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The consumer

Consumer Profile
With a GDP per capita of USD 19,820 (IMF, 2021) and a median age of 44.4 years (CIA World Factbook, 2020 est.), the average Latvian consumer is less wealthy than their neighbours and older than most of their European counterparts (the EU median age was 43.9 years in 2020 - Eurostat). The Latvian population follows similar demographic trends to the rest of the Baltics with a rapidly shrinking (net growth rate -1.1% in 2021 - CIA World Factbook, 2021 est.) and ageing population (people aged 0-24 years comprise 24.32% of the total population - CIA World Factbook, 2020 est.).
Latvian consumer has recovered from the financial crisis and is now able to save more money (disposable income rising from EUR 286 in 2010 to EUR 582.82 in 2019 - Central Statistical Bureau of Latvia, latest data available). Nonetheless, the market remains highly divided with Latvia having one of the highest income inequalities in the EU (Gini score of 35.2 points as opposed to the EU average of 30.2 points in 2019 - Eurostat, latest data available).
Consumer Behaviour
Price is the most prominent factor in consumer spending, ahead of product quality and store features. More affluent consumers are brand-conscious and willing to pay a higher price to purchase from their favourite brand. Consumers spend an important part of their income on food as well as housing and utilities, nonetheless, their share in total expenditure has been declining in recent years. The share of food in total expenditure fell from 26.2% to 23.3% between 2016 and 2019 whereas housing and utilities accounted for 14.6% in 2019 as opposed to 15.3% in 2016. Spending on recreation as well as hotels, cafes and restaurants increased in the meantime (8.1% as opposed to 7.6% and 5.4% as opposed to 4.8%) (Central Statistical Bureau of Latvia, 2020). Moreover, there is a growing interest in e-commerce as in 2020 65.9% of the total population have ordered any goods or services (Central Statistical Bureau of Latvia) and the country had the highest e-commerce growth among Baltic countries (28.5%) (Eurostat, latest data available).
Consumers Associations
Latvian Association for the Protection of Consumer Interests
Consumer Rights Protection Centre
 

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Importing & Distributing

Import Procedures
When goods from inside the community are brought into Latvia, the exporter must obligatorily fill in a Declaration of Exchange of Goods (DEB) or an Intrastat Declaration at the end of the month. The Customs declaration (SAD) remains in force for trade between Latvia and third countries.

When the country of origin of the goods exported to Latvia is not part of the European Union, Customs duties are in accordance with the Common Customs Tariff (CCT) for all the countries in the Union.

The TARIC code (composed of 10 figures) defines the Customs duty rate and the community regulations applicable to products whose origin is in a country outside Europe.

As part of the "SAFE" standards set forth by the World Customs Organization (WCO), the European Union has set up a new system of import controls, the "Import Control System" (ICS), which aims to secure the flow of goods at the time of their entry into the customs territory of the EU. This control system, part of the Community Program eCustoms, has been in effect since January 1, 2011. Since then, operators are required to pass an Entry Summary Declaration (ENS) to the customs of the country of entry, prior to the introduction of goods into the customs territory of the European Union.

For more information, please visit the Latvian State Revenue Service.
Distribution market players

The Latvian market is largely dominated by supermarkets and hypermarkets (45% market share), while markets and local shops represent respectively 30% and 25% market share.
Major mass merchandisers include:

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Operating a Business

Type of companies

The sabiedriba ierobezotu atbildibu (SIA) is a Private Limited Company.
Number of partners: No minimum
Capital (max/min): Minimum EUR 2,878. 50% of the capital must be released at the incorporation and the remainder within the year.
EUR 1 for micro-companies.
Shareholders and liability: Liability is limited to the amount contributed.
The akciju sabiedriba (AS) is a Public Limited Company.
Number of partners: No minimum
Capital (max/min): Minimum EUR 35,210. 50% of the capital must be released at the constitution and the remainder within the year.
Shareholders and liability: Liability is limited to the amount contributed.
Pilnsabiedrība (PS) is a General Partnership
Number of partners: Minimum of 2 partners
Capital (max/min): No minimum capital required.
Shareholders and liability: Unlimited and joint for all partners
Komanditsabiedriba (KS) is a Limited Partnership
Number of partners: Minimum of 2 partners, at least one active and one "sleeping" partner
Capital (max/min): No minimum capital required.
Shareholders and liability: Liability is unlimited for active partners and limited for sleeping partners
 
Setting Up a Company Latvia Eastern Europe & Central Asia
Procedures (number) 4.0 5.3
Time (days) 5.5 11.8

Source: Doing Business - Latest available data.

 

Cost of Labour

Minimum Wage
According to Eurostat data, the minimum wage amounts to EUR 500 per month in 2021.
Average Wage
According to data from the Central Statistical Bureau of Latvia, the average gross salary was EUR 1,143 per month in 2020.
Social Contributions
Social Security Contributions Paid By Employers: 23.59 %
Social Security Contributions Paid By Employees: 10.5 %
 

Intellectual Property

National Organisations
Consult the Patent Office of the Republic of Latvia. The application for the grant or registration of a patent can be done in the language of the country, in English, in Russian or German. These applications have to be addressed to the patents office in Latvia, either directly or through the intermediary of a legal representative. The related law of patents was voted in 1993 and as for trademarks, the law was passed in the same year.
Latvian law is very similar to French Law but the protection of intellectual property rights will be consolidated in the near future.
Regional Organisations
In Latvia there are several non-governmental organizations which defend intellectual property, such as, for example, the association LIVA .
 

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Tax Rates

Consumption Taxes

Nature of the Tax
Value-added tax (VAT) - Pievienotas Vertibas Nodoklis (PVN in Latvian).
Tax Rate
21%
Reduced Tax Rate
Educational services; medical services; cultural services; financial services provided by banks and insurance companies; insurance and reinsurance; betting and gambling; and postal services provided by Latvijas Pasts are exempt from VAT.

Exports of goods and related services; intra-Community supply of goods; international transport services; and tourism services provided outside Latvia are zero-rated.

A reduced rate of 5% is applicable until 31 December 2023 on certain foodstuff (including fresh fruit, berries and vegetables).

Latvia applies a reduced VAT rate of 12% on certain categories of goods and services, including mass media and subscriptions thereto; specialized products for infants; medicines and medical devices (those authorized by state pharmaceutical authorities); literature printed especially for schools and universities and original literature; firewood and fuelwood supplied to natural persons; supply of thermal energy to natural persons; public transport services provided in Latvia; accommodation services provided in Latvia.

Other Consumption Taxes
Excise duty is imposed on oil products, alcoholic and non-alcoholic beverages, tobacco products and natural gas. Vehicles are subject to taxes paid on a monthly basis (EUR 29 up to 2,000 cc.; EUR 46 between 2,001 cc and 2,500 cc.; EUR 62 over 2,500 cc. Higher rates apply to foreign-registered cars).
Lottery and gaming organisers are subject to a tax (in the form of a license fee) ranging from EUR 2,000 to EUR 427,000.
Electricity supplied to end users is subject to a €1.01/MWh tax.
 

Corporate Taxes

Company Tax
20% (effective rate at 25% with the application of a 0.8 coefficient to increase the tax base)
Tax Rate For Foreign Companies
Non-resident companies are subject to the same tax liabilities as resident firms, but only on their Latvia-source income.
Capital Gains Taxation
Capital gains arising from the disposal of assets is treated as ordinary income and is subject to a 20% corporate income tax when profit is distributed.
Gains obtained by a non-resident on the sale of a property or a company's shares where more than 50% of its assets consist of Latvian real estate, is subject to a 3% tax on gross proceeds (exemptions apply for residents of EU/EEA countries). Gains obtained by a resident on the sale of a property are taxed only if there is a profit distribution.
Main Allowable Deductions and Tax Credits
The new tax model only includes distributed profits in the tax base; therefore, no provision is made for the depreciation of tangible and intangible assets.
The tax code does not provide any specific treatment for start-up expenses. On the other hand, VAT on goods and services acquired before the VAT registration of the company can be recovered.
Excess interest payments are considered a deemed profit distribution and subject to a 20% income tax. The bad debt remaining unrecovered 36 months after a provision was made are generally deductible.
Entertainment and all other "non-commercial" expenses (including benefits in kind offered to employees) are exempt from corporation tax up to 5% of gross salary. Excess amounts are subject to corporation tax. Costs related to passenger cars whose value excluding VAT is above EUR 50,000 are considered non-business expenses and subject to a 20% tax rate (except for special purpose vehicles).
Donations to Latvian charities or their equivalents in the EU Member States or the European Economic Area (that have concluded a tax treaty with Latvia) are eligible for deductions which may apply to the tax base at up to 5% of profit or up to 2% of total gross wages. Alternatively, donations may give rise to a 75% reduction in corporate income tax on dividends. Donations made from the declaration of emergency until the end of 2020 in an effort to limit the impact of the COVID-19 pandemic are fully deductible.
Tax losses accumulated up to 2017 can be carried forward up to five years (until 31 December 2022) to reduce taxable distributed profits by 50% (or 15% of the loss per year). Payments to foreign affiliates must respect the arm’s length principle or are considered a profit distribution and are taxed at a 20% rate.
Other Corporate Taxes
The property tax is payable on commercial properties but also on technical structures owned by private companies (highway, parking space, bridge, tunnels, etc.) and property that is part of a residential complex but used by legal entities for non-residential purposes. The rate can be determined by municipalities (between 0.2 and 3% with the standard rate at 1.5%). The rates provided for in the Latvian Tax Code apply if a municipality refuses to announce its rates before 1 November.
Stamp duties are collected on a number of legal transactions, including the registration of real estate (at 2% of the sale price or the cadastral value). Contributions in kind to the capital of the company are subject to a stamp duty of 1%.
Social security contributions payable by the employer amount to 23.59% of the salary. Employers are required to pay a solidarity tax of 23.59% for any annual salary exceeding EUR 62,800.
Natural resources obtained through a commercial activity, products harmful to the environment, radioactive substances and polluting activities are subject to a tax on natural resources (variable rate depending on the weight, volume and quantity of the product).
Other taxes apply on vehicles, electricity, lottery and gambling.
Other Domestic Resources
Consult Doing Business Website, to obtain a summary of the taxes and mandatory contributions.
 

Double Taxation Treaties

Countries With Whom a Double Taxation Treaty Have Been Signed
See the list of the Double Taxation Agreements
Withholding Taxes
Dividends, interest and royalties: 0/20% (only if the recipient is a resident of a country blacklisted by Latvian tax authorities).

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