- 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 1 January 2014).
- No foreign exchange control. No controlled foreign companies (CFC) rules.
- Transfer pricing and thin capitalization rules are implemented.
What benefits does a Latvian company provide?
- The income tax rate is 20%. The tax is imposed only in case of distribution of profits or other payments of the same nature. If profits of the company are not distributed to its members and are being reinvested to its business, there is no obligation for the company to pay tax.
- Favorable holding regime: dividends received from abroad are exempt of taxation, except those paid by offshore companies to Latvian companies.
- Interest and royalties are exempt from withholding tax (except for operations with offshore companies).
- Simple procedure of getting tax residency certificate and VAT number.
- An opportunity to get a multi-entry visa and travel throughout the Schengen Agreement countries.
- An opportunity to get a residence permit in Latvia (in specific cases).
- Prestigious instrument for conducting business in Europe and throughout the world. Latvia is not an offshore zone and is not included into any “blacklists”.
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
Company registration in Latvia
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 have an indication of its legal form. Use of certain words is restricted (e.g., “Latvia”).
Legal address. Company registration in Latvia demands 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. The 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 2799 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.
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. Each 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 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 legal requirements regarding the corporate seal.
After company registration, a company must also 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.
Latvian companies’ annual accounts are subject to compulsory audit in cases where a company exceeds certain figures.
Microenterprises’ annual accounts are not required to be audited. Microenterprises are those companies the turnover of which does not exceed 40 000 Euro; all members of such companies are private individuals; such companies do not employ more than 5 persons (including its members); the salary of one employee does not exceed 720 Euro.
For small companies (i.e. companies not exceeding the following figures: total assets – EUR 4 000 000, turnover – EUR 8 000 000, average number of employees in a reporting year – 50) audit is required if such company for two years in a row exceeds two of the following three figures:
- total assets – EUR 800 000,
- turnover – EUR 1 600 000,
- average number of employees in a reporting year – 50).
For medium companies (i.e. companies not exceeding the following figures: total assets – EUR 20 000 000, turnover – EUR 40 000 000, average number of employees in a reporting year – 250) and for large companies audit is required in any case.
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 AS.
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.
It is important to note that registration of a company in Latvia cannot substitute the so-called “classical” offshore companies. Latvia is a jurisdiction with ordinary taxation; however it provides a range of special rules and reliefs.