TAPPING INTO THE EUROPEAN UNION: BEST BUSINESS OPPORTUNITIES IN LATVIA

--Priyamvada Lonial, Legal Specialist

Part of the European Union and Schengen Zone, Latvia is strategically located in north-eastern Europe, and surrounded by the Baltic Sea, Estonia, Russia, Lithuania and Belarus. It is also located in close proximity of the Scandinavian countries, thus facilitating access not only to developed economies, but also other east European economies. While the capital city of Riga is a designated UNESCO world heritage site, Latvia is also known for its skilled talent pool, competitive tax system, developed infrastructure, and an up & coming start-up ecosystem having abundant potential. More importantly, setting base in Latvia will allow entrepreneurs to tap into the 500 million consumer market of the European Union.

THE LATVIAN BUSINESS LANDSCAPE

Latvia has a rather favourable business landscape, and comparatively lower costs of doing business as compared to western European nations. It is relatively easy to do business in this Baltic nation, which is demonstrated by its 19^th rank on the World Bank’s ease of doing business index. While the GDP stands at $43.54 billion, the GDP per capita stands at $23,146. The economy is majorly driven by SMEs, with the best business hubs being the cities of Riga, Daugavpils, Jelgava, and Liepaja. Latvia is also known for its competitive tax regime, with corporate income tax being levied at 20%, and a 0% rate applicable on reinvested profit. The 0% rate is applicable to active (trading) as well as passive (dividends, interest, royalties) income.

The government also offers a variety of incentives to promote innovation and entrepreneurship, particularly by cutting short the time spent on administrative proceedings. Additionally, the Latvian tax system is considered to be the 2^nd most competitive in the world. The presence of 5 SEZs in Latvia (which offer 80% tax rebate in real estate tax and corporate tax) is also a noteworthy factor. Some of the incentives include support for digitization process, aid program for start-ups, innovation voucher support programs, among others. Company incorporation can be carried out remotely, provided that you have a Latvian digital signature, and €2,800 (in case you wish to incorporate a private limited liability company.)

KEY INDUSTRIES

Looking for diversity? If you are looking to incorporate or expand your business into Latvia, you will be presented with multiple opportunities on a platter. Some of the most lucrative business options in Latvia from an investor’s point of view include the following:

Agriculture, Forestry, and Woodworking

Latvia is a country covered by forests, and heavily inclined on developing environment friendly ways of operating. The forest sector contributes approximately 17% to the country’s total exports, with the same being valued at over €3.3 billion. Moreover, forestry, wood processing and furniture contribute 6.4% to the total GDP; and employs more than 40,000 people. Exports from this market are majorly targeted at the UK, Sweden, Estonia, Lithuania, Denmark and Germany. Additionally, it is easy to find skilled employees in this sector due to the presence of 15 professional educational institutions offering forestry related courses and producing a bunch of fresh graduates every year.

Biomedicine, Medical Technologies, Pharmacy

Latvia is known for its state of the art biomedical research infrastructure, with the key sub-sectors of substantial importance being bio-pharmacy and digital health. The chemical and pharmaceutical sector is the 5^th largest industry in the country in terms of turnover of manufacturing industries, and 4^th in terms of export. Moving on specifically to the pharmaceutical sector, 76% of the total products manufactured are exported, with the top trading partners in this regard being Belarus, Ukraine, and Lithuania. The sub-sector has a turnover of over €240 million, has 500 companies, and employs around 8,000 people.

Smart Energy & Mobility

Latvia is a pioneer in renewable energy among the Baltic nations, and consumes nearly 2GW of energy. With an energy potential of 16GW and abundance of raw material, it is the 17^th greenest country in Europe in terms of greenhouse gas emissions. The main sub-sectors in this industry include wind energy, combined heat & power, hydroelectric energy, sustainable material, and recycling. While the industry overall employs over 2,000 people, it has potential for growth, particularly due to the presence of the Green Tech Cluster. The said cluster is focused on fostering co-operation among companies, research centres, and educational institutions. It is home to 65 odd companies.

ICT & Smart City

The Latvian IT sector is growing at an exponential pace, which is demonstrated by the fact that it generates more than $1 billion in exports, and has a turnover of more than $5 billion. The main sub-sectors encompassed by this industry include big data, smart energy, robotics, IoT, software development, AI automation, and cloud solutions. Latvia is a highly digitized country, with 91% of the population using the internet on a daily basis, and the country being among the top 5 EU nations that use digital public services. It also has EU’s first 5G defence test-bed, which is supplemented by 2 standalone networks deployed by Nokia and Ericsson; with 5G being further estimated to generate employment for 40,000 people and adding $2 billion to the GDP. The country may be a viable option for ICT professionals in light of the fact that over 1600 working permits were granted in 2023.

Photonics, Smart Materials, Technology & Engineering

While the main sub-sectors harbouring potential include functional materials for photonics and electronics, thin layers and coatings, equipment, devices and systems, energy harvesting and storage; the industry overall generates employment for 37,000 people and has over 3600 companies. Latvia is also home to a large population of students in STEM and metalworking. The exports from this sector are primarily targeted at developed economies like Sweden, Denmark, France, and Germany.

Food Processing

Apart from its forestry industry, Latvia is also known for organic farming and food exports. While the key sub-sectors in terms of food include dairy & poultry, and grains & baked goods; the key sectors in beverages include carbonated drinks, juices, and alcoholic beverages. 31.5% of Latvia’s total land is agricultural, out of which 15.3% is reserved for organic farming. The food processing sector received €500 million in FDI in 2023, which accounts for 15.8% of the total FDI received by the manufacturing sector. Exports were valued at €1.8 billion in 2023, and accounted for 5.4% of the total exports. Latvia’s top trading partners in the food processing industry are Lithuania (17%), Germany (13%), Estonia (11%), Sweden (7%), and the Netherlands (6%). The sector employs around 22,000 people, out of which 19,200 are involved in edibles manufacturing, while 2500 are involved in beverage manufacturing.

Global Business Services

The capital city of Riga is turning out to be an up & coming destination for global business services, and provides employment to over 18,300 people. Latvia overall has over 50 global business service centres, which mainly specialise in IT, finance, customer service, logistics, personnel management, and procurement. 24% of the global business service centres situated in Latvia trace their origins to the United States of America, followed by Norway, Sweden, Germany, Finland, Switzerland, and Canada. The IT sector alone, employs over 29% of the workforce engaged in this industry.

Transport & Storage

By virtue of Latvia being at the crossroads of northern and Eastern Europe, its transport and storage sectors have the highest potential for growth. The country’s ports handle a total of 24.5 tonnes per capita of seaborne freight. Moreover, it also has the largest air transportation hub in all of the Baltic nations in the form of Riga international airport. Having nearly 8700 companies, the industry provides employment to over 67,000 people.

RELOCATION

Setting up a business overseas often calls for relocation. In case you wish to undertake business in Latvia as a self-employed person, you can do so by applying for the self-employed visa, which is valid for a period of one year. Some of the pre-requisites which need to be fulfilled are the proof of sufficiency of funds for subsistence and doing business, as well as a business plan approved by a sworn auditor. The applications are usually processed within a month, and there is a possibility of expediting the procedure as and when needed. The permit is subject to renewal, provided that you are able to demonstrate the continuation of the self-employed activity on the basis of which you were granted the initial permit, and regular filing of taxes. Permanent residence is possible after 5 uninterrupted years of legal residence, while the option of availing citizenship by naturalisation is available to individuals who have been permanent residents of Latvia for at least 5 years.

As far as the general sentiment regarding expats is concerned, Latvia is pretty open to expats; who account for nearly 10% of the population at around 182,000. Though the official language is Latvian, and Russian is widely spoken in some pockets of the country; English is gaining importance increasingly, especially among young professionals. Russians, Ukrainians, and Belarusians make the largest expat communities in the country. As for the most suitable cities for expats to live in, Riga, Daugavpils, Jelgava, and Liepaja are the few names that come to mind. Personal income taxes are also reasonable as compared to other European nations, with the same being levied at rates ranging between 20% and 31%, based on an individual’s income bracket.

We, at SUO Consulting, will be happy to assist you with the company incorporation and subsequent relocation process vis-à-vis fulfilling the compliance related requirements for the company, visa application and its intricacies such as devising a well-thought out business plan.

CONCLUSION

All in all, Latvia is the place to be at, particularly for those looking to invest in the bio-economy, ICT, and sectors. With multiple government incentives and aids at your disposal, you can make the most of your entrepreneurial journey by taking the right set of steps.