Latvia has adopted a pro-business climate, which is bolstered by the Latvian government’s easily available incentives and infrastructure. The country has also achieved significant progress in the renewable energy, woodworking, manufacturing, and construction industries, creating several opportunities in these fields. Apart from its high growth rate, Latvia has received a large number of Foreign Direct Investments (FDIs) as a result of its favorable tax environment, which has attracted numerous businesses and foreign investors to set up shop in the country. Latvia was also ranked 19th out of 190 nations in the 2020 Ease of Doing Business Index, thanks to its flexibility and low cost of forming a firm. Here are some of the advantages of registering a business in Latvia.
Low corporate income tax
The first advantage of forming a company in Latvia is the attractively low corporate tax rate offered by the country. Corporate income tax rates for reinvested earnings will be zero percent starting in 2018. This practically indicates that corporate income tax rates will be paid only when a corporation pays dividends or other forms of payments to distribute profits. If this is the case, the corporate income tax rate will be 20% for profits distributed in various forms such as dividends or for any other reason not directly related to business development. Aside from that, corporate income tax is only levied at the federal level and is not subject to state or local taxation.
It’s also worth noting that all Latvian resident enterprises must pay corporate income tax, regardless of whether their earnings come from within or outside Latvia’s jurisdiction. Non-resident businesses doing business in Latvia will only have to pay corporate income taxes on income earned in Latvia.
Free trade agreements
The second advantage of forming a company in Latvia is the benefits of free trade that come with doing business in Latvia. Latvia is a country in Europe and a member of the European Union (EU). Latvia is also a member of the Organization for Economic Co-operation and Development (OECD) as well as the World Trade Organization (WTO). This creates a plethora of trade opportunities and incentives between exports and imports among the countries that participate in these international organizations.
Transport and logistical advantage
The third advantage of forming a corporation in Latvia is the jurisdiction’s logistical and transportation advantages. Latvia enjoys a strategic location between EU member states and significant eastern markets, emphasizing the importance of a well-developed logistics chain and transportation services to allow trade between the east and west. Latvia’s proximity to the EU’s external border with Russia, Belarus, and Schengen countries has had a considerable impact on the country’s GDP. Latvia also has existing railway connections connecting the Baltic republics to Poland, allowing access to markets such as Scandinavia and Russia via expansion.
Special economic zones & free ports
The fourth advantage of forming a business in Latvia is that the country has built special economic zones (SEZ) and free ports to aid business development. Latvia has three special economic zones (Liepaja SEZ, Rezekne SEZ, and Latgale SEZ), as well as two free ports (Riga free port and Ventspils free port), all of which support favorable business conditions. Companies operating in the zones are eligible for direct tax rebates of up to 35 percent, 45 percent, and 55 percent, depending on the requirements they meet. It’s vital to remember that each SEZ or free port has its unique set of indirect tax breaks.
Developed IT & technology
The fifth advantage of establishing a business in Latvia is that the country is technologically advanced. Among the top few countries assessed, Latvia boasts one of the fastest internet speeds. A “Baltic Highway” was established in 2012 to serve as a modern data transmission network. It not only boosted the speed with which foreign web-based information could be accessed, but it also made it possible to better connect East and West online service providers. Companies that require a lot of data might consider registering in Latvia because of the high capacity and well-developed internet infrastructure. Furthermore, the Latvian government places a strong emphasis on data protection, as the country is a signatory to the General Data Protection Regulation (GDPR).
