There are no specific requirements for foreigners wishing to establish a business in Latvia. Investors, whether Latvian or foreign, benefit from equal legal treatment and have the same right to establish business operations in Latvia by incorporating a separate legal entity. The procedure requires the fulfilment of certain legal formalities, such as registration with the Latvian Commercial Register (Latvijas Republikas Uzņēmumu reģistrs) and the State Revenue Service (Valsts ieņēmumu dienests – abbreviated here as SRS).
Forms of business organization
The common form of carrying on a business in Latvia is through a company, mainly a limited liability or a joint stock company. Companies have their own name, share capital (the minimum amount of which is established by law), management, registered office, and bank account. Companies established in Latvia are subject to Latvian law, but agreements concluded by a Latvian company can be governed by any law agreed upon between the parties. No permit is required by foreigners wishing to subscribe for the shares of a company or to be appointed a member of the board of a Latvian company. The legal address has to be local to ensure the delivery of official correspondences.
The activity of Latvian businesses is governed mostly by the Latvian Commercial Code (Komerclikums), enacted in 2000 and further amended.
The Commercial Code allows for and defines three forms of business entities:
• Individual Merchants (Individuālais komersants (IK))
• Partnerships: General Partnerships and Limited Partnerships (Pilnsabiedrība (PS), Komandītsabiedrība (KS))
• Capital companies – Limited Liability Company and Joint Stock Company (Sabiedrība ar ierobežotu atbildību (SIA) Akciju sabiedrība (AS)).
Other forms of doing business are representative offices and branches of foreign companies. A representative office has limited functionalities and is not allowed to carry on any business activity.
Other forms of doing business in Latvia are:
- The European Economic Interest Grouping (Eiropas ekonomisko interešu grupa)
- The European company (Eiropas sabiedrība)
- The European cooperative society (Eiropas kooperatīvā sabiedrība)
- The cooperative society (kooperatīvā sabiedrība).
Latvian legislation does not recognize the concept of a trust.
Limited liability companies
The most common form of doing business in Latvia is the limited liability company. Often abbreviation “SIA” is used.
The share capital of a SIA cannot be less than EUR 2 800, unless the company confirms to several criteria (founders of company are natural persons and the number of them is five or less, the shareholders are natural persons and the number of them is five or less, the board of directors consists of one or several members and they are also shareholders and each shareholder is a shareholder of only one such company), then the share capital of a SIA can be less than EUR 2 800 (at least EUR 1). Accordingly, since it does not require a considerable initial investment, it is the most common form used when starting a business.
The organizational structure of a SIA requires an executive board (valde) of directors, although one director is sufficient. A supervisory board (padome) and auditor (revidents) are optional, where not expressly required by law.
Usually it takes about one week to establish and register a new SIA in Latvia. A limited liability company must be registered with the local office of the State Revenue Service (SRS) and it must file tax returns on a regular basis.
Joint stock companies
A joint stock company includes Latvian “Akciju sabiedrība” or abbreviation “AS” in its name. It must have a minimum share capital of EUR 35 000. The shares can be either registered (name shares) or in bearer form and they can be freely traded or pledged. The minimum share capital must be paid up until incorporation and entry of the AS in the Commercial Register.
A joint stock company may be set up privately or its shares may be publicly listed. It must have both an executive board and a supervisory board. The members of the supervisory board are elected by the shareholders, but the supervisory board appoints the executive board. Managers or directors do not necessarily need to be shareholders.
Usually it takes about one week to establish a new AS in Latvia. A joint stock company must be registered with the local office of the State Revenue Service (SRS) and it must file tax returns on a regular basis. If a joint stock company decides to go public there are more requirements to be met before and during listing.
Foreign companies can set up a representative office (pārstāvniecības) in Latvia in order to carry out non-income generating activities, such as promotion and supervision of the business of the parent company. Representative offices are not considered legal entities and cannot carry out commercial activities in Latvia.
Branches of foreign companies
A branch (filiāles) of a foreign company can be registered with the Latvian Commercial Register (Uzņēmumu reģistrs) to carry out business in Latvia. The foreign company will be liable to the employees and creditors of the branch for the actions of, and debts contracted by, its managers and agents on behalf of the branch. Branches can carry out only those activities for which the parent company is authorized.
Besides registration with the Commercial Register, the branch must also register for tax purposes with the State Revenue Service (SRS) and it is subject to corporate tax as a permanent establishment.
Usually it takes about one week to establish a new branch in Latvia.
Business reorganization and liquidation
The liquidation of a company may occur voluntarily by a decision of the company’s shareholders or in other cases as prescribed by law. According to the law, the minimal length of the procedure is about six months, but in practice the procedure may be very long, taking about up to two years, if it is necessary to obtain the approval from different state institutions.
The company or any creditor may file a bankruptcy petition, if the grounds for it according to law exists.
Mergers and acquisitions are regulated by the provisions of the Latvian Commercial Code and EU Directives (e.g., with respect to share sale and competition law issues); it may take approximately six to eight months to finish all formalities in case approvals from state institutions such as Competition Council are necessary.
Companies may be reorganized by way of joining, dividing and transforming companies. A reorganization must be approved by at least 2/3 votes of the shareholders of the company present in the meeting (in case of Limited Liability Company) or at least 3⁄4 votes of the shareholders of the company present in the meeting (in case of Joint Stock Company).