REGISTRATION OF COMPANY IN LATVIA

REGISTRATION OF COMPANY IN LATVIA

Latvia is a country on the Baltic Sea between Lithuania and Estonia. Its landscape is marked by wide beaches as well as dense, sprawling forests. Latvia’s capital is Riga, home to notable wooden and art nouveau architecture, a vast Central Market, and a medieval Old Town with St. Peter's Church. Riga's museums include the Latvian Ethnographic Open-Air Museum, showcasing local crafts, food, and music.

Latvia is a developed country, with a high-income advanced economy; ranking very high in the Human Development Index. It performs favorably in measurements of civil liberties, press freedom, internet freedom, democratic governance, living standards, and peacefulness. Latvia is a member of the European Union, Eurozone, NATO, the Council of Europe, the United Nations, the Council of the Baltic Sea States, the International Monetary Fund, the Nordic-Baltic Eight, the Nordic Investment Bank, the Organization for Economic Co-operation and Development, the Organization for Security and Co-operation in Europe, and the World Trade Organization.

Company registration in Latvia requires the involvement of a legal specialist. Company Law & Trust International offers legal assistance at all stages of the business establishment in Latvia. It is possible to apply for the initial consultation by visiting our office or contacting us by phone. The clients are also being supported on the website in online chat.

 

Registration of companies in Latvia provides the founder's several significant advantages:

1. The rate of income taxation is 15%, which is the lowest level throughout Europe.
2. The presence of preferential treatments: if the founder obtains dividends from abroad, such income is not taxable. If dividends are paid to legal entities which are non-residents, and the source is exempt from tax contributions.
3. The founder is entitled to obtain a multiple-entry visa, which makes it possible to move freely within the borders of all states of the Schengen Agreement.
4. When performing a number of conditions non-resident can get a residence permit in the country, and the list of requirements should be specified with the consultants of the company Law & Trust International.
5. When registering a company in Latvia it is very easy to obtain a certificate of a tax resident, which will enable to pay a contribution to the state treasury at the rates corresponding to the rates for Latvian citizens.

Registration of offshore companies in Latvia is impossible because the state is not relating to any offshore zone.

However, Latvia gets benefits from the lack of offshore companies: companies and entities registered in the territory of the State are not included in blacklists. Only fraudsters can offer to register offshore companies in Latvia.

 

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 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 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 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 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 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 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.

Business start-up

Business start-up sometimes requires diving more deeply into the proposed business in order to understand the necessity for specific permits, licenses, or registration with competent state authorities.

According to the proposed business area, it might be required to apply at State tax authority (State Revenue Services) and to register as Value Added Taxpayer. Baltic Legal suggests registering at Tax Authority at the moment of company establishment. In this case, the paperwork is minimized.

Baltic Legal may assist and draft other documentation necessary for running a business in Latvia, for example, to obtain a license, certificate, or registration before the competent state authorities.

The process of company formation and registration is not considered complex. The registration takes only four business days from the moment all incorporation documents are drafted and submitted with the Commercial Registry of the Republic of Latvia. The registration time might be reduced up to two business days upon such a request. The registration with other institutions may take from few days up to one month.

 

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).

 

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 the dividends they receive from foreign countries.

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 the Register of Enterprises are 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 the 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.

 

BUSINESS IN LATVIA: ESTABLISHMENT OF AS

The joint-stock company can be registered either by residents or foreign nationals. Applications for registration are accepted by legal entities and natural persons.

1. Charter capital of the company of this organizational and legal form is divided into shares, which are subsequently in free float. A minimum level of capital ranges from 35,000 euros, and it is required to contribute the sum within one year from the date of foundation of the JSC.
2. Registered shares are issued in free form, and bearer shares are also permitted but should be registered with a special depository.
3. Management should be performed by the board of directors or the shareholders' meeting.

 

Latvian company types
	Limited Liability Company (LLC)	Joint-stock company (JSC)	Representative office
Latvian name	Sabiedrība ar ierobežotu atbildību (SIA)	Akciju sabiedrība (AS)	Pārstāvniecība
The corporate tax rate on annual net profits	0.2	0.2	Not available for trading
Minimum paid-up share capital	EUR 2,800	EUR 35,000	None