According to the World Bank’s latest ranking of the most business-friendly countries in the world, Latvia ranks 19th among 190 countries, leaving 171 economies behind. Ever since becoming a member of the EU in 2004, followed by joining the Eurozone in 2014, Latvia has flourished with its well-educated and smart talent pool, vibrant startup ecosystem and low cost of doing business. With a population just shy of 19 million, the nation has amassed 400+ startups in high-demand industries, such as SaaS, FinTech and DeepTech.
However, there’s a reason behind all of this – why entrepreneurs are choosing to set up shop in Latvia. Today, we’ll look at the advantages of incorporating your business in this Baltic State.
3 major benefits of starting your own Latvian company
1. Tax incentives
There are several ways for businesses in Latvia to reduce their tax burden when recruiting talent. Here are some examples:
- 0% individual income tax (+ 0% corporate income tax for funds reinvested into the company, which is a benefit for all companies)
- Fixed social tax (saves the company money for salaries above 1000 eur, gross)
- 45% co-financing for highly qualified employees
There are also multiple benefits when it comes to corporate income taxes:
- Tax is only payable upon distribution of profits, making it more beneficial to business owners since they do not have to pay dividend tax anymore.
- The new corporate income tax rate is 20% of the gross dividends instead of the previous 15%.
- Latvian tax residents pay no tax on any dividends that they may receive from foreign countries.
In addition, the most recent updates to Latvia’s Startup Law have made these incentives more accessible to foreign entities – increasing the attractiveness of incorporation.
Specifically, Startups that have founded businesses abroad in order to gain foreign investments or to be able to better develop or sell their products in international markets will now be able to apply for tax incentives.
2. Ease of access for foreign founders
The Startup Visa (through the startup law) has also made it easier for foreign entrepreneurs to immigrate to Latvia and pursue business. This was a deliberate government action that was done in order to get more creative minds to come to the region and contribute to the economy.
The startup visa offers the following:
- Fast-track residence permit application (1 month)
- You can bring your family
- There can be up to 5 co-founders
Immigrant directed startups must also demonstrate that their ideas are innovative and that they have concrete development plans to be considered for the Visa.
3. Ease of management
Did you know a Latvian company can be established with 100% foreign shareholding? That’s right. You can form a Latvian company without ever visiting Latvia. All you need to make sure of is that your management board has at least one board member who can also be a non-Latvian resident.
How To Incorporate Your Business Latvia
In Latvia, there are a number of various ways to form a company. The chosen business type, the quantity of workers, if it is intended to be private or public, and other factors come into play when determining which option to pursue. The common business forms are shown below:
- Sole trader
- Limited liability company (SIA)
- Micro-company (limited liability company – SIA)
- Public stock company (AS)
- Non-profit association
In most cases, both residents and non-residents choose to start their company in Latvia by forming a limited liability company (sabiedriba ar ierobezotu atbildibu or SIA in Latvian), which can be run by one or more natural persons or legal entities.
The SIA’s minimum share capital is EUR 2800, although it is possible to start the firm with less money. We are focusing on this option because the limited liability company is by far the most popular business structure.
Your Business Is Set Up: Now Onto The Legal Components
Regardless of the business structure you pick, there are several legal aspects that you must complete in order to operate your firm successfully: you must choose a legal business name, address, management board, file with the Latvian business register, among other things.
What If I Need Legal Aid?
If you are thinking about starting a company in Latvia, LEGID is here to help. Our AI-powered system can match you with the right legal aid, and answer all of your questions regarding Latvian business incorporation, required government filings and more.
Our lawyers are experts in Latvian tax and business law, including other specialties. They also have experience in the legal and local start-up framework of Latvia and other Baltic States.
It’s difficult enough to launch a business in a new, unfamiliar country; and if you add into the mix not having any prior knowledge of the country’s legal codes, it gets even more challenging. That’s where we step in.
Learn more about our capabilities and how we can help accelerate your Latvian business incorporation today at www.legid.app.