Latvian residency attracts many non-residents. Due to the favorable geographical location of the country, the presence of a developed banking system and a low level of taxation, businessmen from neighboring countries strive to register a company and open a bank account in Latvia. Registration of a company in Latvia is advisable for most non-residents wishing to transfer cash flows to the nearest European jurisdiction.
It is possible to open a company in Latvia remotely. The country is not blacklisted and is a member of the OECD. It is theoretically possible to open an account remotely, but the director or owner of the company is recommended to visit a bank branch.
Types of legal entities in Latvia
In Latvia, the scope of registration of legal entities and private entrepreneurs is regulated by the Commercial Law Law. In accordance with this legislative act, the country uses the following types of companies that can be opened:
- A general partnership (Pilnsabiedrība, abbr. PS) is a legal entity whose purpose is to conduct commercial activities using a joint company name, and in which two or more persons (participants) have joined together on the basis of a partnership agreement, without limiting their liability to the creditors of the general partnership ;
- A limited partnership (Komandītsabiedrība, abbr. KS) is a company that two or more participants decided to open for the purpose of conducting business activities using the joint name of the company, while the liability of the company’s participants to creditors is limited to their contributions;
- Limited liability company (Sabiedrība ar ierobežotu atbildību, abbr. SIA) are private companies whose shares are not publicly traded. Open a micro-enterprise and a full LLC;
- A joint stock company (Akciju sabiedrība, abbr. AS) is a legal entity whose shares can be freely traded on the market.
A limited liability company and a joint stock company are not liable for the obligations of their shareholders and vice versa.
Private entrepreneurs, in turn, must use “individuālais KOMERSANTS” or abbreviated in their name. IK. According to the law, an indication of the form of ownership must be contained at the beginning or at the end of the name of the company or entrepreneur.
A company is considered established after its registration in the Commercial Register. It should immediately be noted that it is public, which means access to it is open to everyone.
As of the beginning of March 2019, 150,413 companies and private entrepreneurs were opened in Latvia. As official statistics show, the largest number of enterprises opened in the country are in the form of joint-stock companies (53%) and joint-stock companies with small capital (21%). But it should be noted that the dynamics of registration of legal entities is generally negative. If at the beginning of 2019 the number of registered companies and entrepreneurs was 158,403, then in just 3 months of 2019 their number decreased by 8 thousand.
Company registration in Latvia: features
The founders of legal entities can be both individuals and other companies, residents and non-residents. Moreover, to create a legal entity in the form of a joint stock company or LLC in Latvia, only one participant is enough, for a full and limited partnership, at least two are needed.
Registration of a company in Latvia goes through the following stages:
- Filling out an application using a special form.
- Preparation of constituent documents.
- Formation of the board of directors of the company and, if necessary, appointment of an auditor.
- Payment of capital by transfer to a bank account.
- Assessment of the material contribution (provided that the company’s capital is formed from the property of the founders).
- Payment of the state fee for registration in the Commercial Register and for publication of an entry in the Register.
- Submitting an application for registration in the Commercial Register.
In accordance with the law, the minimum amount of authorized capital to open an LLC is 2,800 euros. It should be noted that the founders of an LLC must pay at least 50% of the authorized capital before registration, and the rest within a year. But this does not apply to those who want to create a company with a minimum amount of capital. In this case, you must immediately transfer all the money to a bank account or confirm its availability in writing.
In accordance with the current law, the authorized capital of a company can be less than 2,800 euros if the following conditions are met:
- the founders of the company are no more than 5 individuals;
- the board of directors consists of one or more shareholders of the company;
- each shareholder is the founder of only one similar company, the authorized capital of which is less than 2,800 euros.
But if you want to save on the size of the authorized capital, the founders should take into account that if the size of the company’s capital is less than the above amount, then:
- the enterprise is obliged to annually form a mandatory reserve in the amount of 25% of the profit received. Thus, these contributions directly reduce the dividend;
- During bankruptcy proceedings, all shareholders of the company are jointly and severally liable for its obligations.
Company registration in Latvia: required documents
Company registration in Latvia is carried out in special institutions called Registers if there are:
- applications using a special form (certified signatures);
- constituent agreement and articles of association;
- register of shareholders (certified signatures);
- bank payment order confirming payment of the authorized capital;
- assessment of the property contribution (if any);
- written consent of the members of the Management Board (certified signatures);
- written consent of the members of the Council (if there is a council);
- notification of the board of directors about the presence of the company’s legal address along with the consent of the owner of the real estate, as well as the cadastral number of the real estate. The first and last name of the owner of the apartment or building and his personal code must be indicated in the consent;
- receipt of payment of state duty and information about publication in the official publication Latvijas Vēstnesis.
Documents can be certified by a notary, but it is cheaper to do this directly at the Register. You can also use an electronic signature. You can submit documents for registration either in person or send them through the Commercial Register website using the Internet. For registration of a company and publication of information about it, a fee ranging from 20 to 60 euros is charged. This is if the company’s capital is less than 2,800 euros. In other cases, the cost of registering an LLC ranges from 150 to 450 euros. The cost of the service is directly affected by the number of founders and the duration of the procedure (from 1 to 3 days). From January 1, 2021, there is no fee for official publication and prices for those wishing to open a company have decreased.
For a fee of 150 euros, it is possible to agree on the registration of a company for a specific time, but only during the office hours of the Commercial Register.
Management of the Latvian company
The executive body of Latvian companies is the Management Board. It may consist of one or more participants. It should be noted that if the company’s capital is less than 2,800 euros, then only the founders can be members of the board.
Members of the Management Board are elected for an unlimited term, unless otherwise provided by the charter. Also, members of the Management Board elect a chairman, whose responsibilities include organizing the work of the executive body.
The Board is the company’s supervisory body and supervises the Management Board. Its presence is not required in an LLC. The council may consist of 3 to 20 members who are elected for an indefinite period, unless otherwise provided by the charter.
A member of the Council cannot be a member of the Management Board, a prosecutor or a member of the Management Board of a related company.
A person cannot be a member of the Council or Management Board of a company:
- who is prohibited from holding the above positions;
- which is on the State Revenue Service’s risk group list.
Black list of countries for registering a company in Latvia
Latvia is part of the European Union and therefore must comply with all requirements aimed at combating money laundering through low tax countries and territories (offshores). Starting from January 1, 2018, Latvia has a list of 25 such countries and territories:
- Antigua and Barbuda;
- United States Virgin Islands;
- Commonwealth of the Bahamas;
- State of Bahrain;
- Brunei Darussalam;
- Commonwealth of Dominica;
- Republic of Djibouti;
- Republic of Ecuador;
- Grenada;
- Guam (United States);
- Jamaica;
- New Caledonia (French Republic);
- Hashemite Kingdom of Jordan;
- Republic of Kenya;
- Republic of Liberia;
- Macau (People’s Republic of China);
- Republic of Maldives;
- Democratic Republic of Sao Tome and Principe;
- Saint Pierre and Miquelon (French Republic);
- Saint Helena (United Kingdom of Great Britain and Northern Ireland);
- Tahiti (French Polynesia);
- Kingdom of Tonga;
- Republic of Vanuatu;
- Republic of Venezuela;
- Zanzibar Island (United Republic of Tanzania)
It will be difficult for founders from the above countries to register a company and open an account in a bank in Latvia. It should be noted that countries are automatically removed from the list if Latvia concludes an agreement with them on the avoidance of double taxation.
In addition, Latvian banks may refuse to open a corporate account for the following reasons:
- lack of complete information necessary for assessing investment risks (data on founders, counterparties, business model, accounts in other banks);
- the presence of an overly complex ownership structure, which does not allow the bank to determine the real owners of the company;
- complex structure of transactions, for example, the supply of goods is carried out in one country, and payment for it comes from another state;
- the company’s activities are not connected with Latvia, that is, the legal entity does not have an office or employees in the country;
- the beneficiaries of the company are non-residents from countries with high levels of corruption;
- if the legal entity is associated with political figures who have been involved in corruption scandals;
- the company is associated with persons included in the sanctions lists.
Taxation in Latvian companies
The obligation to pay taxes to the state budget in accordance with the Law of Latvia “On Taxes and Fees” lies with Latvian companies and branches (permanent representative offices) of foreign companies.
Today, the country has the following taxes for legal entities:
- income tax – 20%;
- real estate tax – 0.2-3%;
- VAT – 21%;
- excise tax – depends on the type of goods;
- mandatory social contribution – 34.09%, part of which (23.59%) is paid by the employer, and part (10.5%) by the employee himself;
- micro-business tax – small firms (payers of micro-enterprise tax) pay 15% tax if the annual turnover does not exceed 40,000 euros. Such companies pay only a flat tax to the state treasury, instead of income tax and taxes on employee wages.
A company that meets the following criteria can receive micro-enterprise status:
- the annual turnover of the company does not exceed 40,000 euros;
- the number of company employees is no more than 5 people;
- the monthly income of a company employee is no more than 720 euros;
- the founders of the company are only individuals;
- members of the Management Board are only company employees;
- the microenterprise is not a member of another firm.
It should be noted that in the international tax competitiveness ranking for 2018, Latvia is in second place after Estonia, ahead of New Zealand.
A special feature of Latvian taxation is the new corporate income tax payment regime. The company has an obligation to pay the latter only from distributed profits (payment of dividends) or expenses that are equivalent to the distribution of profits (unrelated to the company’s business, loans to related parties, doubtful accounts receivable).
It should be noted that in Latvia the following are exempt from income tax:
- dividends received not from offshore companies;
- profit received from the sale of shares that were owned for at least 3 years (shares of offshore companies are also not taken into account here).
Despite the complicated situation with opening accounts and servicing in local banks, many non-residents from neighboring countries are seeking to open a company in Latvia. Many people are attracted to this country by the following:
- Latvia is a member of the EU and from there it is easier to enter the EU markets;
- absence of complex and bureaucratic procedures during company registration;
- the minimum amount of authorized capital is 1 euro;
- loyal and understandable taxation system;
- a real opportunity to obtain a Schengen visa and residence permit in Latvia.