A stunning nation in the Baltics, Latvia is well-known for housing several endangered species, including the black stork and European wolves. The Baltic region charms both its residents and foreign companies who decide to establish operations there. With a corporate business tax of 15% and a welcoming attitude toward immigrants, Latvia demonstrates its business support. With a GDP of $27 billion, Latvia is home to slightly under 2 million people.
Metals, wood products, and service industries make up the bulk of Latvia’s economy. Although they are making every effort to stand on their own, the country is still partly reliant on the health of Russia’s economy. Despite having a low corporation tax rate, Latvia’s tax system can easily become complex. To understand the tax framework, having a global payroll provider by your side can be helpful.
Getting started
Before you can fully register, you will first need a Memorandum of Association (also known as a Decision on Foundation) and Articles of Association, as well as the necessary equity capital. Contacting the State Revenue Service (tax officials) and the Commercial Registry of the Republic of Latvia will be the first step. If you register as an LLC (also known as an SIA in Latvia), you’ll also need to register with VAT. Corporate bank accounts are necessary for businesses, and they may be opened fast if you have the necessary paperwork.
Employment Rights and Laws
In the public sector, collective bargaining is still active, but there is minimal union sway in the business world. All employees must have written employment agreements that detail the nature of the employee/employer interactions. This is a good opportunity to talk about what each party should expect and to work out as many conditions as you can. Probationary periods are permitted but are limited to three months. A corporation can normally fire an employee for any reason during the probationary phase.
On Monday through Friday, Latvia maintains regular business hours and works a 40-hour workweek. However, the maximum daily hours are 7 hours and 35 minutes for jobs that are highly dangerous. Any additional time worked will be compensated at double time. A premium will also need to be paid for any employee who works more than two hours at night (between 10 pm and 6 am).
Compensation, bonuses, and severance
In Latvia, the minimum monthly salary is approximately €380 ($447, £340). Typically, bonuses, pay increases, and other incentives are agreed upon when contracts are originally drafted. There are no laws requiring bonuses or raises, but the majority of employers will give a loyal employee more consideration once a year.
Employers may fire workers for breaking their contracts, but they must give them a warning. This notification may be given right away, although it usually occurs 10 to 30 days in advance. If a worker leaves a company after less than five years of service, Latvia requires one month’s worth of income as severance or redundancy pay (Two months’ compensation for 5-year employees.)
Tax requirements/collection/withholding
If you don’t have a permanent place of business in Latvia, you simply have to pay taxes on your Latvian-sourced revenue. 15% is corporate tax. However, it can be as low as 3% if you live in a designated zone (usually, areas that need to be revitalized). Regardless of wage, Latvia’s standard income tax is a flat 23% and must be deducted from employee paychecks. VAT is 21%, and capital gains are taxed at 15%. Employees contribute 11% to social security, while employers are responsible for contributing 24.09% to the system. The supplier also deducts social security from employees’ paychecks. All of these payments may be managed, organized, and made on schedule with the help of a worldwide payroll service.
Leave – Sick, Maternity, Vacation, Absence, and Holidays
For the first 10 days of sickness, employers are required to pay their employees. Anything over this is often covered by tax dollars. There are 13 national holidays in Latvia, and the average length of vacation is four weeks. The workday must be shortened by at least one hour on the day preceding every public holiday. Employers cannot compel their staff to work on holidays, but they can incentivize it by paying them more. Typically, maternity leaves last 112 days. Both two weeks before and two weeks after giving birth, women must take time off. Ten days make up paternity leave.
