Company registration in Latvia

Company formation in Latvia is a simple and straightforward process. In fact, Latvia is ranked 19th in the World Bank annual "Doing Business" rating. The most popular types of legal entities in Latvia are Limited Liability Company (SIA) and Joint Stock company (AS). Your business can also be registered as personal society (limited or general partnership) or sole trader. A company in Latvia can be registered by local and foreign natural and legal persons, as well as personal societies.

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^* Latvian company registration "online with the e-signature."

^[1] E-document submission means an assistance with a digital document signing and online submission.

^[1][5][6] Assistance and support only.

^[2] An appointment arrangement with a notary.

^[3] Representing / submitting documents you in the Register of Enterprises of the Republic of Latvia.

^[4] Legal address included for up to one year.

^[6] EDS is an electronic tax declaration system.

Company formation process varies depending on what type of business entity you would like to register. Similarly, the liability of shareholders, minimum initial capital, as well as time, costs and documents required depends on the chosen legal type of business. Typically, the company formation process can be divided into seven steps:

1. Consultation on the information about company^[1];
2. Document drafting for the company formation^[2];
3. Opening the temporary bank account (if needed);
4. Initial equity capital transfer into the temporary bank account;
5. State fee payment^[3];
6. Company formation documents submission to the Register of Enterprises;
7. Collection of the decision regarding company formation.

^[1] Decision on the company name, company’s legal address, amount of equity capital and division of shares (if two or more shareholders), and other questions.

^[2] Company formation documents may differ depending on the chosen type of business form. Certain documents must be signed in the presence of a sworn notary.

^[3] Registration fee payment, payment for publication and other possible payments.

In case the company wants to become a value-added taxpayer, it is possible to apply to be included in the VAT-payer register at the same moment when submitting registration documents to the Register of Enterprises.

1. Registration application (Form KR4) – to be notarized;
2. Memorandum of association or decision of incorporation if one founder;
3. Articles of association;
4. Bank statement confirming the payment of initial capital;
5. Asset valuation (if needed);
6. The register of shareholders – to be notarized;
7. Consent of all board members to take the position – to be notarized;
8. A notification of a legal address;
9. Consent of the property owner in case the property does not belong to one of the founders of the company;
10. A document confirming the state duty and publication fee payment.

Acquire Ready-made Company

Taxes & Bookkeeping

Regardless of whether you have acquired a ready-made company or gone through the company formation process, all legal entities need to follow a certain set of rules when it comes to taxes and bookkeeping. Under the Taxes and Duties Act, taxes and duties are imposed either by the state or municipalities. There are also several exceptions in terms of business support policies introduced by the government. Companies having Special Economic Zone (SEZ) status, enjoy significantly lower tax rates among other benefits. For example, corporate income tax is lowered to 3% of gross profit for companies with SEZ status. Additionally, a separate law was introduced for startup companies on 1 January 2017. The new law determines following state aid programs:

1. Fixed social tax charge with the consent of employees;
2. Support program with an aim to attract highly qualified workers;
3. Corporate income tax credit and CIT rebate.

Legal entities, which turnover in a 12-month period exceeds 50 000 EUR, must register as a value-added taxpayer. However, it is possible to register as a VAT payer also before this threshold is reached. Standard VAT rate in Latvia is 21% and it can be paid either quarterly or monthly, depending on specific criteria of the taxpayer.

Since 2018, 20% corporate income tax rate is applied only on profits that are distributed via dividends or used for purposes that are not directly related to the development of the business. No other taxes are applied on income earned by businesses. Resident companies pay CIT on their worldwide income. Corporate non-residents with a permanent establishment (PE) are charged a standard rate of CIT on their Latvian-sourced income. In the absence of a PE, foreign companies may be subject to 0 to 15% withholding tax on various qualifying payments, such as payments to tax havens and management fees.

Companies can also be registered as micro-enterprises. As opposed to other legal forms of businesses, micro-enterprise is a tax regime rather than a separate form of business. Micro enterprises pay 15% tax on the company’s turnover. Micro enterprises face numerous restrictions, such as the total yearly turnover of the company cannot exceed 40 000 EUR and salaries cannot exceed 720 EUR per month.

Latvian residents are charged personal income tax on their worldwide income. Non-residents are charged personal income tax on their locally-sourced income. In 2018, a progressive personal income taxation system was introduced. This means that personal income tax is charged at differentiated tax rates based on the amount of taxable income. Current personal income tax rates are as follows:

1. Personal income tax rate of 20% is imposed on the amount of taxable income that does not exceed 1 667 EUR per month or 20 004 EUR per year;
2. Personal income tax rate of 23% is imposed on the amount of taxable income, which is between 1 667 EUR and 5 233 EUR per month or between 20 004 EUR and 62 800 EUR per year;
3. Personal income tax rate of 31,4% is imposed on the amount of taxable income, which exceeds 5 233 EUR per month or 62 800 EUR per year.

Other taxes paid by companies in Latvia include social security tax and state duty on business risk. Latvian companies are obliged to submit the tax report before 15th of the following month. Financial statement for the financial year should be submitted not later than four months after the end of the financial year.

Residence Permit through business in Latvia

Another benefit of registering your company in Latvia is the possibility to receive a residence permit in Latvia. By receiving a residence permit in Latvia, you obtain a possibility to travel freely within the Schengen area for up to 90 days within a period of six months. Persons with obtained Latvian residence permits, as well as their family members, have the right to work, study and use medical services in Latvia. Other benefits include facilitated procedure for receiving a visa to the United States and other countries.

Residence permit issuance framework foresees various options for receiving residence permit through business in Latvia:

1. Investment in the share capital of Latvian company – a foreign citizen can apply for a residence permit if he has contributed to the share capital of the Latvian company. The invested capital should be not less than 50 000 EUR (if the company’s annual turnover does not exceed 10 000 000 EUR and it has no more than 50 employees), or 100 000 EUR (if the company’s annual turnover exceeds 10 000 000 EUR and it has more than 50 employees together with its subsidiaries).
2. Becoming a board member, an administrator, a council member, a partnership’s representative, a proctor, a liquidator or a representative of a foreign merchant in various activities related to the branch of a foreign company or a Latvian company.
3. Becoming an employee in a Latvian company with a minimum wage of 860 EUR per month. This residence permit is issued for a 5 year period but needs to be extended annually.

Alternatively, there is a possibility to apply for a C type visa. C type visa is a short-term visa in Schengen area. It can be a multiple-entry, double or single-entry visa.

C-type visa variations

1. C-type visa valid in all Schengen member states – a unified visa, which entitles its holders to stay in any of the Schengen member states;
2. C-type visa valid only in Latvia, or with exclusion of a specified Schengen member state.

Citizens of the European Union are also eligible for receiving a residence permit in Latvia if the person has resided in Latvia for five or more years. In some specific cases, the five-year rule is disregarded.

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