Company registration in Latvia

Latvia offers a friendly business environment for business owners from all over the world. The ease of company formation, low taxation and a strategically beneficial geographic location bridging the EU and the CIS countries make Latvia a favorable jurisdiction for conducting business. Latvia’s legislative harmonization with the EU also adds to the ease of doing business in the country and attracting foreign investments. More so, Latvia also provides tax incentives in some special economic zones referred to as the tax-free zones which promote company formation in the area by offering exemption from real state tax, corporate income tax, withholding tax on dividends, and fees for intellectual property usage for non-residents.

WHY LATVIA?

WHY NOT?

No taxation on reinvested profits. Income tax is applicable only on distributed profits or profits deemed to be distributed
No withholding tax on dividends, interest, royalties, technical service fees (except when they are payable to residents of blacklisted jurisdictions)
Capital gains obtained from the sale of shares are not taxable (criteria and limitations apply)
Capital gains are taxed only on distributed profits from the sales of a property
3% withholding tax is liable on non-resident individual’s income from the sale of a Latvian property or on sale of shares of a company with more than 50% of the assets consisting of Latvian real estate
Latvians are taxed on their worldwide income while non-residents are only taxed on income obtained in Latvia
1.5% tax on real estate and 3% tax on undeveloped land
21% VAT, reduced to 12% and 5% for certain goods and services, for some services like insurance and financing the VAT is not charged
No capital acquisitions tax
No inheritance/estate tax
No net wealth/net worth tax
Latvian companies are allowed to carry forward losses
Latvian non-profit organizations, monasteries, churches, etc., are eligible for certain tax relief and incentives
Latvia has signed more than 60 tax treaties
No foreign exchange control
EU VAT registration simplifies EU trading (triangular trade)

Relatively high corporate income tax rate of 20% /9% for micro-enterprises
Company documentation and annual reporting is in Latvian language
Due to past financial scandals, Latvian banks are often associated with Money-Laundering activities, this reputation is unfortunately passed on to Latvian legal entities. This might significantly complicate account opening procedures with financial institutions outside of Latvia, similarly having a Latvian bank account may cause problems with business operations. Many banks refuse to open accounts for companies that are somehow related to Latvia (Latvian companies or companies of another jurisdiction that has / had an account in Latvia)
Country known to have a shadow economy and perception of corruption
Population decrease may pose a challenge when looking to hire skilled personnel for companies wishing to have a physical establishment in Latvia

Latvia has opened itself to foreign direct investments (FDI) to establish a firm foothold in the economic world and regain economic stability and growth. Latvia’s economic development over the past few years has made it rank 19 out of 190 countries in World Bank’s 2020 Doing Business report. To further grow its investment market, the Foreign Investors Council in Latvia (FICIL), holds annual meetings to further improve the business environment in the country and introduce incentives for attraction of foreign capital into the country.

One such major incentive was the economic reform introduced in 2018, under which undistributed corporate profits are not taxed in order to promote reinvestment of capital for growth and expansion of local businesses. Latvia only levies companies on profits distributed or deemed to be distributed as dividends at a corporate tax rate of 20% (20/80 on the net amount of the profit distribution) on profits derived from Latvian-sourced income for non-resident shareholders. It is also worth noting that, a corporate income tax is also applicable on non-business expenses such as recreational trips and leisure activities as well excess interest payments, loans made to third parties, transfer pricing adjustments, liquidation expenses and bad debts which are all included under deemed profit distribution.

Furthermore, Latvia distinguishes itself by offering an interesting financial instrument for small, one person, start-up businesses with an expected turnover of less than €100,000 referred to as a micro-enterprise that can be registered with a minimum share capital of EUR 1 as opposed to EUR 2800 share capital for a full-scale limited liability company. These companies benefit from a reduced corporate tax rate of 9% as well as other incentives and can be wisely utilized for holding and small-scale freelance business structures.

Corporate Features of a Latvian Limited Liability Company (SIA)

GENERAL	SIA	MICRO SIA
Incorporation Time	1 – 3 Business Days	1 – 3 Business Days
Local Registered Agent Required	No	No
Local Registered Address Required	Yes (a written consent of the property owner is required upon incorporation)
Migration of Domicile Permitted	Yes	Yes
SHARE CAPITAL
Minimum Share Capital	EUR 2800	EUR 1.00
Minimum Paid Up	50%	EUR 1.00
Maximum Share Capital	No Maximum	EUR 2799
Bearer Shares Allowed	No	No
SHAREHOLDERS
Minimum number	One	One
Maximum number	50	Five (each shareholder can only have one micro enterprise)
Publicly accessible records	Yes	Yes
Corporate shareholder allowed	Yes	No
Annual General Meeting Required	Yes	Yes
DIRECTORS
Minimum Number	Two	One
Maximum Number	No Maximum	Five (must be same as shareholders)
Local required	No but strongly recommended	No but strongly recommended
Publicly accessible records	Yes	Yes
Corporate directorship allowed	Yes	No
COMPANY OFFICIALS
Secretary Required	Yes	Yes
Local Secretary Required	No but strongly recommended	No but strongly recommended
Other Officials Required	No	No
COMPANY ACCOUNTS
Requirement to Prepare	Yes	Yes
Requirements to File Accounts	Yes	Yes
Audit Required	Please see Note* below	No
OTHER ANNUAL REQUIREMENTS
Government Renewal Fee	No	No
Annual Return/Report	Yes (Please see Note* below)	Yes (Please see Note* below)
Tax Return	Yes	Yes
Submission of Economic Substance Report	No	No

Note* An annual report approved by shareholders must be filed with the States Revenue Service (SRS) one month after the annual general meeting of the shareholders and no later than four months after the end of the fiscal year.

The report should consist of annual accounts prepared in Latvia, euro currency, using a double entry accounting system, in accordance with Consolidated Annual Accounts Act requirements. The accounting requirements of these reports depend on the size and turnover of the company. For financial reporting purposes, Latvian companies are classified under four categories as follows:

Annual Report Requirements:
MICRO ENTERPRISE
Does not exceed any of the following criteria: Balance Sheet total of EUR 350,000 Net turnover of EUR 700,000 Average total of 25 employees during the financial year	Balance sheet, a profit or loss account and unaudited financial statements with exemptions on required disclosures
SMALL ENTERPRISE
Exceeds the limits of two of the following criteria for two consecutive years: Balance Sheet total of EUR 4,000,000 Net turnover of EUR 8,000,000 Average total of 50 employees during the financial year	Management Report and unaudited financial statements with exemptions on required disclosures
Exceeds the limits of one of the following criteria for two consecutive years: Balance Sheet total of EUR 800,000 Net turnover of EUR 1,600,000 Average total of 50 employees during the financial year is the holder of a group of companies is a municipality is a public agency is a financial institution is a political party with a turnover more than 10 minimum wages in a financial year is a subsidiary of a public person or a public-private capital company within the meaning of the Law On Management of Capital Shares and Capital Companies of a Public Person elects to recognize certain financial statement items in accordance with IFRS	Financial statements reviewed by a certified auditor under the Certified Auditors Act
MEDIUM AND LARGE ENTERPRISE
Exceeds the limits of two of the following criteria for two consecutive years: Balance Sheet total of EUR 20,000,000 Net turnover of EUR 40,000,000 Average total of 250 employees during the financial year	Financial statements audited by a certified auditor under the Certified Auditors Act

Please feel free to contact us for further information on taxation and company formation in Latvia. Our professional team can guide you through the incorporation process, provide competent management and administration of your company as well as bookkeeping, document drafting and account opening services.

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