Forming A Company in Latvia
- Incorporation time: 4 days
- Shelf companies: Yes
- Accounting: Yes
- Secretary: Yes
- Nominee Shareholder: Yes
- Nominee director: Yes
One of the three Baltic States, the Republic of Latvia regained its independence in 1991. A member of the European Union since 2004, the country, which borders the Baltic Sea in the north of Europe, has experienced a period of strong growth. Latvia is very advantageously located in the centre of Europe, and is an attractive business hub.
An onshore centre
Latvia is well-known for its attractive tax system and for developing its economy by applying Western European policies. The creation of an onshore company in Latvia is especially advantageous for imports and exports. The country guarantees a high level of confidentiality and simplifies accounting for non-resident investors.
On 1 January 2013, Latvia established a zero-tax regime for subsidiaries and shareholdings, making it an excellent destination for holding companies. In addition, since Latvia is part of Europe, this status allows you to have a company in Europe and pass on the profits to Latvia without withholding tax being deducted. The Latvian company will then transfer its profits from subsidiaries offshore, without taxation. Shares in the holding company will be held by a corporation in Ras al Khaimah.
The different types of companies
The different types of companies
|Types of companies||Capital||Number of partners|
|Limited liability company||2000 LVL minimum||No minimum, limited liability|
|Public limited company||25000 LVL minimum||at least 2 partners, unlimited liability|
|General partnership||No minimum capital||at least 2 partners, unlimited liability|
|Société à responsabilité illimitée||No minimum capital||at least 2 partners, unlimited liability for the general partner, limited liability for the other partners|
Link : Trade Register
The various tax rates
Companies are taxed at 15%, capital gains being taxed at the same rate. Depreciation, dividends, trade with subsidiaries, and income from property sales or rentals are tax-deductible. Since 1 January 2013, Latvia has had a tax rate of 0% on holding companies, i.e. on subsidiaries’ profits.
VAT, or PVN (Pievienotas Vertibas Nodokli), is 22%, reduced by 10% for foodstuffs, medicines, medical equipment, water, books and newspapers, hotels, etc. Other areas are downright zero-rated.
On the other hand, income tax in Latvia is not progressive:
|26% of salaries||10% on capital||15% on capital gains|
The following income is not subject to tax: income from investments in retirement pension funds, insurance claims and income from the sale of personal assets. France and Latvia signed a double taxation agreement in 1997.
Latvian accounting is subject to the IFRS’s European regulations. The fiscal year runs from 1 January to 31 December (modifiable), and companies must follow well-defined rules. Accounts must be published in Latvian (possibly in a second language for foreign companies) and the amounts expressed in the currency of the country.
Accounting documents must remain on national territory, and they must be made up of a balance sheet, a profit and loss account, an appendix and a management report. An audit by an expert not known to the company is mandatory if the company has capital of more than EUR 356 000 and/or a turnover of over 711 000 EUR, and/or if the number of employees exceeds 25.
The Jurisdiction in detail
The country has orientated itself towards a market economy since independence and has managed to grow thanks to good domestic demand and European Union aid. Nevertheless, the financial crisis of 2008 strongly shook its economy to the point that the IMF intervened with EUR 7 billion in aid. Today, its growth is estimated at 3.5% for 2013.
Latvian agriculture accounts for 4% of GDP and its most influential sectors are livestock rearing, the production of grains, beet, potatoes and plants. The country’s natural resources are also limited to wood, making it dependent largely on Russia for its energy. Industry still has a major influence, accounting for more than 20% of GDP, particularly in construction, metallurgy, food and mechanical engineering. Finally, the tertiary sector dominates the Latvian economy, employing more than 60% of the workforce.
Latvia is very open to the world with a significant portion of national GDP accounted for by foreign trade. Its main trading partners are Russia and the European Union, and the country exports mainly wood and coal.
Strengths for investment:
- European legislation
- cheap and skilled workforce
- high productivity
- favourable tax system
- proximity to Russia
- significant competition from the Scandinavian countries
- not many foreign companies
- major market fluctuations
The Latvian Government has put in place grants for foreign investment, particularly in the industrial sector, where it wants to develop the high technology area.
Access to and functioning of the market
Latvia is a member of the World Trade Organization, the European Union, the European Bank and the OSCE. The country is a signatory to the Kyoto Protocol, the Basel Convention and the International Coffee Agreement of 2001.
In terms of import and international trade, Latvia applies the principles of the European Union in favour of free import where, mostly, licenses are not necessary.
Nevertheless, in accordance with the Common Agricultural Policy, imports of agricultural products are controlled and restricted in order to promote European production. Customs tariffs are also zero, or almost zero, for EU, FTA and EFTA member countries and the country applies the Common Customs Tariff of the European Union for imports from non-European countries.
An Exchange of Goods or Intrastat Declaration is required for the import of European goods, and an Entry Summary Declaration is mandatory for import of goods within the European Union, in accordance with World Customs Organization SAFE standards.
The retail sector in Latvia includes a large proportion of supermarkets (45% of the market) competing against local shops. Although the latter are still present, large-scale retail continues to grow. Latvia enables trade with eastern European countries and Russia.
Its two main ports, Ventspils and Liepaja, are never frozen, even in winter, which ensures permanent, much less limited trade. Latvian industry is dominated by forestry, which has more than 1,000 enterprises carrying out various activities connected with wood. This is followed by metallurgy, plastic and chemicals.
Employment legislation in Latvia
In Latvia, the legal duration of the working week is 40 hours, with a minimum wage of 90 LVL. Retirement is at 55 years of age for women and 60 for men. Employment contracts are very rigid and governed by the law and collective agreements.
There are 6 major unions in Latvia: LBAS, LMDA, LGRAS, LINA, LTAP and LAKRS.
|Type of rights||Text of Act||Validity of protection||Agreements signed|
|Patents||The patent law of March 30, 1995||20 years, renewable for a maximum of 5 years|
|Brands||Law on trademarks and indications of geographical origin of June 16, 1999||10 years, renewable||- Nice Agreement on the International Classification of Goods and Services|
-The Madrid Agreement concerning the International Registration of Marks
|Design||Law on the protection of industrial designs and models||5 years, renewable for a maximum of 10 years (2 x 5 years)|
|Reproduction rights||Copyright law of 6 April 2000||70 years until publication||- WIPO Copyright Treaty|
|Industrial designs||Law on the protection of industrial drawings and designs of 4 May 1993||5 years, renewable 4 times|
Latvian political information
In Latvia, the President (Valdis Zatlers) is elected by the Parliament for a term of 4 years. He controls the armed forces and appoints the Prime Minister (Valdis Dombrovskis), who holds the real executive power. Legislative power is held by the Parliament (Saeima) and its 100 members elected by universal suffrage for 4 years. A vote of confidence allows the executive to know whether the legislature still supports it.
The country has a special political landscape, because one party cannot win the elections on its own. They all have to cohabit and form a coalition Government. The most influential parties are the following:
- New Era Party
- The People’s Party
- The First Party of Latvia
- The Latvian Green Party
- The Fatherland and Freedom Party
Why create a holding company in Latvia?
The proper use of a holding company in Latvia
Latvia’s main advantage in this process of retention of profits lies in the fact that it is a member country of the European Union. In fact, it benefits from EU agreements on trade between parent and subsidiary companies (holding company and subsidiaries). This is due to Directive 2003/123/EC, which states that the income from a subsidiary passed on to the parent company is not taxed at source (if, of course, the subsidiary is based in a member country of the EU). The subsidiary is, therefore, taxed according to the tax system of its jurisdiction, and then sends the resulting income, minus tax, to the parent company, without any other taxation. Income arrives in Latvia (from subsidiaries abroad) and is not taxed (income from subsidiaries has not been subject to tax since 1 January 2013). However, in order to use these profits, it is necessary to have another holding company in addition to the Latvian one. This subsidiary is set up in a zero-tax offshore jurisdiction such as Ras Al Khaimah and receives the income sent by the holding company in Latvia. Once this income arrives there, it can be used freely and is not taxable. For a full visualization of the functioning of a holding company in Latvia, see our specially designed schema on the Latvian holding company.
Example: John Doe creates a holding company in Latvia controlling a subsidiary in France or Germany to carry out its activities. It generates EUR 100 000 in revenues in France, on which it pays a tax of 33% (i.e. about EUR 33 000) in accordance with French tax rules. If he only had a company based in France, it would be taxed at a minimum rate of 40%. However, he has his holding company in Latvia, to which he passes on the French income after tax. The remaining EUR 66 000 is then transferred to Latvia without withholding tax (EC Directive 2003/123/EC) and taxation on arrival (Latvian law of 2013). In order to use this sum, revenues are again moved: they are transferred to John Doe’s second holding company in Ras Al Khaimah, where they are not taxed (0% taxation). EUR 66 000 is then fully available.