COUNTRY

Latvia is one of the three Baltic States, the others being Estonia (to the north) and Lithuania (to the south). Latvia has 531 km of coastline with the Baltic Sea and a total land area of 64,589 sq km. The population is about 2.23m. Latvian is the official language; Russian, German and English are widely spoken.

The President is elected for a four-year term by the Saeima, Latvia’s parliament; the current President is Valdis Zatlers, who was elected on May 31, 2007.

Like most of the ex-USSR countries, Latvia has had to cope with the privatisation of most of its economy. However, Latvia’s geographical location has helped it remain a key transit point for north-south and east-west trade flows between the USA, the EU, the Far East, Russia and the CIS, making the transit sector one of Latvia’s main industrial sectors. The country joined the WTO in 1999, and the EU in 2004.

GDP per head is USD14,400 (2009). The GDP growth rate was -18% in 2009, -4.6% in 2008 and plus 10.3% in 2007. The currency is the Lat (LVL); the Latvian central bank expects Latvia to adopt the Euro in 2014 at the earliest. Real estate in Latvia has suffered greatly from the global recession, with prices falling 75% since 2007.

Latvia has three main, ice-free ports – Riga, Liepaja and Ventspils – and an extensive rail network connecting Latvia with Russia, the CIS, the neighbouring Baltic States and Poland. Telecommunications are good, with a fibre optic network connected to Scandinavia and Western Europe. There is a growing and competitive mobile phone network.

Businesses benefit from a flat 15% corporate income tax on profits and capital gains, while income from dividends paid by Latvian, EU and EEA member state entities are tax exempt. Businesses operating in the Liepaja or Rezekne Special Economic Zones, or in the Riga or Ventspils Free Ports, can qualify for tax rebates of 80%-100%.

TAXATION

  • Headline tax rates: CIT 15%, PIT 25%, VAT 21%
  • Treaty Jurisdictions: Albania, Armenia, Austria, Azerbaijan, Belarus, Belgium, Bulgaria, Canada, China, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, India, Ireland, Israel, Italy, Kazakhstan, Korea, Republic of, Kuwait, Kyrgyzstan, Lithuania, Luxembourg, Macedonia, Malta, Mexico, Moldova, Montenegro, Morocco, Netherlands, Norway, Poland, Portugal, Romania, Russia, Serbia, Singapore, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Tajikistan, Turkey, Turkmenistan, Ukraine, United Arab Emirates, United Kingdom, United States, Uzbekistan
  • TIEA Jurisdictions: Guernsey, Jersey

The normal corporate tax rate is 15%. However, a micro company only pays 9% as long as the total income does not exceed 100,000 Euro. The excess will be taxed at a 20% rate. The personal income tax rate is 24% for those foreigners wishing to reside in Latvia.

Note: U.S. taxpayers must disclose all world income to the IRS as do everyone subject to global income taxes must report all income to their tax agency.

BUSINESS

  • Suitable for: Insurance, Shipping, Aviation, Yachting, Trading Goods, Trading Financial, Holding Companies, E-gaming
  • Company Types: Limited liability companies, joint stock companies, general partnerships, limited partnerships and branches
  • Formation Cost: 2600 – 5000 USD
  • Formation Time: 7-21 days
  • Maintenance cost: 1800 – 2400 USD

INCORPORATION

Limited Liability Company

The most popular form of the commercial companies in Latvia is ‘sabiedrība ar ierobežotu atbildību’ or SIA (a limited liability company). The authorized capital of SIA is divided into membership interests. The members of SIA are not liable for its obligations and bear the risk of losses related to its activity only to the extent of their membership interest. Advantages of SIA:

  • limited liability of members
  • simple registration procedure, possibility of remote registration (without visiting Latvia) by power of attorney signed by the founders
  • the foreign persons (including offshore companies) can be 100% shareholders of the company
  • the local director is not required

Company name: Only Latin or Latvian alphabet may be used in company’s name. Names of previously registered companies cannot be used. The company’s name must have an indication of its legal form. Use of certain words is restricted (e.g., “Latvia”).

Legal address: Company registration in Latvia demands a legal address in Latvia. The legal address must be declared when applying for registration of the company. The correspondence sent to the legal address of the company is deemed to be received by this company.

Founders: Both natural persons and legal entities (residents and non-residents of Latvia) may be the founders of Latvian company. The minimal number of founders for SIA and AS is 1, and for PS and KS — 2. The information about the founders of Latvian companies is available to all interested persons (this information is provided on request, subject to payment of the prescribed fee).

Authorized capital for SIA is 2800 EUR. At least half of the authorized capital must be paid prior to submission of an application for registration of the company. The rest of the amount must be paid not later than 1 year from the date of registration.

However, subject to the following conditions, the company’s capital can range from 1 to 2799 Euro:

  • If the company has no more than five founders – individuals (who can be both residents and non-residents)
  • If all founders are the members of the board
  • If the members are involved only in one company with reduced (i.e. less than 2800 euros) capital

Managing board: The minimal number of members of the managing board (directors) of SIA and AS is 1 person. In case if the shares of AS are publicly traded, the minimal number of members of the board of AS is 3 persons. Only legally capable natural persons (both residents and non-residents of Latvia) can be the members of the board of SIA. Each member of the board must provide a notarized consent to act as such. A member of the Board of Directors of the same company cannot be a member of its managing board. A person, who under the decision of court is prohibited to conduct a particular or any type of business or to hold positions in the boards of commercial companies, cannot be a member of managing board.

Board of Directors of SIA can be established at the discretion of founders. AS must have a Board of Directors mandatorily. The main set of company documents includes:

  • Certificate of incorporation
  • Memorandum of association (resolution of the establishment in case of a single founder)
  • Articles of association (charter)
  • Register of members
  • Resolution of Company Register about the registration of the company

There are no legal requirements regarding the corporate seal. After company registration, a company must also be registered in the tax authority – State revenue service. VAT registration may also be required.

Accounting and audit requirements: Latvian companies must keep their accounting records and file the annual accounts prepared in compliance with the national standards and IFRS. The deadline for submission of annual accounts for the majority of companies is 30th of April.

Latvian companies’ annual accounts are subject to compulsory audit in cases where a company exceeds certain figures.

Microenterprises’ annual accounts are not required to be audited. Microenterprises are those companies the turnover of which does not exceed 40 000 Euro; all members of such companies are private individuals; such companies do not employ more than 5 persons (including its members); the salary of one employee does not exceed 720 Euro.

For small companies (i.e. companies not exceeding the following figures: total assets – EUR 4 000 000, turnover – EUR 8 000 000, average number of employees in a reporting year – 50) audit is required if such company for two years in a row exceeds two of the following three figures:

  • Total assets – EUR 800 000,
  • Turnover – EUR 1 600 000,
  • Average number of employees in a reporting year – 50).

For medium companies (i.e. companies not exceeding the following figures: total assets – EUR 20 000 000, turnover – EUR 40 000 000, average number of employees in a reporting year – 250) and for large companies audit is required in any case.

The tax return must be submitted within 4 months after the end of a financial year.

Incorporation process

  • At the very beginning it is necessary to adopt a Decision on foundation. The decision on foundation might be equitable to Memorandum of Association in Western Europe countries.
  • Secondly, Articles of Association should be drafted. According to Latvian Commercial Law, Articles of Association is most important document for company`s internal organization perspective which should be in line with the Decision on foundation and following records in the Commercial Register.
  • Preferred Legal entity name (allowed only Latvian or Latin characters, Legal entity name must be unique and include a type of the Legal entity, for example SIA)
  • Details of Legal entity shareholders and members of the Board: Shareholder can be physical or corporate body with any residence.
  • Information of authorized share capital: It is necessary to pay the equity capital. The minimum of equity capital is EUR 2850 and it is not required to pay the entire equity capital at the moment of registration; the remaining sum might be paid within one year. Usually the founders open a temporary bank account in order to pay the equity capital. At this stage, the banks frequently ask questions related to the business and expected money flow in the account. Usually it is not problematic for foreigners to open a bank account, though Baltic Legal has supported the clients at this stage if necessary.

By law, the registration and approval process may take up to 30 days. However, common practice dictates that it normally takes from one to three business days after submitting all of the registration documents to receive approval.

Joint Stock Company

Joint stock companies (akciju sabiedriba, AS) are legal entities with the authorized capital divided into shares which are in free circulation.

  • The minimum share capital for AS is around 35000 EUR and must be fully paid within the 1 month from the date of signing of the Memorandum and Articles of Association of AS.
  • Natural persons and legal entities (both residents and non-residents of Latvia) can be the founders and shareholders of SA. The issue of bearer shares as well as registered shares is available. Bearer shares may be issued only by joint-stock companies (AS) and must be registered in Latvian Central Depository. The management bodies of AS are general meeting of members, supervisory board, board of directors.
  • It is important to note that registration of a company in Latvia cannot substitute the so-called “classical” offshore companies. Latvia is a jurisdiction with ordinary taxation; however it provides a range of special rules and reliefs.

Incorporation process

  • At the very beginning it is necessary to adopt a Decision on foundation. The decision on foundation might be equitable to Memorandum of Association in Western Europe countries.
  • Secondly, Articles of Association should be drafted. According to Latvian Commercial Law, Articles of Association is most important document for company`s internal organization perspective which should be in line with the Decision on foundation and following records in the Commercial Register.
  • Preferred Legal entity name (allowed only Latvian or Latin characters, Legal entity name must be unique and include a type of the Legal entity, for example SIA)
  • Details of Legal entity shareholders and members of the Board: Shareholder can be physical or corporate body with any residence.
  • Information of authorized share capital: It is necessary to pay the equity capital. The minimum of equity capital is EUR 2850 and it is not required to pay the entire equity capital at the moment of registration; the remaining sum might be paid within one year. Usually the founders open a temporary bank account in order to pay the equity capital. At this stage, the banks frequently ask questions related to the business and expected money flow in the account. Usually it is not problematic for foreigners to open a bank account, though Baltic Legal has supported the clients at this stage if necessary.

By law, the registration and approval process may take up to 30 days. However, common practice dictates that it normally takes from one to three business days after submitting all of the registration documents to receive approval.