Latvian company

Latvian company formation

Advantages of a Latvia company

A Latvia company is an excellent tool to conduct your international business in a tax-efficient manner. This article describes the advantages of using a company in Latvia and the recommended business activities. Furthermore, the article outlines the registration procedure and other useful information. We truest that the article will help you to determine whether a Latvia company may bring value to your business and assist you in the Latvian company formation.

Latvia company

Excellent location. The opening of a Latvia company creates an opportunity to trade with both European companies and the companies in the Eastern markets. Latvia as the European Union member country provides Latvian companies access to the European Union markets. Latvia’s competitive advantages: convenient geographical position and knowledge of Russian language and market, provide opportunities to penetrate the Eastern market, as well.

Developed infrastructure. Latvia offers a number of business development centres that include five Free Ports and Special Economic Zones, over 10 business parks located in major cities, regional business incubators etc. Latvia has a good transportation opportunities by sea, road or air. Latvia has one of the fastest internet in the world, proving excellent connection with abroad.

Tax incentives. Latvia has introduced significant tax incentives making Latvia competitive with the other European countries. The new corporate income tax is payable upon the distribution of profits only. The new tax is more beneficial since they do not pay dividend tax anymore. The new tax rate is 20% of the gross dividends instead of previous 15 % Latvian corporate income tax. Latvian tax residents pay no tax on of the dividends they receive from foreign countries.

Easy to do business. The company formation process in Latvia is straightforward. The Latvian laws are friendly and provide equal treatment of the foreign and local investments. Latvia has a supportive business environment, providing access to a reliable and skilled workforce. Furthermore, Latvia has developed infrastructure in line with international standards and lower business expenses compared with many of the European countries. World Bank’s Doing Business Survey 2019 has ranked Latvia as the world’s 19th easiest place to do business.

Simple management. A Latvia company could be established with 100% foreign shareholding. Its management board has to have at least one board member who can be a non-resident in Latvia, as well.

Cost savings. The Latvian company formation sometimes provides an opportunity to minimize business administrative costs and to streamline the business processes. Combination of favorable tax regime with the holding company structures provides tax-saving opportunities and tax-efficient profit repatriation.

Immigration. The operation of a Latvian company allows to obtain the residence permit in Latvia. This creates an opportunity to do business not only in Latvia, but in the whole European Union.

Before establishing a company, our team will ensure you with all information needed for your business. We will provide consultations about establishing a company, the applicable taxes, and will provide an insight into other requirements, which are connected with the realization of business activities in Latvia.

The below video describes the company formation process in brief, the more detailed explanation is provided below.


How to use a Latvian company?

The foreign investors usually select Latvia as a place for conducting the following business activities:

  • Trading company. Latvian companies are used for the purpose of trading within the EU and countries of CIS. Furthermore, the geographical position of Latvia and transport capabilities allow using Latvian companies as a hub for trading between the East and West. A Latvia company could be used for trading with the EU countries since it is straightforward to register it as a VAT payer required for the intra-community supplies. The sale of goods to the European countries will be subject to zero-rated VAT, meanwhile, the input VAT paid will be fully recoverable for the Latvian company. It is important to note that that there is a special VAT regime applicable to the import of the goods from the third countries, meaning that the VAT on import is self-accounted (not paid), thus providing cash-flow savings.
  • Contract manufacturer. Very often foreign groups establish in Latvia entities for the purpose of contract or toll manufacturing. The reason for this is a motivated workforce, low costs, and a favorable tax regime for manufacturing entities – 0% corporate income tax on reinvested profits.
  • Latvia holding company. A holding company regime in Latvia is quite attractive since it has participation exemption for holdings exceeding three years. In most cases capital and profit repatriation are free from withholding taxes, except for the payments to the off-shore jurisdictions. According to the recent global developments, a number of offshore jurisdictions have joined the OECD convention on sharing of the information and therefore are blacklisted anymore.
  • Shared service centers. The developed infrastructure, highly skilled workforce and low costs allow creating effective service centers, such as logistic management, IT etc.
  • Trade with stocks or invest in stocks. The income from the sale of stocks traded on the stock exchange is exempt from taxation until distributed as dividends. Therefore, a Latvian company could be established to trade with the listed securities – stocks, shares, bonds, etc.
  • Trade with cryptocurrencies (e.g. bitcoin). Similarly as for stocks, the gains from the sale of cryptocurrencies is not taxed until distributed as dividends. This creates an opportunity to trade with cryptocurrencies without taxing the income while the funds stays within the company.
  • Micro-business. If the annual turnover of a business does not exceed EUR 40,000, a Latvian company using a micro-tax regime could be opted for. This allows reducing the tax burden to 15% of the revenues (not profit), instead of paying corporate income tax and payroll taxes. Such structure usually is suitable for service companies (marketing, consulting etc.), having low costs and a high-profit margin. This option, however, has changed as of 1 January 2021.
  • Latvian branch of the foreign company. For trading purposes, a foreign company established offshore may create a Latvian branch and use it for purchase/sale of the goods within the EU and/or between the EU and third countries. The benefit of the Latvian branch is that it provides transparency of the activities that are becoming a mandatory requirement of the banks for opening a bank account and also solves the problem of the information exchange between the tax authorities of the countries involved.
  • representative office, a foreign company can establish a representative office to conduct marketing and other support (non-business) operations in Latvia. The establishment of a representative office in Latvia is straightforward. The representative office is not treated as the corporate income taxpayer in Latvia and does not pay other taxes except for payroll taxes. The representative office is often used as a vehicle to obtain a temporary residence permit.

The forms of doing business in Latvia could be qualified as follows:

  • Limited liability company
  • Public limited liability (joint-stock) company
  • Partnership
  • Branch
  • Permanent establishment
  • Representative office (for non-business or preparatory activities).

Still confused which form of business to select to start the business in Latvia? Please find here the comparison of the most frequent forms of business in Latvia – a Latvian company, a branch (permanent establishment) or a representative office.

Our company registration services

We supply the complete scope of services required to open a company in Latvia and ensure additional services, including accounting and legal services, as follows:

  • Registration of a Latvian company with the Registry of Enterprises of Latvia
  • The foreign company branch registration with the Registry of Enterprises
  • Registration of a permanent establishment of the foreign company with the State Revenue Service
  • Registration of a representative office of a foreign company with the Registry of Enterprises
  • VAT registration with the State Revenue Service
  • Accounting services.
We ensure the registration of the legal entities, branches and representatives of the foreign companies, our service includes:
  • Drafting documents required for the registration of a company in Latvian and English
  • Organizing and/or filing documents to the Enterprise Registry and notary public in Latvia
  • Paying stamp duties for registration and the announcement in the official newspaper
  • Organizing VAT registration, if required
  • Organizing signing the agreement with the tax authorities for access to the electronic declaration system through which all tax returns must be submitted.
If you require a temporary or permanent legal address, we can propose the virtual office services using the same legal address as our company or outsourcing the service to the professional office lenders. The address we offer can be used for the purposes of registration with the Enterprise Registry and as the factual address for receiving deliveries by post.
We help the clients to open a business bank account for a company in Latvia. However, to open the account the board member should visit the bank at the initial phase to comply with the bank requirements. The Latvian banks have strict AML and KYC procedures, therefore, the bank account opening is not always straightforward. Our team will help you with handling issues regarding the selection of the most appropriate bank and opening the bank account.
We ensure full accounting and tax compliance to the Latvian laws.

Useful information

Latvian company registration process in brief

In general the process of the registering the company in Latvia is as follows (the following activities are described for a limited liability company):

  • As the first step the shareholder should provide us detailed information as follows:
    • preferred name (or several possible names) of the company;
    • information regarding shareholder (name, passport details and address of residence for individuals, legal address for a company)
    • value of the share capital, number of shares
    • information regarding the board member(s)
    • information regarding the ultimate beneficial owner of the foreign company
    • other information may be required.
  • Based on information a client provides us, we draft the documents required for the registration of a company in Latvian and English (or Russian). Some of the documents should be notary attested or signed with an electronic signature.
  • Prior to registering a company, the shareholder has to open a temporary bank account and transfer at least 50% of share capital. Usually, we open the temporary bank account on behalf of the shareholders based on the power of attorney.
  • When the share capital has been paid, we will submit the documents to the Enterprise Registry for review and registering the company.
  • The Enterprise Registry adopts a decision on the registration within 3 working days for a regular stamp duty (EUR 143) and within 1 working day for a triple stamp duty.
  • After registration of the company a temporary bank account should be transformed into permanent. The newly established company’s representative presence could be required to open a permanent bank account. Usually, it depends on a particular client and the references the client can provide to the bank. However, there is an option to open the bank account remotely based on the power of attorney.
  • After the registration of the company, it should sign the agreement with the tax authorities for access to electronic declaration system through which all tax returns must be submitted

Furthermore, we provide more detailed information regarding possible legal forms of carrying business in Latvia.

Limited liability company

Limited liability company is the most commonly used form of business in Latvia. Its share capital can be paid in cash or contributed in kind. The minimum share capital value is 2,840 EUR and at least a half of it has to be paid in cash. Until applying for registration in the Register of Enterprises (ER) at least a half of the share capital has to be paid, the remaining part must be paid within one year’s time from the date the company has been registered in ER.

The basic requirements for limited liability company are as follows:

  • The Latvian company’s management body is a board which must have at least one board member. There are no restrictions regarding the residence of the board member (it could be also a non-resident). The board member may or may not be an employee of the company or it may exercise his/her power based on other arrangement with the company, e.g. power of attorney.
  • There are no restrictions regarding the residence of the shareholders and board members
  • The company could be managed and the shareholders/board meetings may happen outside Latvia
  • The procedure of company registration can be performed remotely, based on the power of attorney (however, in case of visiting Latvia the process will be substantially faster and easier
  • A minimum share capital of EUR 2 800 is required, at least half of which must be paid up prior to registration
  • Legal address of SIA (i.e. official office address) has to be in Latvia

Documents to be submitted (2 and more founders, there are differences in case with 1 founder)

  • Application Form
  • Founding Agreement/Resolution of the sole shareholder
  • Articles of association
  • Bank’s reference on payment of share capital, or for investment in kind
  • Register of shareholders
  • Consent of council shareholders (in case if the council is established)
  • Consent of the board members
  • Notice of board for legal address
  • The real estate owner’s consent for the registration of the company’s legal address
  • Proof of payment (a receipt, its copy, confirmed bank’s online banking payment or completed notice) for ER stamp duty fee payment
  • Proof of payment (a receipt, its copy, confirmed bank’s online banking payment or completed notice) for publication in “Latvijas Vestnesis”

The fees and timing

  • Single stamp duty/ processing time: 142 EUR / 3 working days
  • Triple stamp duty/ processing time : 426 EUR / 1 working day
  • Stamp duty for the certification of a signature ER: 4 EUR (if the certification is submitted for 3 or more signatures in a single registration for each certification of a signature stamp duty of 3 EUR)
  • Publication in “Latvijas Vestnesis”

Based on our experience, when the shareholder is a foreign entity or individual, a simplified establishment time can make up to approximately one week.

Limited Liability Company with a reduced share capital

Limited Liability Company with reduced share capital is a company whose share capital value is less than 2,800 EUR. Before applying for registration share capital has to be signed and paid, in addition, until applying for the company registration it must be paid up in cash.

The Latvian company must meet the following requirements of the Commercial Law:

  • The number of founders of the company should not exceed five individuals
  • The board of directors should consist of one or more members, and they all have to be shareholders of the company
  • Each shareholder can be only a member of a single limited liability company with reduced share capital

Every year limited liability company with reduced share capital should create a minimum reserve by making a deduction of at least 25 % of the year’s net profit. The statutory reserve, based on shareholders meeting can be used to increase the share capital or to cover he losses of the current or previous years.

Documents to be submitted (2 and more founders, there are differences in case with 1 founder)

Documents to be submitted are similar to those required to limited liability companies. The difference is in the document which confirms the payment of share capital. In this case it can be confirmation of shareholders or bank reference.

The fees and timing

For registration of a limited liability company with reduced share capital the amount of fees are reduced.

  • Single stamp duty/ processing time: 22 EUR / 3 working days
  • Triple stamp duty/ processing time : 64 EUR / 1 working day
  • Stamp duty for the certification of a signature ER: 4 EUR (if the certification is submitted for 3 or more signatures in a single registration for each certification of a signature stamp duty of 3 EUR)
  • Publication in “Latvijas Vestnesis”: 15 EUR

Public Limited Company (Joint-stock company)

A public limited company is a public company and its shares can be public- traded.

The share capital of a public limited company cannot be less than 35,500 EUR. If the share capital is set above 35,500 EUR, then by applying for registration the entire share capital has to be signed, but the paid up share capital has to be not less than the statutory minimum share capital 35,500 EUR and not less than 25 % of the signed share capital (the rest is paid up no later than in one year’s time from the date of signing the Founding Agreement).

The public limited companies, depending on the type of their activity, have different minimum amounts of share capital (for example, the financial sector (banking, insurance, non-bank lending)).

Documents to be submitted (2 and more founders, there are differences in case with 1 founder)

  • Application Form
  • Founding Agreement
  • Articles of association
  • Bank’s reference on payment of share capital, or for investment in kind
  • Consent of council members, if necessary
  • Consent of board
  • Notice of board for legal address
  • The property owner’s agreement for registration companies legal address
  • Proof of payment (a receipt, its copy, confirmed bank’s online banking payment or completed notice) for ER state fee payment
  • Proof of payment (a receipt, its copy, confirmed bank’s online banking payment or completed notice) for publication in “Latvijas Vestnesis”

The fees and timing

  • Stamp duty/ processing time: 355 EUR / 3 working days
  • Stamp duty for the certification of a signature ER: 4 EUR (if the certification is submitted for 3 or more signatures in a single registration for each certification of a signature stamp duty of 3 EUR)
  • Publication in “Latvijas Vestnesis”: 27 EUR

Partnership

There are two forms of partnership in Latvia: general partnership and limited partnership.

General partnership is a partnership, which is aimed to perform commercial activities by using a joint company and a public agreement provided that a liability towards creditors is limited, united in two or more persons (members). The persons (members) could be legal persons or individuals, as well as, an already existing partnership.

A limited partnership is a partnership, which is aimed to perform commercial activities by using joint company united in two or more persons (members), where the liability of at least one member towards creditors is limited, according to the amount of his investment while other person’s liability is not limited. The persons (members) could be legal persons or individuals, as well as an already existing partnership.

The partnership is registered in the Registry of Enterprises of Latvia by its legal address. General partnership name shall conclude Latvian word Pilnsabiedrība (General Partnership) or abbreviation PS. A limited partnership shall conclude Latvian word Komandītsabiedrība (Limited Partnership) or abbreviation KS. General and limited partnership do not have requirements on equity capital.

Documents to be submitted

  • Application Form (Form 3)
  • Notarized signature that confirms partnership member’s rights to represent the partnership (in case of individual)
  • Notice of board for legal address
  • Proof of payment (a receipt, its copy, confirmed bank’s online banking payment or completed notice) for ER state fee payment
  • Proof of payment (a receipt, its copy, confirmed bank’s online banking payment or completed notice) for publication in “Latvijas Vestnesis”

The fees and timing

  • Stamp duty/ processing time: 143 EUR / 3 working days
  • Stamp duty for the certification of a signature ER: 18 EUR
  • Publication in “Latvijas Vestnesis”: 27 EUR

Branch registration

According to the Commercial Law a branch is an organizationally independent part of a company which is geographically or otherwise distinct from the main company, and the business on behalf of the main company is being conducted systematically.

Documents to be submitted

Latvian branch

  • Application Form
  • Proof of payment (a receipt, its copy, confirmed bank’s online banking payment or completed notice) for a publication in “Latvijas Vestnesis”
  • Proof of payment (a receipt, its copy, confirmed bank’s online banking payment or completed notice) for ER state fee payment
  • The real estate owner’s agreement for registration companies legal address

Foreign branch

For a foreign branch all submitted commercial documents must be accompanied by a notarized translation into Latvian.

  • Application
  • Registration certificate of the country of the head-office or a notarized copy (if in accordance with the law the business has to be written in the register)
  • Authorization to found a branch (if the authorization is necessary by the foreign law)
  • Foreign business articles of association, founding agreement or similar document’s notarized copies
  • Personal power of attorney to represent the foreign company with a branch in all related activities, including the extent of this authorization
  • Proof of payment (a receipt, its copy, confirmed bank’s online banking payment or completed notice) for ER state fee payment
  • Proof of payment (a receipt, its copy, confirmed bank’s online banking payment or completed notice) for publication in “Latvijas Vestnesis”
  • The real estate owner’s agreement for registration of the company’s legal address

The fees and timing

  • Stamp duty/ processing time: 29 EUR / 3 working days
  • Triple stamp duty/ processing time : 86 EUR / 1 working day
  • Publication in “Latvijas Vestnesis”: 19 EUR

Latvian company taxation

Corporate income tax

The corporate income tax is payable upon the distribution of profits only. Until the Latvian company keeps the profits, 0% tax is payable. The corporate income tax (CIT) rate applied on distributed gross dividends, deemed dividends or notional profit is 20%.

However, the 20% rate applies to the gross dividend amount. In order to calculate the gross amount the net dividends (so the number of dividends the shareholder wishes to receive) should be divided by 0,8 to calculate the gross amount and then the 20% should be applied. The effective tax rate, i.e. the payable to net dividend amount is 25%.

The companies registered in Latvia with Register of Enterprises aare subject to CIT on their worldwide income. The companies registered outside Latvia are subject to CIT on their Latvian-source income.

Value added tax

Unlike in other countries, the registration of a company/branch for VAT purposes is very straightforward. The regular VAT rate is 21%, reduced rate – 12%.

Zero-rated VAT applies to the export transactions.

The supplies of goods and services being made outside Latvia are not taxable in Latvia (not subject to Latvian VAT). However, the input VAT incurred to ensure such supplies are recoverable, provided that such supplies would have been subject to Latvian VAT, if they were provided in Latvia. This means that a Latvian company may purchase and sell the goods outside the EU and fully recover VAT paid in Latvia (e.g. for office).

Payroll taxes

  • Personal income tax — 20, 23% and 31%
  • Social security tax — 34,09%
  • Minimum wage — 500 EUR

Holding company taxes

The inbound dividends, which a Latvian holding company receives, are not taxed in Latvia. The only exception is for dividends received from the low-tax jurisdictions (included in so-called “black list”).

There is no withholding tax on outbound dividends paid to local or foreign companies (again, except offshore companies).

The interest on loans and royalties for the use of intangibles are also exempt from withholding taxes.

Capital gains arising in the hands of a Latvian company from the sale of shares in other companies are also exempt from the tax, provided that the company owns such shares for at least 36 months.

Microbusiness tax

One of the advantages of registration of the Latvian company is the possibility of obtaining the micro-enterprise status. Microenterprise gives a possibility to pay one general tax, which includes both corporate income tax and social tax and personal income tax.

General information about Latvia

Geography

The Republic of Latvia is on the eastern coast of the Baltic Sea at the crossroad of northern and eastern Europe. Latvia has land border with Estonia (339 km) in north, Russia (217 km) in east, Belarus (141 km) in southeast, Lithuania (453 km) in the south and maritime border with Sweden on West. Latvia’s total coast lane is 531 km. In Latvia there are three large ports – Liepaja, Riga and Ventspils which are ice-free also in winter. Furthermore, there are seven smaller ports distributed along all coast border – Skulte, Mersrags, Salacgriva, Pavilosta, Roja, Lielupe and Engure. These smaller ports are of regional importance which operates around 80% of transit cargo through Latvia mainly from which is timber export and sea product import. Riga’s and Ventspils ports operate as tax-free zones, Liepaja is part of the special economic zone (SEZ).

All these ports link with railroad and highway networks leading to any further desired direction. Latvia’s climate is maritime continental. Country territory covers 64 589 km2 and has 1.920 million population.

The capital of Latvia is Riga whic is in the center of the country at the coast of Riga gulf.

Governing Political system:

Republic, parliamentary democracy

Capital city:

Riga

Head of State:

President Mr. Egils Levits

Head of Government:

Prime minister Mr. Arturs Krišjānis Kariņš.

Membership

  • World Trade Organization since 1998
  • NATO since 2004
  • EU since 2004
  • Schengen Area since 2007
  • Eurozone since 2014.

Currency

As of 1 January 2014 Latvia has joined Eurozone and adapted euro (EUR) as its national currency.

Language

Latvia has one official language – Latvian. However, most of the Latvian inhabitants know other languages such as English, Russian and German. In Latvia approximate structure of inhabitant language knowledge is as follows:

  • 85% of Latvians speak Russian
  • 70% of people under 40 speak English
  • German, French and Scandinavian languages are also widely spoken

Business infrastructure

There are a number of infrastructure advantages a Latvian company may benefit from:

  • Three ice-free ports (and 7 small ones)
  • Airport connection to more than 80 destinations, the airport is easily accessible from Riga
  • Railway connections from West to East and North to South
  • Available telecommunications in whole Latvia’s territory, as well as, all the utility supplies required.

Government and Politics

Latvia is an independent democratic republic. The sovereign power of Latvia belongs to people who elects the unicameral parliament (Saeima) with 100 members for a four-year period. The Saeima elects the President for a term of four years. The highest executive body of the country is the Cabinet of Ministers. The President invites potential prime minister to form the Cabinet and Saeima approves the Cabinet.

Incentives for investors

A Latvian company may benefit from a number of tax advantages among other being as follows:

  • corporate income tax payable on distributed profits only
  • holding company regime.