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Company Formation in Latvia

Overview :

Latvia is the central country of the Baltic States (Estonia, Latvia and Lithuania) and is located in North-Eastern Europe on the East coast of the Baltic Sea. Most of the country is composed of fertile, low-lying plains, with some hills in the east.According to the Constitution, Latvia is a parliamentary republic in which the sovereign power belongs to the people, who are represented by a unicameral parliament. The Latvian economy is based on service industries including transportation and financial services and on light industry (e.g., wood, textiles and food processing). Most of the light industry sectors suffered due to the Russian crisis and turned Latvian trade increasingly towards Western Europe.

Advantages of Incorporating a Business in Latvia
  • If properly structured, a Latvian company can act as a tax-efficient subsidiary for an EU parent company under the terms of the EU Parent/Subsidiary Directive. 100% foreign ownership is permitted with Latvia company formation.
  • A Latvian company can access the double taxation treaties Latvia has signed with countries including Canada, China, France, Germany, Ireland, Singapore, the UK and the US.
  • A Latvian company is entitled to tax reductions of up to 40% for investment in state-supported projects.
  • Latvia is positively ranked as the world’s 24th easiest place to do business, according to a World Bank’s Survey. In addition, in the 2010 Index of Economic Freedom by the Heritage Foundation, Latvia ranks highly as having the world’s 50th-freest economy; and scores at 80% in terms of investment freedom and capital flows.
  • Latvia ranks a positive 48th on the United Nations Human Development Index for its high overall life expectancy, literacy, education and living standards.
  • It is easy to open global corporate bank accounts to support Latvia company formation. Healy Consultants works with internationally recognised banks such as HSBC, Standard Chartered and Citibank to provide corporate bank account services.

Tax Regime

Corporate income tax (tax on company profit)

The tax rate – 15% from profit, calculated in the company income tax declaration.
Payers are legal entities – Limited Liability Company, Joint Stock Company.

Value added tax

Standard rate – rate is 22%
Reduced rate – 12%
Export – 0%

Delivering goods and providing services to a person registered in another EU country, the value added tax (VAT) usually must be paid by the receiver of the goods and servicesVAT payers usually are persons that are registered in a special VAT register.
Taxation period depends on the type and amount of transactions. In Latvia, the taxation period may be a month, three months and six months.

Personal income tax

Basic rate is 25% To income from capital, which is not a capital gain (e.g., dividends, real estate) is applicable 10% rate. To income from capital gain (for example, profit from the sale of shares) 15% rate is applicable.Dividends are taxed with 10% rate.

Immovable property tax (tax on real estate)

The tax rate is from 0.2% to 3%. In relation to housing rate is from 0.2% to 0.6% depending on the cadastral value of the home. In relation to land the rate is 1.5%. The rate of 3% is mainly applied to agricultural land if the land is uncultivated.

Microenterprise Tax (micro company tax)

The basic rate is 9%. Taxable object is the net turnover.

Types of entities

Limited liability Company :

It is the most common form of business entity. It has the status of legal person and the minimum number of directors is one. The law states no restrictions on foreign shareholders. A minimum share capital required is LVL 2,000 (app. EUR 2 846).

Joint stock Company :

The other type of entity common among larger entrepreneurs, both local and foreign, is the joint stock company (AS). It also has the status of legal person, and the minimum share capital required is 25,000 LVL, with the exception of separate stock companies depending on the type of activity.

Latvian general partnership :

It doesn’t have the status of a legal person and it doesn’t require a share capital to begin with. It is founded by two or more partners in order to operate under a joint business name. A partner can be either a natural person or a legal person.

Limited partnership :

A limited partnership is founded by two or more legal or natural persons under a business name. A general partner is liable for the duties and obligations of the company with all his property, while a limited partner is liable to the extent of the contribution.

Individual merchant :

The individual merchant is a natural person that doesn’t need a share capital. It is the sole proprietor and it is registered as a merchant with the Commercial Register. It is mandatory to register in case the turnover exceeds LVL 200.000 or it exceeds the amount of LVL 20.000 and the entrepreneur has more than five employees.

Time required

It usually takes 16 days to incorporate a business in Latvia.