The hospitality industry is a leading industry in the economy and the top source of employment globally. In the republic, this industry is a growing sector of the economy thanks to its attractive location, natural resources, rich heritage, culture, etc. The accommodation industry is fast growing with the opening of new hotels, estates, apartments, and housing units by domestic and international companies. Due to premature development, the industry faces numerous hitches. The hotel sector is a huge part of the industry offering accommodation to travelers mostly tourists. Formerly, the VAT paid on accommodation services was 12%, but it was increased by the Latvian Ministry of Finance, a recommendation made by the World Bank. The tax on accommodation in the country is double that of Estonia and Lithuania. Regardless of this, the republic ranks 14th among the easiest countries to do business.
Setting up a company
To run an accommodation business, an entrepreneur must incorporate the company within the territory. This can only be done by registering the business with the Enterprise Register. The following are the steps to follow when setting up an accommodation business.
- Choose a type of business
- Prepare the required documents
- Open a bank account
- Apply at the Enterprise Registry
- Commence business in Latvia
Choose a type of business
There are numerous types of business entities doing business here, such as SIA (Limited Liability Company), Sole Trader, Joint-Stock Company, Partnership, and Branch or Representative Office. The most popular is SIA. A limited liability company has share capital divided into shares. A private limited company is liable for its obligations with its total assets. It can have a share capital of up to €2,800. After registering the company, it can start operations such as issuing and receiving invoices. Knowing the type of entity, one intends to set up, speeds up the process. Be it a hotel, resort, apartment, or housing unit, your company should fall under any of the entities allowed to exist in the country.
Prepare required documents
When establishing a company, one has to prepare the documents required and also fill out forms with the Enterprise Register. As stated by the Investment and Development Agency, all documents must be in Latvian. This means foreigners would have to hire a translator or a business support provider. The documents require a notary to approve the signature on the application form during registration. If it is a large business involving shareholders, a document stating the number of shares and their shareholders has to be submitted. An easy option is setting up online via the website by signing the documents with an electronic signature.
Opening a bank account
Setting up an account at any bank is easy. The bank temporarily opens an account for the payment of the initial share capital. Opening an account costs between €0 to €15 depending on the bank.
Applying at the enterprise registry
Fill out the application form and submit your documents for verification at the Enterprise Registry where the signatures can be verified by an in-house notary. After paying the state fees and publishing the registration in Latvia’s official publication, a company shall receive its certificate of registration.
Doing business in Latvia
Hotels registered as micro-enterprises pay a standard tax rate of 15% of their turnover not exceeding €100,000 a year. When you register the business for VAT (Value Added Tax), the company is assigned an EU-compliant VAT registration number, which is the same as its registry number, but with the prefix ‘LV’. Foreign companies outside the country don’t have to pay VAT on accommodation services, but during business transactions with Latvian companies, they are subject to a VAT rate of 21 percent.
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