Business environment in Latvia

Business basics:
* the economy of Latvia is a free market economy, it is regulated by appropriate laws, protecting commercial rights, trademarks and investments;
* the requirements of the European Union are included in laws of Latvia;
* in Latvia there are no restrictions to or a different treatment of foreign investments and companies.

Ambitious goals for improving the business environment

Latvia has set ambitious goals: in two years, it will be among the most competitive countries in the world with a favorable business environment and competitive taxes on labor in the Baltic region.

Entrepreneurship in Latvia is mostly concentrated in the capital city of Riga and its surroundings, however, various support mechanisms also promoted the development of entrepreneurship in the regions, for example, creating special economic areas where companies can work, enjoying various benefits. Latvia has a highly developed manufacturing and transport infrastructure – industrial parks, warehouses, communication techno¬logies, ports, railway, as well as the largest airport in the Baltic countries.

Business Environment Assessment
According to the World Bank’s research Doing Business 2012, Latvia takes the 21st place among 183 states, improving its position by 10 places in a year. It has a favorable business environment in general, but some indicators still need to be improved:
* Cross-border trade is simple and it has no impediments, the state takes 15th place in this aspect;
* Business start-up procedures are rather simple, in this aspect Latvia takes 51st place;
* In the efficiency of insolvency proceedings, Latvia takes 32nd place.
* In accessibility of credit, Latvia takes 4th place;
* In recording real estate transactions – 32nd place;
* The national judicial system makes it possible to fulfill agreements, Latvia takes the 17th place in this index;
* In investor protection Latvia takes the 65th place;
* On the index of tax burden and simplicity of payments, Latvia takes 67th place.

In Doing Business 2012, Latvia is ranked among the 10 countries in the world, which have made significant reforms to improve the business environment.

Business Start-Up Procedures
According to the World Bank’s research Doing Business 2012, Latvia takes 53rd place among 183 states in the aspect of simplicity of the business start-up procedure.

The procedure for the company registration is not expensive – it costs about EUR 142. However, it should be taken into account that in establishing a limited liability company, there should be available EUR 2840 EUR as authorized capital. Beginning from 2010, it is allowed to register in Latvia small-capital limited liability companies, including those with the smallest authorized capital equal to only 1 Ls (1,4 EUR), however these companies must invest 25% of annual profit into an obligatory reserve. This money is intended to meet liabilities or to increase authorized capital for a company to become a standard LLC with the authorized capital equal to LVL 2 000 Ls (EUR 2 840). The minimum capital for joint-stock companies in Latvia is LVL 25 000 (EUR 36 000).

Business start-up procedure

Number of procedures – 5
Necessary time – 16 days
Minimum capital of micro limited liability company – 1 Ls (1.4 EUR)
Minimum capital of limited liability company – 2000 Ls (2 840 EUR)
Register of Enterprises is public
No restrictions regarding the citizenship of the company owners*
Company heads may apply for the residence permits in Latvia
* It should be noted that in 2011, changes were made in the Commercial Law that require disclosure of the true beneficial owners or owners of offshore companies owning Latvian companies.
 

A ten-year record for start-ups
The number of company start-ups in Latvia is the largest in the past 10 years – 19 947 enterprises were founded, of which 85% were limited liability companies. Improvements in the business environment, lessening of bureaucratic procedures and increased activity by the population in 2011 allowed the setting of the 10-year record for startups. In 2011, 5 318 of all newly started companies were companies with LVL 1 in capital or so-called microenterprises, according to data from firmas.lv.
 

Companies
43% of all companies registered in Latvia are limited liability companies (LLC or SIA in Latvian), 30% – farm,19% – individual merchant. At the begining of April, 2012 there were registred 126 606 companies in the country, 39% or 48 796 of them was active.

State-Owned Companies
Compared to most European countries, Latvia has a considerable number of the state-owned companies, among which the largest ones are the providers of significant infrastructure services, for example in energy, railway infrastructure maintenance and railway transport, and telecommunications. In Latvia there are more than 140 state-owned companies with a total book value of LVL 7,15 billion (EUR 10,2 billion) and total turnover equal to 18% of GDP. However, there is a possibility that some of these companies will be sold off in the future.

Latvia intends to have a comprehensive reform of the governance of state-owned companies. It is planned to form a partly centralized governance organization in order to manage state companies according to world standards of good governance, ensuring transparent and clear governance, financial reporting etc. The state sees the possibility of thereby improving the profitability of these enterprises and, possibly as early as the 2013 budget, one could plan for additional income from dividends. Complete clarity about the progress of these reforms could come in the fall of 2012, and, as Minister of Economics Daniels Pavļuts says: "In the future, the privatization of individual enterprises or parts of them may be on the agenda, most likely through the Riga Stock Exchange, which would activate the Latvian capital market."

Currently the privatization of two state-owned banks has started – Citadele and the commercial banking business of Hipotēku un zemes banka (The Mortgage and Land Bank). Once the situation is stabilized, shares of the national airline airBaltic will be sold, retaining a controlling (50% + one share) for the state. The privatization of LMT and Lattelecom is still on the agenda, but the government is not "rushing it".

Government initiatives and tasks
The government at the beginning of 2012 approved an action plan undertaking to ensure that by 2014, Latvia will be among the 50 best countries in the World Economic Forum’s Global Competitiveness Rating. (In 2011/2012, Latvian took 64th place, improving its ranking
by six places).

The government also undertook to ensure that, by 2014, Latvia is among the 20 best countries in the Doing Business ratings. One of the most essential tasks for the government is to ensure a stable, predictable business environment that is attractive to investment. The government has promised, by July 1, 2012, to prepare a tax policy strategy, giving companies and the public a clear idea of planned tax changes, including a reduction of taxes on labor, starting in 2013.
The government is also preparing to reduce administrative burdens, expanding e-government services and to work on attracting investment, promoting exports by Latvian companies in order to create new jobs and increase the public’s income.

Latvia’s international ratings:
* The country’s credit ratings: Moody’s Baa3, Standard & Poor’s BBB-/A-3, Fitch BBB-, R&I BBB
* 56th place in the Index of Economic freedom 2012 (Wall Street Journal; The Heritage Foundation)
* 64th place in the 2011/12 Global Competitiveness Rating (World Economic Forum)
* 61th place in the 2011 Corruption Perception Index (Transparency International)
* 21th place in the 2012 Doing Business survey (World Bank)
* 52nd place in the 2010.2011 Global Information Technology Index (World Economic Forum)
* 51st place Travel & Tourism Competitiveness Report 2011(World Economic Forum)
* Latvia took 51st place in the world among 110 nations in the Prosperity Index 2011, which is four positions lower than the year before. Latvia has one of the lowest prosperity ratings in Europe, according to the Legatum Institute’s newest prosperity index. The best ratings for Latvia are for entrepreneurial opportunity (33rd place) and education (32nd place), but the lowest – for social capital (96th place) and the economy (90th place).

In the Index of Economic freedom 2012, Latvia took 56th place, according to the survey done by the research institute Heritage Foundation and The Wall Street Journal. Latvia scored a total of 65.2 points in the index, which is 0.6 points lower, worsened by data on the management of state finances and corruption. Latvia is rated in 25th place among 43 European nations and its total points are above the world average.

Useful links

Investment and Development Agency of Latvia – www.liaa.gov.lv
Ministry of Economics – www.em.gov.lv
Register of Enterprises – www.ur.gov.lv
State Revenue Service – www.vid.gov.lv
Financial and Capital Market Commission – www.fktk.lv
Office of Citizenship and Migration Affairs – www.pmlp.gov.lv

Photo: Pilseta24.lv