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 trust 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.
Excellent location. The opening of a Latvia company creates an opportunity to trade with both European companies and companies in the Eastern markets. Latvia as a European Union member country provides Latvian companies access to the European Union markets. Latvia’s competitive advantages: convenient geographical position and knowledge of the 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 good transportation opportunities by sea, road or air. Latvia has one of the fastest internet in the world, providing 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 the 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 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 2020 has ranked Latvia as the world’s 21st 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 streamline business processes. The combination of a favourable tax regime with the holding company structures provides tax-saving opportunities and tax-efficient profit repatriation.
Immigration. The operation of a Latvian company allows one to obtain a 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 provide you with all information needed for your business. We will provide consultations about establishing a company and the applicable taxes. Furthermore, we will provide an insight into other requirements for 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 its transport capabilities allow the use of 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 intra-community supplies. The sale of goods to the European countries is subject to zero-rated VAT, meanwhile, the input VAT is fully recoverable for the Latvian company. There is a special VAT regime applicable to the import of goods from third countries. This means that the VAT on imports 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 favourable tax regime for manufacturing entities – 0% corporate income tax on reinvested profits.
- Latvia holding company. A holding company regime in Latvia is quite attractive. Among others, it has a participation exemption for holdings exceeding three years. In most cases, capital and profit repatriation are free from withholding taxes, except for the payments to offshore 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 the creation of effective service centres, 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 are not taxed until distributed as dividends. This creates an opportunity to trade with cryptocurrencies without taxing the income while the funds stay 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 a structure usually is suitable for service companies (marketing, consulting etc.), and has 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 the 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.
- A 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 a 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
- Permanent establishment
- Representative office (for non-business or preparatory activities).
Still confused about 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. More information regarding the VAT registration in Latvia.
- Accounting services.