Entering the Latvia Market

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Entering the Latvia Market

Foreign companies who wish to expand into Latvia will be met with the one of the strongest manufacturing sectors in the Baltics, a skilled and educated workforce, world-renowned competitive tax incentives, and a variety of growth incentives and collaborative opportunities for investors with the state.

However, setting up shop in an unfamiliar place comes with its own challenges. Foreign businesses must comply with employment, tax, payroll, and corporate legislation whilst ensuring that their employees are working productively and efficiently.

The alternative solution to overcoming these issues involves working with a Professional Employer Organization (PEO) such as Bradford Jacobs, using our Employer of Record (EOR) in-country experts to handle every aspect of compliance. 

Starting a Business in Latvia

Latvia’s geographical position benefits from international access to diverse marketplaces in the EU, the Baltics, Russia, and Asia. With a robust infrastructure, and a dominant engineering and metalworking industry that contributes to about 80% of the total exports, and high-quality woodworking productions, this creates an attractive environment for any business owner who seeks to expand their business.

To start a business in Latvia you must go through a company registration procedure, which is straightforward and designed to be executed easily. These steps can be done online or in person – but for online registration, you will require an e-signature known as an eParaksts.

The necessary steps to start a business in Latvia include:

• Obtaining a local business address.

• Acquiring any additional permits or documentation for the business’ operation.

• Opening a bank account in Latvia to deposit the appropriate share capital.

• Preparing the appropriate registration documents and having them translated to Latvian or English.

• Notarizing and legalizing the registration documents at a notary’s office.

• Register your company and apply for a company tax number at the Enterprise Register.

• Register for a VAT Number at the State Revenue Service (only applicable if certain criteria are met).

• Register with State Social Insurance Agency (VSAA).

• Receive a Tax Identification Number, a certificate of registration and a unique registration number.

Company registration is publicly announced by the Commercial/Enterprise Register Gazette.

Expanding Business into the Latvia

Foreign companies wishing to expand into Latvia will be swept into a thriving economy with a sizable talent pool, and attractive administrative and labor costs – which is provided to all companies that enter their market. The country’s position in the Baltics offers access to trade between the West and East, as well as a formidable infrastructure and a progressive, western-oriented business environment.

Latvia boasts an abundance of natural resources and craftsmanship, which can be seen in its robust industrial sectors such as woodworking, metalworking, and technical manufacturing. However, Latvia also does well in transport and logistics, IT, energy production, food production, and creative sectors, some which are eligible to receive extra support from the state.

Whilst these industries can create opportune levels for international expansion, they can also be expanded locally to popular locations and tourist destinations such as Riga, Daugavpils, Liepāja, Jelgava, and Jūrmala.

Latvia Business Facts

• Capital City – Riga

• Population – 1,907,675

• Cities – Daugavpils, Jēkabpils, Jelgava, Jūrmala, Liepāja, Rēzekne, Rīga, Valmiera, Ventspils

• Official language(s) – Latvian

• Economy/GDP (2020) – $33,478 million, No. 101

• World Ranking (Ease of Doing Business) – 19th (2020)

• Leading sectors – processed foods, processed wood products, textiles, processed metals, pharmaceuticals, railroad cars, synthetic fibers, electronics

• Main exports – foodstuffs, wood and wood products, metals, machinery and equipment, textiles

• Main imports – machinery and equipment, consumer goods, chemicals, fuels, vehicles

• Main trading partners – Lithuania, Estonia, Russia, Germany, Poland, UK, Denmark, Norway, Netherlands

• Government – Unitary parliamentary constitutional republic

• Currency – Euro

Advantages and Challenges of the Latvian Market

The Latvian market has a variety of significant advantages:

Low labour costs: Latvia offers an internationally competitive workforce and low workforce costs. Latvia is also one of the leading European countries with regards to wage-adjusted labour productivity.

Competitive tax system: Latvia’s tax system has been recognized as the 3rd most competitive in the world, according to the International Tax Competitiveness Index (2019).

Educated workforce: Latvia is ranked 7th in the world for the number of new students enrolling for bachelor programs in STEM (“Education at a Glance”, 2019).

Language: English is the favoured language for doing business in Latvia, and most workers are multilingual – with knowledge of Russian, German, and other Scandinavian languages.

Ease of Business: Latvia is ranked 18th in the EU in public digital business services (European Commission, Digital Economy and Society Index 2020).

Logistics: Latvia boasts a highly developed infrastructure which grants easy and efficient access to the rest of Europe, the Baltics, Russia, and Asia in a matter of days.

EU Benefits: Latvia is a member of the European Union and enjoys the same trade benefits of other EU nations.

The biggest challenge facing the Latvia market currently is the effects of COVID-19, like many other nations in the EU and around the world. Other challenges include resource centralization, and low talent pools, but reforms and incentives are taking place to combat these challenges.

The 100 per cent solution is to consider the alternative to setting up a subsidiary by working with Bradford Jacobs. Our international recruitment specialists will find the perfect fit for the roles you need to fill. Then our Employer of Record (EOR) in-country consultants will handle all the complexities of Latvia’s employment laws, tax regulations and payroll, ensuring your Latvia expansion plans progress smoothly and effortlessly.

Limited Company/Subsidiary or Branch in Latvia

A subsidiary established in Latvia is considered a legal separate entity from the parent company, with independent administration and management, providing freedom explore the local market and create international credibility.

A branch, however, does not have any independence from the parent company, but it is taxed and reported similarly to resident entities, and is limited in its commercial activities.

The main characteristics of a subsidiary:

• Both public and private limited companies require a board of directors, as well as an annual shareholders’ meeting.

• A subsidiary is considered a legal entity in Latvia and can thus benefit from taxation incentives and exemptions.

• A subsidiary requires the mandatory filing of an annual financial statement, as well as a statutory audit if certain conditions are met.

• Subsidiaries are subject to the same taxation principles as resident companies.

• A subsidiary company benefits from independence from the parent company.

• There are no restrictions of foreign shareholders.

Main characteristics of a branch:

• The parent company is responsible for all liabilities of the branch office.

• Reporting and auditing requirements are the same as other companies.

• The activities of the branch must be defined by the parent company’s scope of operations.

Assessing the comparative advantages and disadvantages between a subsidiary and a branch and choosing the right option for your expansion is best done with expert guidance.

A sensible approach to have your business up-and-running in the shortest time possible is to use a Professional Employer Organization (PEO). Your company can have a presence in Latvia within days rather than months.

Legal Structures for Latvia Market Entry

Depending on the company structure you choose to set up, establishing a subsidiary or branch requires meeting certain legal requirements. A subsidiary is incorporated under Latvian law, whereas a branch operates under certain local laws (taxation, social security etc.), but are incorporated under the laws of the parent company’s country and uses the parent company’s Articles of Association.

The legal requirements of a private limited liability company (SIA):

A private limited company is most popular business structure in Latvia. For incorporation, the minimum number of people required is 1 director and 1 shareholder who can be of any nationality. The number of shareholders this company can have is unlimited.

The minimum share capital required is EUR 2,800, with at least 50% of it being paid upon registration.

After incorporation, private companies must also file annual financial statements and an annual statutory audit (under certain conditions). Annual tax returns must also be filed, and all businesses are required to file and pay VAT returns every month.

A private limited liability company must have a board of directors, as well as an annual shareholder’s meeting.

The legal requirements for a joint stock company (AS):

A public liability company is the best choice for larger companies that wish to raise public capital.

For incorporation, the minimum number of people required is at least 1 director and 1 shareholder of any nationality. In case of public registration on the stock exchange, a minimum of 3 directors is required.

The minimum share capital required is EUR 35,000, which must be fully paid upon registration.

Joint stock companies are required to file annual financial statements and an annual statutory audit (under certain conditions). Annual tax returns must also be filed, as well as VAT returns every month.

A public company must also have a board of directors, as well as an annual shareholder’s meeting.

The legal requirements for a branch:

In Latvia, a branch must have a registered office. For incorporation, a branch needs only 1 shareholder, 1 director, and no share capital.

Branches must comply to the local accounting laws, which requires annual financial statements, annual tax returns, monthly VAT returns, as well as annual audited financial statements (if certain conditions are met).

Open a Business Bank Account in Latvia

To do any business in Latvia, whether it is through subsidiary establishment or branch office, or relocating employees to test out the market, a local company bank account is required. An entity must deposit the requested share capital before company registration, as proof of funds.

To register for a business bank account, it is vital for foreign investors to acquire the necessary paperwork. Foreign nationals might also need to translate and notarize some of these documents. However, most banks will accept documents in Latvian, or notarized and translated copies of the required documents in English.

It is important to check what the bank needs prior to registration, as delays can add to the complexity of registration procedures.

Generally, the documents you will need to open a business account in Latvian are as follows:

  • Documents Concerning Founders: passport or identification documents of directors or shareholders, Proof of temporary or permanent residence/EU Identity Card (if from the EU or EEA), an address card or proof of address such as a lease contract
  • Company Registration Documents: legalized/notarized corporate documents (including the articles of association), documents confirming beneficial ownership, power of Attorney Business plan and/or financial history

These requirements will vary, according to each case. It is best to enquire on what you need with the chosen bank, as well as with legal representatives who understand the local laws of Latvia.

The registration process for a bank account may be done online or in-person (this depends on the bank).

Company Formation Latvia

There are 6 major company forms in Latvia:

• Private Limited Liability Company (SIA)

• Joint Stock Company (AS)

• General Partnership (PS)

• Individual Enterprise (IK)

• Branch Office

• Representative Office

The company formation process varies according to the company type, but the standard registration procedure is as follows:

• Obtain a local business address and prepare the documents for registration.

• Prepare the Articles of Association, the Memorandum, the resolution of the parent company, and other required registration documents to translate to Latvian.

• Notarize and legalize the founding documents at a registered notary’s office.

• Opening a bank account in Latvia and deposit the appropriate share capital.

• Register the company at the Latvian Enterprise Register, receive a tax number, as well as an incorporation certificate.

• Register with the State Revenue Service and apply for a VAT Number.

• Register with State Social Insurance Agency (VSAA), the State Insurance Fund Board.

• If required, convert the local bank account, or open a new one for normal commercial operation.

Find an office in Latvia

Latvia is experiencing a rising interest in the commercial real estate market due to the development plans in place for improvements to the country’s commercial districts. Prices are affordable, and the country offers a variety of commercial types to choose from, depending on your needs – commercial rent and sales, industrial spaces and an increase in co-working spaces and virtual offices.

Acquiring an office in Latvia involves engagement of a local real estate office – but finding the right agency and agent may take time and involves certain barriers, such as language and business customs.

This is where we can step in and act as an office broker for companies wishing to expand into Latvia. With our experience in international expansion, we can find the right space for you in no time and prevent the stresses and complications that can accompany a property search. Contact us any time to see how we can benefit your plans!

Finding a Latvia Manufacturer

Latvia possesses a robust manufacturing sector, with a reputation for high-quality production, and a skilled workforce. The local infrastructure is rigorous, and the country supports the growth of this sector with a quality education and investment opportunities for foreign companies. Their specialties include woodworking, engineering and metalworking, smart materials, photonics, and is the leading Baltic manufacturer of information and communication technology.

With great cost-to-quality ratios, high employment rates, and a variety of suppliers to choose from, the manufacturing sector in Latvia is a powerful influence on the economy. Any business seeking to partner with a local manufacturer need only select the most beneficial choice for their interests.

The country has a variety of large-scale and medium-scale manufacturing companies to choose from, and some popular names – such as Neste, LEGO, Unilever, GE, Danone, Orkla, NIKE, Stora Enso and Kronspan. Finding the right fit, then, should not be too difficult. As a business owner, it is important to ask potential manufacturers about their capabilities, target dates and delivery times.

Working with the right manufacturer will have a significant effect on the success of your expansion into the Latvian market, and beyond. It is a long-term commitment and relationship, which must be treated with significance and care. Ask your local business associates or contacts about which companies to consider as you begin your search – the business community in Latvia is very close-knit, so your contacts can help point you in the right direction..

Finding a Latvia Distributor

Successful integration into the Latvian market is not complete without a local distributor. The distributor you choose will have a great impact on your business and its objectives.

Latvia has many options for product distribution. It has three major ports, an airport in Riga which serves as a transportation hub, a well-connected railway connecting Latvia to both the east and west, and a new north-south railway being built which will connect the Baltics to the rest of Europe.

The capital city, Riga, is the major distribution center of the country. Food products, wholesale and retail are carried out by private wholesalers. The market is principally led by supermarkets and superstores, while markets and local stores represent about a third of the market share.

To find the right distributor, you must work with the local business customs and understand the local culture. Business culture in Latvia values trust and close relationships that partake in with their business associates – an understanding of Latvian or Russian can also go a long way. Treat distribution partnerships as long-term relationships.

Enter New Markets with Bradford Jacobs

Bradford Jacobs opens the door for companies like yours seeking to explore new markets in your new territory. Latvia offers expansion into a variety of markets, as well as growth and development support.

Part of this exploration includes recruiting the right staff to assist with your expansion plans. Our Professional Employer Organization (PEO) specialist teams have in-depth global knowledge of how to expand into and recruit in new territories – and our Employer of Record (EOR) services will guarantee your company complies with local registration and recruitment law, taxation, and payroll. This is essential for Latvia, where employment regulations depend on a mix of labour legislation, and collective arrangements with trade unions and work councils.

We also provide ongoing consultation on human resources based on our understanding of individual cultures and customs of every country being targeted for global expansion. Work with Bradford Jacobs to expand your company and ensure the best people are on your team!