A Company, a branch of the foreign company or a representative office – which form of  business to choose?


Upon commencement of the business activity in Latvia, a foreign company depending on the intended business activity should select the most appropriate legal form of business in Latvia.

The foreign entity may select to establish in Latvia either a representative office, register a permanent establishment with the State Revenue Service or a branch with the Enterprise Registry (filiāle); or to establish a legal entity – limited liability company (sabiedrība ar ierobežotu atbildību).

This article addresses the basic tax and legal considerations for selecting the most appropriate form of business in Latvia.

1. Representative office


A representative office is a minimum presence that a non-resident entity can legally have in Latvia. By definition, a representative office is not allowed to engage in any commercial activity, and as long as this restriction is observed it is not taxed in Latvia (except, payroll taxes of the employees’ income). The representative office is suitable if there are only auxiliary and preparatory activities carried out. To find out whether the intended activity is auxiliary or not, it should be concluded if this activity in itself forms an essential and significant part of the activity of the foreign enterprise as a whole and whether this activity should generate income.

Usually, the following list of activities that a representative office can undertake would not be considered a commercial activity for tax purposes: creating business opportunities, improving the exchange of commercial, scientific or technical information, carrying out market research and information processing, developing trade and economic links with Latvian businesses.

Tax and accounting status

A representative office is not treated as a trading entity for Latvian accounting and tax purposes. It is therefore not required to maintain separate accounting records and/or systems, file regular tax returns or prepare annual accounts.

The only exception is requirements relating to the representative office’s capacity as an employer. If it employs local staff, the representative office must comply with the Personal Income Tax Act and the Social Security Act, including provisions relating to tax accounting procedures.

2. Permanent establishment of the foreign company


If the foreign entity’s activity extends the scope of allowable activities, which are not subject to tax, the foreign entity should register its presence in Latvia. The activities should be tested according to the double tax treaty Latvia has entered with a respective country of the foreign entity (Article 5 of the treaty) and Article 14 of the Taxes and Duties Act, in case if there is no treaty in place.

Overall, the foreign entity has to register its presence, if it has “a place of business” in Latvia:

  • the foreign entity has a ‘place of business’
  • this place has a certain degree of permanence
  • foreign entity carries business activities through this place.

In addition, the foreign entity will be deemed to have a permanent establishment, if it carries construction and/or installation works or provides supervisory and management activities connected with the construction site. The time threshold for creating a permanent establishment is usually 6 months.

The permanent establishment may arise also if the foreign entity has a dependent agent in Latvia, who is authorized to sign or negotiate the agreements (usually – sales agreements) with the customers on behalf of the foreign entity.

Should a foreign entity makes the above activities in Latvia, it is required to register a permanent establishment with the State Revenue Service. As an alternative, the business activities could be registered as a branch with the Enterprise Register.

Taxation aspects

For corporate tax purposes, a permanent establishment is treated almost in the same manner as a legal entity, with exceptions as outlined below. Both types of entities operating in Latvia are subject to corporate income tax at a rate of 20 % on their income upon distribution of the profits.

3. Company- Subsidiary


A subsidiary is a legal entity that could be established either as a private limited liability company (sabiedrība ar ierobežotu atbildību – SIA) or public limited company (akciju sabiedrība – AS).

The usual form of business is SIA. Its minimum share capital is EUR 2,800, at least half of the capital should be contributed in cash.

A subsidiary is managed by at least one board member appointed by the general meeting of the shareholders. The board members could be both residents and non-residents.


A subsidiary pays 20% corporate income tax on its world-wide income on the distributed profits only.

The annual capital allowances are calculated using the reducing balance method as follows:

Permanent establishment –advantages

• Profit derived by a permanent establishment might be exempt in the head office country or the tax paid in Latvia could be credited,
• There are no legal requirements for management structure and the time period the management can remain effective;
• The management would report directly to its head office, the head office would have direct control over the permanent establishment.

Subsidiary – advantages

• Legal liability is limited to the Latvian entity and does not extend to the shareholders.
• The shareholders could be one or more foreign entities;
• Latvian law on taxation of profits is more elaborate, which mitigates CIT risk.

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