Company Formation in Latvia

Company incorporation in Latvia is quick, simple and implies low costs. When setting up a company in Latvia, there are a few steps that must be followed in order to benefit from a quick incorporation process. Any person or legal entity, national or foreigner, can be a director or a shareholder in a Latvian company. The company is required to have a registered office (BridgeWest offers this type of service). 

Investors can also address to our team of specialists for professional assistance and legal advice on the registration of companies in other jurisdictions. Our team can help investors with offshore company formation and with in-depth advice on how to register an offshore bank account. 

What are the basic steps for company registration in Latvia?

Firstly when setting up a company in Latvia, the client must decide upon the name of the company, the shareholding structure and the business activities. Even if the business activities do not have to appear in the articles of association of the company, they will be required when the company will register for tax purposes. The client must also present identification documents such as passport copies, identification cards or driver license of both shareholders and directors and a recent utility bill or a bank statement as proof of residential address.

The following step for the incorporation of the Latvian company will be to draft the articles of association and other relevant documentation and, in case of representation during the registration process, a notarized power of attorney must be obtained. The next stage will be to open a bank account. In order to do so, identification documents are required together with the application forms from the bank where the share capital will be deposited.

The last step will be to submit all the required documents which must be signed electronically or have the signatures certified by a notary, and translated into Latvian. Once the registration certificate is issued, the company can start operating. BridgeWest provides company formation in Latvia. Our assistance includes:

• drawing up the articles of association that can be signed through power of attorney (Latvian laws require power of attorney for any public notary proceedings);
• drawing up documents for company incorporation in Latvia – specimen signatures, identification papers copies, application form required by the Latvian Company Registration Office;
• arranging the certification of signatures where needed (no notarial deed is required; incorporation documents can be signed electronically and filed with the Register of Enterprises);
• providing a registered office in Latvia on demand – the registered office serves as headquarters for the company in Latvia and it will be made public;
• setting up a bank account for the company in Latvia – BridgeWest will help in setting up the share capital bank account, as well as a current bank account once the company is incorporated;
• recommending a Latvian accountant, as accounting services are needed after setting up a company in Latvia.

Types of companies in Latvia

One of the ways to open a company in Latvia is by registering a Latvian limited liability company (S.I.A. -Sabiedriba ar ierobežotu atbildibu), which is considered the most popular business type in Latvia. The minimum share capital required is EUR 2,800 and it must be paid in full before the registration application is filed. A limited liability company in Latvia only needs a director and allows foreign shareholders. 

The limited liability company is a common business form that can be registered basically in any jurisdiction, and it can also be used for offshore incorporation. The company will need to be audited in specific conditions, namely, if it meets two of the following criteria: having a turnover of more than EUR 800,000 in a financial year, having assets with a value of more than EUR 400,000 and employing more than 25 employees.  

Investors who want to open a company in Latvia also have the possibility of registering a limited liability company with reduced share capital. According to the Latvian legislation, such a company must meet the following conditions: the shareholders are only natural persons, there are at most 5 shareholders, who must also be the board members, and part of each year’s profit must be set aside in a reserve until the capital reaches EUR 2,800. 

This type of limited liability company does not have the same capital requirement as the standard limited liability company, as the investors will need a capital of only EUR 1. Low capital requirements or no capital requirements are typically very common when starting the procedure of offshore company formation. 

Investors can also register a Latvian joint stock company (A.S.- Akciju sabiedriba). The joint stock company in Latvia is used by larger businesses that want to gain public capital. The minimum amount of share capital must be EUR 25,000 and it is required to be paid in advance. The joint stock company can transfer and trade its shares on the stock exchange.

Foreign businessmen can incorporate the Latvian branch, subsidiary or the representative office. Foreign companies are allowed to set up separate enterprises from the parent company, where the foreign company will be a shareholder in a Latvian company. Foreign companies can also open extensions of the parent company in Latvia.

What should one expect during the process of starting a Latvian company? 

As a foreign investor who wants to start a business on a new market, one should be aware of numerous legal aspects. Besides this, the investors should take into consideration the time he or she must spend with the incorporation process and the main differences that can appear in practice when selecting a company type or another. Below, we present some of the highlights of the incorporation process: 

• the incorporation process can last approximately 4 to 5 weeks, depending on the selected company type (this is common in most of the European countries, but in the case of those preferring offshore company set up, the company can be incorporated in only few days);
• investors should know that the registration of a corporate bank account will last approximately 4 weeks;
• all company types in Latvia can be incorporated with 1 shareholder and 1 director;
• the branch office and the representative office do not have a capital requirement, but a limited liability company needs EUR 2,800 and a joint stock company is incorporated with EUR 25,000;
• the capital of a joint stock company must be deposited 100% upon incorporation, while in the case of a limited liability company, the capital must also be paid in full before filing. 

Taxation in Latvia

The micro-enterprise tax in Latvia is 25% of turnover (available only to sole traders and self-employed individuals) and the corporate income tax is 20%, levied on the distributed profits of a company that is not considered a micro enterprise. It must be noted that micro-enterprise taxpayers can lose the special regime. 

This happens if a micro-enterprise taxpayer’s annual turnover is above EUR 50,000 (the VAT registration threshold), which is the annual threshold established by the Ministry of Finance of the Republic of Latvia. In this particular case, the taxpayer moves to the general tax regime, since the micro-enterprise tax only applies up to the cap. The tax on corporate income varies greatly at a European level and investors should know that in specific jurisdictions one can benefit from a full exemption on this tax, as it is the case of those seeking for offshore company set up.  

The standard VAT rate in Latvia is 21%, but reduced rates of 12% and 0% apply to certain products. The standard tax system also includes a reduced VAT rate of 5%, which applies to books and press publications (fresh fruit, berries and vegetables are now taxed at 12%).  

There is no dividend tax for companies in EU and EEA member states, while for the withholding taxes for other foreign companies, no withholding tax applies either, except 20% on payments to low-tax or no-tax jurisdictions. However, it must be observed that this rule applies for the taxation of dividends, royalties and interest, which are exempted. Investors opening a company in Latvia must also know that if the recipient is a non-resident company or a Latvian company that benefits from various corporate income tax relief systems, then certain withholding taxes will apply. 

For example, the withholding taxes on management fees will be charged with a tax of 20%, the disposal of real estate will be charged with a 3% tax rate, while if the recipient is a company registered in a tax haven, then the withholding tax will be charged at a rate of 20%, regardless if we refer to dividends, royalties, interest, management fees or the disposal of real estate.  

So, if the recipient is a company that has gone through the offshore company formation process, then the tax will be of 20%. BridgeWest is also able to offer ready-made Latvian companies and VAT registration. Please contact us for more information and prices.