Setting up a business in Latvia

 

Introduction

Today, most financial advisors for tax optimization in Europe offer Cypriot, British, Dutch or Swiss companies. Some of these jurisdictions have an "offshore" image or have too high administration and management fees, which prevents their clients from developing the business, which is not the case for Companies in Latvia.

We introduce a new solution for your customers doing business in Europe and worldwide - Latvian LLC Company (SIA) with a Latvian bank account.

 

Création de sociétés en Lettonie

 

Why Latvia?

Latvian society is a key element for success in Europe and in the world.

Latvia is a well-known European jurisdiction, a financial centre of Eastern Europe, offering convenient taxation for trading and holding companies.

Since January 2013, Latvian companies have become even more attractive to foreign clients, making them a preferred choice for tax optimization in Europe.

 

Company registration in Latvia

Positioned at the crossroads of Northern and Eastern Europe, the Baltic State of Latvia is rapidly benefiting from its recently acquired status as a member of the EU. Foreign investment is increasing strongly and the Latvian authorities have taken steps to streamline the regulations governing the establishment of companies. The most popular business entity is the limited liability company (SIA). The corporate tax rate is set at 15%, one of the lowest rates in the EU.

A company in Latvia is well placed to be an efficient European intermediary for trade between the western and eastern "Russian-speaking" countries. Latvia is a multilingual society where the three languages Latvian, Russian and English are widely spoken and where professionals are able to work with both Western and Eastern business cultures. Latvian banks are extremely efficient and well-developed (compared to the often bureaucratic Russian banks), and can maintain accounts in all currencies, including "soft" currencies, such as Russian rubles.

 

Advantages for Latvian companies

European court with an excellent reputation
Low tax rate
Reduced administration costs
Short incorporation time (2-3 working days with your own name)
European VAT number
Stable legislation
Simple and complete accounting
Personal visit not mandatory
Developed banking and financial sector
Close geographical area

 

Requirements for setting up a business in Latvia

Capital below EUR 2800

The share capital of the Latvian company may be EUR 1. If the capital is between EUR 1 and EUR 2 799, the capital does not need to be paid into a temporary bank account. Nor does it need to be paid to a bank account after registration. If the capital is less than EUR 2800, the company has three restrictions: A) All members of the board of directors must have shareholders. A) All members of the board of directors must have shareholders. B) The maximum number of shareholders and members of the board of directors is 5. C) The shareholders of the company can only be private persons.

Capital 2800+ EUR

If the capital is EUR 2800 or more, there are no restrictions for the company. If you do not wish to invest 2800 EUR in the company's bank account, we can create documents without this requirement. It is important to note that if the company is registered with a capital of 2800 EUR, the registration fee is slightly higher. We will explain why and how much.

A minimum of one director is required for companies registered in Latvia. No restrictions on foreign shareholders or directors of the Latvian company.
Office address of the registered company (no P.O. Boxes allowed)

 

Taxation in Latvia

Double taxation treaties with more than 50 countries around the world, including EU countries, Switzerland, Norway, Russia, Israel, China, the United States, Canada and many others.

As a member of the EU, Latvian companies have a European VAT number, which allows them to trade with companies from the EU and third countries.

Income tax 0%

Since 2018, companies in Latvia do not pay corporate income tax. If the money is kept in the company, there are no taxes. This is a practice to encourage investment in the company instead of taking dividends.

Tax on dividends 20%

With the new tax regime in Latvia from 2018, the tax on dividends is slightly higher. This is to offset the tax on profits of 0%.

Value Added Tax 21%

It is a consumption tax included in the price of a good or service and paid by the final consumer of the good or service.

15-20%

Tax on micro-enterprises

The tax on micro-enterprises must be paid only if the company has the status of a micro-enterprise. The status can be obtained or cancelled once a year. When registering the company in Latvia, you must decide whether you need this status. Tax must be paid on all income. If the company has micro-enterprise status, it does not have to pay tax on profits or salaries.

 

Most used entities in Latvia

Trading companies

Latvian society is an ideal instrument for European and international trade. It has all the characteristics of any European company, but with additional advantages - low taxes, ease of establishment, cost of registration and ownership.

Latvia has one of the lowest corporate tax rates in Europe - 15% and benefits from the participation system (dividend tax at 0%). It is an ideal instrument for business activities inside and outside the EU.

In the case of transactions within the EU requiring EU VAT registration, the company can easily register for VAT in Latvia. Transactions on the territory of Latvia are subject to VAT at the rate of 21%, while for transactions between different EU countries VAT is applied at the rate of 0%.

The only restriction on commercial activity is that payments to companies in tax-exempt countries included in the so-called "black list" of the Cabinet of Ministers are subject to a withholding tax of 15%. This limitation can easily be overcome, placing companies that are not included in the list in the tax regimes.
European funds are available for the establishment and development of production and service activities.

 

Latvian holding companies

The Latvian company can be used as an international holding company. From 2013, Latvia introduces a favourable regime for international holding companies, financial companies and companies holding intellectual property rights.

Current general figures:

Tax on dividends 0%
Corporate income tax 15%
Legal address
Latvian Bank account
Latvian Domain name
Latvian Telephone number

From 2013 favourable tax regime for international holding companies, financial companies and companies holding intellectual property becomes effective in Latvia:

From 2013, the sale of shares and dividends received is exempt from income tax for Latvian companies.

From 2013, dividends paid to foreign companies are exempt from withholding tax.

From 2014, interest and royalties paid to foreign companies are exempt from withholding tax. Even now, in some cases, these payments are exempt.

No stamp duty on the payment of the share capital and the transfer of shares.

No rules on controlled foreign companies for legal persons.

The effect of the EU Parent-Subsidiary Directive and the Interest and Royalties Directive, as well as an extensive network of tax treaties, allows for the reduction or avoidance of withholding tax on dividends, interest, royalties and other income paid to Latvia.
Double taxation agreements are currently effective with 51 countries, including almost all European countries, all post-Soviet countries, the United States, Canada, China, Israel, Turkey and Singapore.

The holding regime has no restrictions on the holdings, holding period, type of activity of the subsidiaries. The only limitation - it does not apply to income received from and paid to tax-exempt countries included in the so-called "black list" of the Cabinet of Ministers.

Dividends paid by Latvia to individuals are subject to a withholding tax of 10%, a reduced rate that may be provided by a double taxation agreement. The possibility of offsetting may exist depending on the legislation of the individual's country of residence or the relevant tax treaty (e.g. citizens of post-Soviet countries may take this advantage).

If you are interested in setting up a company in Latvia, please do not hesitate to contact our team of specialists.