The quality of the business environment is one of the preconditions for the competitive development of the Latvian economy – the better the state is able to create for entrepreneurs, the bigger the investment can be expected in the economy, which in turn means creating new jobs and welfare for the population. In order to ensure transparent, simplified and non-overlapping legislative process, as well as to observe only such regulations that do not prevent the different cycles of business development, since 1999 the Ministry of Economic prepares and the Cabinet of ministers adopts the annual Action Plan to Improve the Business Environment. The objective of the Action Plan for the improvement of business environment is to create an attractive business environment based on systemic and well-considered reforms to ensure the transparency of the legislative process, its simplicity and coherence, as well as to determine only those norms that would not impede the development cycles of enterprises. The Action Plan is being developed in close collaboration with organizations that represent entrepreneurs and responsible ministries and so far more than 540 measures have been introduced and implemented.
If you have decided to start your own business, you should assess your wishes and possibilities because the type of the economic activity you choose and the expected turnover you plan will determine the form of registering your economic activity as well as the types, amount and the procedure of administration of the taxes to be paid to the state.
Home pages indicating how to start a business in Latvia:
- “The State Revenue Service”( https://www.vid.gov.lv/en/first-steps-entrepreneurs);
- “The Register of Enterprises of the Republic of Latvia” ( https://www.ur.gov.lv/en/register/).
The main regulatory enactments relating to the activities of the company in Latvia are:
- “The Commercial Law” ( https://likumi.lv/ta/en/en/id/5490-the-commercial-law);
- “On the Enterprise Register of the Republic of Latvia” ( https://likumi.lv/ta/en/en/id/72847-on-the-enterprise-register-of-the-republic-of-latvia).
A micro-enterprise tax rate for a micro-enterprise turnover up to 40’000 euro is 15%, if a micro-enterprise tax payer does not exceed the designated criteria.
- Micro-enterprise tax includes:
- state social insurance mandatory contributions, personal income tax and State fee of the business risk for micro-enterprise employees,
- enterprise income tax, if the micro-enterprise conforms to the features of the enterprise income taxpayer,
- personal income tax of the micro-enterprise owner for the part of the micro-enterprise revenue from the economic activity.
The information on the registration of the micro-enterprise tax payers is available at the State Revenue Service homepage in section Taxes/Microenterprise tax.
Rights for becoming a micro-enterprise exist to:
- individual merchant;
- individual enterprise, farms and fish farms;
- natural person, which is registered in the State Revenue Service (SRS) as a performer of economic activities;
- person is not a member of partnership;
- limited liability company.
In order an entity would be entitled to pay a micro-enterprise tax, a micro-enterprise shall comply with the following criteria:
- The participants (if any) are natural persons.
- The turnover does not exceed 40 000 euros in a calendar year.
- The number of employees does not exceed five at any time. An employee who is absent during employment relationship and who does not receive income from the micro-enterprise for the period of time, as well as employees suspended from work shall not be included in the number of employees.
- Members of the board of directors of a limited liability company may only be employees of the micro-enterprise.
- The natural or legal person referred to in this Clause is not a member of a partnership.
- Pursuant to the Microenterprise tax law a micro-enterprise is entitled to opt for payment of the micro-enterprise tax, if the income of a micro-enterprise employee from the taxpaying micro-enterprise does not exceed 720 euros per month.
- Within the meaning of the Microenterprise tax law a term micro-enterprise employee shall mean a natural person employed by a micro-enterprise on the basis of an employment contract and the micro-enterprise owner, as well as a procuration holder.
- As of 1 January 2019 a natural person is allowed to be employed as a micro-enterprise employee simultaneously in only one micro-enterprise.
Additional information: https://likumi.lv/ta/en/en/id/215302
Various support schemes for SMEs in the form of financial instruments are implemented by ALTUM – a state-owned development finance institution, which implements state aid programmes to compensate for the market’s shortcomings. ALTUM provides loans and credit guarantees, offers insurance for business export deals and investment to venture capital funds – in total approximately 190 million EUR in the for of financial instruments will be available to SMEs until 2023 partly co-financed by the ERDF funds.
In order to support start-up and lifestyle companies entrepreneurs have access to micro and start-up loans for investments and current assets (up to 25 000 EUR) for the establishment and growth of a small business and by the end of 2018, 118 micro loans and 400 start-up loans have been issued amounting to 10.5 million EUR. SMEs also have access to growth loans up to amount of 150 thousand EUR as well as mezzanine loans, which serve as a co-financing instrument to a bank loan, in cases where the conditions of banks require a larger interest than an entrepreneur can provide and by the end of 2018 10 companies have received the mezzanine loans in the amount of 4 million EUR.
To support early-stage and high-risk investments Altum also provides equity instruments and have selected publicly co-financed venture capital fund managers. 3 acceleration funds – “Builit Latvia”, “Commercialization reactor” and “Overkill Ventures” provide pre-seed funding of up to EUR 50 000 and seed funding of up to EUR 250 000 for innovative start-up companies. The programs have kicked of last year and it is planned that with 150 start-up companies will be supported by the end of 2023.
There are three special economic zones (Liepaja, Latgale, Rezekne) and two free ports (Riga and Ventspils) operating in Latvia. The Law On Taxation in Free Ports and Special Economic Zones (https://likumi.lv/doc.php?id=33419) stipulates the procedure, according to which indirect taxes and direct tax rebates are to be applied in Riga Free Port, Ventspils Free Port, Latgale Special Economic Zone, Liepaja Special Economic Zone and Rezekne Economic Zone.
A capital company or licensed capital company of the zone shall apply discounts during the taxation period, if the accrued amount of direct tax discounts and discounts calculated during the taxation period in total is not exceeding the interest from the accrued amount of investments to be applied for the relevant capital company.
More detailed information about special economic zones and free port administrations is available:
- Liepaja SEZ – http://liepaja-sez.lv/en
- Rezekne SEZ – http://www.rsez.lv/index.php/en/
- Riga Free port – http://www.rop.lv/en/
- Ventspils Free port – http://www.portofventspils.lv/en/
- Latgale SEZ – https://www.lpr.gov.lv/en/latgale-special-economic-zon
Investment and Development Agency of Latvia:
- assistance in investment location selection and implementation of investment projects.
- assistance in finding appropriate Latvian suppliers and increasing their competitiveness.
- provision of information on Latvian exporting companies, export products and services.
- organisation of trade seminars and foreign trade missions to Latvia.
- consultancy and foreign market studies for Latvian enterprises.
- assistance to Latvian companies at international exhibitions and trade missions, export promotion campaigns and business matchmaking.
- implementation of a number of state support programmes for the development of entrepreneurship.
Central Finance and Contracting Agency of the Republic of Latvia:
- to implement and monitor programmes and projects within its competence pursuant to the procedure provided in the laws and regulations;
- to carry out informative and consultative activities to ensure implementation of the programmes and projects within the institution’s competence;
- to cooperate with the state administration bodies, foreign institutions and natural persons.
Latvian Chamber of Commerce and Industry is the biggest association of entrepreneurs in Latvia uniting more than 2500 members – micro, small, medium and large enterprises of all regions and industries, associations, city business clubs and other unions of entrepreneurs. Association represents interests of entrepreneurs, as well as provides services, so that Latvia has excellent enterprises in an excellent business environment. Main sectors of its activities are business environment, competitiveness of enterprises, export.
Business Union of Latvia is an employers’ organization representing SMEs in Latvia. It has been created after merging of two employers’ organizations into one to increase bargaining power and representation of interests at national and European level. Main objectives:
- support of SMEs by communication, exchange of information and share of experience;
- to consolidate, coordinate and represent the interests of SMEs in Latvia, EU institutions and SMEUnited;
- to implement initiatives, education and training activities for young people and adults to develop creativity and entrepreneurial spirit;
- work with State and local government institutions in the development of the policy planning and regulatory framework;
- work with SMEs, associations, experts, educational and scientific institutions to increase business activity, competitiveness and job quality;
- promote public awareness of the socio-economic importance of SMEs in Latvia.
- work for better implementation of “Small Business Act” and “Think small” principles.
The Rural Support Service is responsible for implementation of a unified state and European Union (EU) support policy in the sector of agriculture, forestry, fisheries and rural development; it supervises compliance of the sector with the laws and regulations and fulfils other functions connected with agriculture and implementation of rural support policy.
Employers’ Confederation of Latvia:
- ensuring the preparation of policies that support entrepreneurship and the competiveness of companies so as to ensure the sustainable development of the Latvian economy;
- facilitating socio-economic conditions that are in line with the interests of Latvian employers, and to facilitate socially responsible entrepreneurship.
Subordinated to the Minister for Economics of Latvia, Investment and Development Agency of Latvia (LIAA) aims at increasing export and competitiveness of Latvian companies, facilitating foreign investment and implementing tourism development and innovation policies. http://www.liaa.gov.lv/en/about/about-liaa
Ministry of Economics shares the responsibility as the supervisory authority over LIAA, as well as policy makers in the field of foreign economic policy, as well as investment policy. https://www.em.gov.lv/en/
Main points to choose Latvia are:
- Accessibility to Large Markets
- Skilled and Motivated Workforce
- Developed infrastructure
- Macroeconomic and Political Stability
- Business Friendliness
- Cost Effectiveness
- Access to Suppliers and Resources
- Technology Transfer
- Quality of Life
Ministry of Economics has EU funds support for industrial premises, this program is aimed to support regions. https://likumi.lv/ta/id/302138-darbibas-programmas-izaugsme-un-nodarbinatiba-3-1-1-specifiska-atbalsta-merka-sekmet-mvk-izveidi-un-attistibu-ipasi
We also have free ports, 4 special economic zones. Also municipalities have other measures to support investments in regions.
Development of regions is a direct responsibility of Ministry of Environmental Protection and Regional Development of the Republic of Latvia. http://www.varam.gov.lv/eng