Company formation in Latvia

General information

  • Latvia (Latvian Republic) is a state in the Northern Europe bordering with Russia, Estonia, Belarus and Lithuania. The capital - city of Riga. The official language - latvian. 
  • Latvia is a parliamentary republic. The Constitution of 1922, as amended and supplemented, is in force. The legal system of Latvia belongs to civil (continental) law. 
  • Latvia is a member state of the EU, WTO, Schengen Agreement, Euro area (since January,1 2014).
  • Corporate income tax rate is 15%.
  • Favorable holding regime: dividends received from abroad are exempt of taxation, and dividends, interest and royalties paid to corporate shareholders outside Latvia are exempt from withholding tax (except for operations with offshore companies).
  • No foreign exchange control. No controlled foreign companies (CFC) rules.
  • Transfer pricing and thin capitalization rules are implemented. 

Basic features of Latvian companies

The Latvian legal entities are regulated by the Law “On Commerce”, 2000 (Komerclikums).

The main legal forms of business in Latvia are:
  • SIA (sabiedrība ar ierobežotu atbildību) - limited liability company;
  • AS (akciju sabiedrība) - joint-stock company;
  • PS (pilnsabiedrība) - general partnership; 
  • KS (komandītsabiedrība) - limited partnership; 
  • IK - individual entrepreneur (self-employed person);
  • Foreign companies’ branches
1. The most popular form of the commercial companies in Latvia is ‘sabiedrība ar ierobežotu atbildību’ or SIA (a limited liability company). The authorized capital of SIA is divided into membership interests. The members of SIA are not liable for its obligations and bear the risk of losses related to its activity only to the extent of their membership interest.

Advantages of SIA:
  • limited liability of members;
  • simple registration procedure, possibility of remote registration (without visiting Latvia) by power of attorney signed by the founders;
  • the foreign persons (including offshore companies) can be 100% shareholders of the company;
  • the local director is not required.
Company name. Only Latin or Latvian alphabet may be used in company’s name. Names of previously registered companies cannot be used. The company’s name must contain an indication of its legal form. Use of certain words is restricted (eg, Latvia).

Legal address. Each Latvian company must have a legal address in Latvia. The legal address must be declared when applying for registration of the Company. The correspondence sent to the legal address of the company is deemed to be received by this company.

Founders. Both natural persons and legal entities (residents and non-residents of Latvia) may be the founders of Latvian company. The minimal number of founders for SIA and AS is 1, and for PS and KS — 2. Information about the founders of Latvian companies is available to all interested persons (this information is provided on request, subject to payment of the prescribed fee).

Authorized capital for SIA is 2800 EUR. At least half of the authorized capital must be paid prior to submission of an application for registration of the company. The rest of the amount must be paid not later than 1 year from the date of registration.
However, subject to the following conditions, the company’s capital can range from 1 to 2788 Euro:
- if the company has no more than five founders - individuals (who can be both residents and non-residents);
- if all founders are the members of the board;
- if the members are involved only in one company with reduced (i.e. less than 2800 euros) capital.
When using the reduced authorized capital the contribution of money to the bank account is not required.

Management bodies of the company. Managing board. The minimal number of members of the managing board (directors) of SIA and AS is 1 person. In case if the shares of AS are publicly traded, the minimal number of members of the board of AS is 3 persons. Only legally capable natural persons (both residents and non-residents of Latvia) can be the members of the board of SIA. Every member of the board must provide a notarized consent to act as such. A member of the Board of Directors of the same company cannot be a member of its managing board. A person, who under the decision of court is prohibited to conduct a particular or any type of business or to hold positions in the boards of commercial companies, cannot be a member of managing board.
Board of Directors of SIA can be established at the discretion of founders. AS must have a Board of Directors mandatorily. 

The main set of company’s documents includes:
  • certificate of incorporation;
  • memorandum of association (resolution of the establishment - in case of a single founder);
  • articles of association (charter);
  • register of members;
  • resolution of Company Register about the registration of the company.
There are no requirements regarding the corporate seal.

After the registration of the company in the Company Register the company must be registered in the tax authority - State revenue service. VAT registration may also be required.

Accounting and audit requirements. Latvian companies must keep their accounting records and file the annual accounts prepared in compliance with the national standards and IFRS. The deadline for submission of annual accounts for the majority of companies is 30th of April.
Company’s annual account, which exceeded any two of the three following figures, must be certified by the local licensed auditor:
  • balance — 400 000 EUR;
  • net turnover — 800 000 EUR;
  • average number of employees in the reporting year — 25 people. 
The companies which did not exceed the mentioned figures may not submit an auditor’s report with their annual accounts.
The tax return must be submitted within 4 months after the end of a financial year.

2. Joint stock companies (akciju sabiedriba, AS) are legal entities with the authorized capital divided into shares which are in free circulation.
The minimum share capital for AS is around 35000 EUR and must be fully paid within the 1 month from the date of signing of the Memorandum and Articles of Association of SA.
Natural persons and legal entities (both residents and non-residents of Latvia) can be the founders and shareholders of SA.
The issue of bearer shares as well as registered shares is available. Bearer shares may be issued only by joint-stock companies (AS) and must be registered in Latvian Central Depository.
The management bodies of AS are general meeting of members, supervisory board, board of directors.

Corporate taxation in Latvia

The main sources of the tax law of Latvia are Law On Taxes and Duties, Law On Corporate Income Tax, Law On Value Added Tax, Law On Taxation of Microenterprises and others.

A company is considered to be a tax resident if it is incorporated in Latvia.
Residents are taxed on their worldwide income. Permanent establishments of foreign companies are taxed in the same way as Latvian resident companies.
Non-residents are taxed only on income received from the Latvian sources.

Income tax

The corporate income tax rate is 15%.

Dividends received by Latvian company are exempt from tax (regardless of whether the country which paid the dividends is a EU member state or a third country). However, there is an exception for dividends received from countries listed in Latvia’s blacklist (which includes over 60 countries, primarily offshore jurisdictions).

Capital gains received from sale of property are subject to tax at the standard rate of 15%. Capital gains received from alienation of shares are exempt from tax (with exception for shares of offshore companies).

Dividends payable by Latvian company, are exempt from withholding tax, with exception for dividends paid to persons resident in the countries listed in Latvia’s blacklist (such dividends are subject to a 15% withholding tax).

Interest and royalties payable by Latvian company are exempt from withholding tax (since 1 January 2014), with exception for interest and royalties paid to persons resident in the countries listed in Latvia’s blacklist (such dividends are subject to a 15% withholding tax).

Payments for management and consulting services from Latvian company to non-resident company are subject to a 10% withholding tax (unless the rate is reduced under a double tax treaty).

Rental payments to a non-resident company for the use of property in Latvia are subject to a 5% withholding tax.

Remuneration received from participation in Latvian partnerships is subject to withholding tax at 15%.

Income received by non-resident from the sale of real property in Latvia or sale of shares of the company, more than 50% assets of which consist of real estate in Latvia, is subject to a 2% withholding tax. 

Other taxes and duties

Real property tax is levied at a rate 1,5% of the cadastral value of the land and buildings.

Legislation on value added tax in Latvia is based on respective EU rules (Council Directive 2006/112/ЕС).
Standard VAT rate (pievienotas vertibas nodoklis, PVN) is 21%.
Lower rates of VAT are applied to particular goods and services - 12% (e.g., pharmaceuticals) or 0% (e.g. export operations), as well as exemption from VAT (e.g., financial services, insurance, education, public health and others).

Employers (except for microenterprises) must withhold the personal income tax (24%) from their employees’ salary and pay it to tax authorities on a monthly basis.
Besides that employers (except for microenterprises) must make monthly social insurance contributions at a rate of 34,09% (23,59% of which are paid from the part of employer and 10,5% are withheld from the employee’s salary). 

“Microenterprises” tax regime

The Law provides a special tax regime for “microenterprises”. This regime may be used by SIA or individual entrepreneurs.

To be deemed “microenterprise” the company must qualify the following characteristics:
- annual turnover not exceeding 100000 EUR;
- all the members of the company are natural persons;
- the company has no more than 5 employees;
- one employee’s salary does not exceed 720 EUR a month.

Microenterprises are subject to a reduced tax on their annual turnover. The tax is to be paid quarterly (the tax base is defined as annual proceeds of the company without deduction of expenses). The first EUR 7000 are taxed at a rate 9%, and income from EUR 7000,01 and more is taxed at a rate 11% (effective from January 1, 2015; earlier the tax rate was 9% of the whole income). Microenterprises are exempt from income tax and employer’s contributions.

International tax treaties of Latvia

Latvia has double taxation treaties with 59 countries: Albania, Armenia, Austria, Azerbaijan, Belarus, Belgium, Bulgaria, Great Britain, Hungary, Guernsey, Georgia, Germany, Greece, Jersey, Denmark, Iceland, India, Ireland, Israel, Italy, Spain, Canada, China, Kazakhstan, Kuwait, Kyrgyzstan, Lithuania, Luxembourg, Macedonia, Malta, Mexico, Moldova, Morocco, Netherlands, Norway, United Arab Emirates, Poland, Portugal, Romania, Russia, Serbia, Singapore, Slovakia, Slovenia, USA, Tajikistan, Turkey, Turkmenistan, Ukraine, Uzbekistan, Finland, France, Croatia, Montenegro, Czech Republic, Sweden, Switzerland, Estonia, South Korea.

The Agreement between Russia and Latvia on avoidance of double taxation and prevention of tax evasion was signed in 2010 and entered into force on the 6th of November 2012 (is applied from the 1st January 2013).
Russia-Latvia double taxation agreement stipulates the following reduced rates of withholding tax:
1) in respect of dividends (section 10 of the DTA):
a) 5% of the sum of dividends - if the dividends are received by the company (other than partnership) which directly holds at least 25% of the capital of the company paying dividends, and the amount of the contributed capital exceeds 75000 USD or equivalent amount in rubles or euro;
б) 10% of the sum of dividends - in other cases.
2) in respect of interest - 10% (section 11 of DTA);
3) in respect of royalties - 5% (section 12 of DTA).
The DTA stipulates the opportunities of exchange of information between the competent authorities of Russia and Latvia and their mutual assistance in tax collection procedures.

In May 2013 Latvia signed the OECD Convention on Mutual Administrative Assistance in Tax Matters (amended by the Protocol 2010), but has not ratified it yet. 

Contact us:

Spam protection. Please tick the box below:

* All fields are required