may not report to the Latvian tax authorities.
The property tax rate in Latvia is 1.5% of its cadastral value. The tax is levied on material objects located in the territory of the Republic that cannot be moved from one place to another without causing damage: land, buildings (including buildings registered in the cadastral register but not transferred for use), engineering constructions (except for immovable property specified in Section 2, Article 1 of the Latvian Law on Immovable Property Tax).
The entrepreneur will need to pay for:
Lease of premises or registered office;
Banking;
The services of an accountant and other company employees.
We will work with you to find a customised solution for your immigration, second citizenship, business, tax and other needs.
Tax solutions
Worldwide business support
Accounting services