Starting a business in Latvia18 November 2009
by Ina Dimireva -- last modified 25 June 2012
An overview of the process of starting a new business in Latvia.
Commercial activity in Latvia is mostly regulated by the Commercial Law ; however the Civil Law and the Group of Companies Law have considerable significance as well. Moreover in many sectors special requirements prescribed in various Acts or Regulations of the Cabinet of Ministers have to be taken into account.
The Ministry of Economics is in charge of implementing and coordinating government policy for supporting business start-ups.
Legal forms for businesses
A business may be carried on by a:
A self-employed person is a person carrying on economic activity and registered as a self-employed person. Economic activity is any systematic, independent activity carried on for consideration. Economic activity, for example, is activity related to the performance of a contract for services, property management, and an activity carried on a household plot belonging to a person. Economic activity also consists of providing professional services should you not be employed by the entity to which you are providing services.
A natural person carrying on an economic activity and registered in the Commercial Register. An individual trader is liable for his or her debts to the full extent of the trader’s property and must register with the Commercial Register as an individual trader where the annual turnover from economic activities carried on by him or her exceeds LVL 200,000 or the economic activities carried on by him or her correspond to the activities of a commercial agent or a broker, or the annual turnover from such activities exceeds LVL 20,000 and in order to carry on those economic activities, the trader simultaneously employs more than five employees.
Partnership (general partnership and limited partnership)
A general partnership is considered to be a partnership with unlimited liability. A general partnership is a partnership the purpose of which is to carry on commercial activities utilising a joint firm name, and in respect of which two or more persons have concluded a partnership agreement without limiting their liability towards the partnership's creditors.
A limited partnership is considered to be a partnership with limited liability. It is a partnership the purpose of which is to carry on commercial activities utilising a joint firm name, and in respect of which two or more persons have concluded a partnership agreement, where the liability of at least one of the partners towards the partnership’s creditors is limited to the amount of the partner’s capital contribution.
A company limited by share capital (a limited-liability company (sabiedrība ar ierobežotu atbildību) and a joint-stock company (akciju sabiedrība))
A limited-liability company or SIA is a company the equity capital of which consists of the aggregate of the par value of its shares. A limited-liability company is a (closed) private company and its shares are not publicly traded. The company’s owners are not liable to the company’s creditors with their own private property. The company is a legal person.
A joint-stock company or AS is a company the equity capital of which is equal to the aggregate of the par value of its shares. A joint-stock company is an open (public) company and its shares may, as required by law, be publicly traded - the shares can be listed on the stock exchange. The company is a legal person.
To succeed, a new business needs a sound commercial strategy and secure financing.
Some standard requirements to be completed when setting up a business are the same as when opening a branch.
Registering a company
Registering a commercial activity
A trader (sole trader, a partnership or a company) must be registered with the Commercial Register. Traders are registered according to their location in the relevant local office of the Enterprise Register.
Application forms may be found at the offices and on the Enterprise Register website, and in the e-services portal.
Registration as a payer of social security contributions
Mandatory social security payments are statutory mandatory payments made into a special Treasury account allowing the payer to receive statutory social security services.
When starting a business a trader must register as a payer of mandatory social security contributions at the local office of the State Revenue Service by the fifth day of the month following that in which the trader has taken on his first employee. From that point on each new employee must be registered individually on the day after the employee has been taken on. This includes members of the executive and supervisory boards. On registering employees, the employer shall provide their identity numbers.
Where a new employee does not have an identity number issued by the Population Register of the Republic of Latvia, the employer shall provide the employee's date of birth (date, month, year) to the local office of the State Revenue Service. The local office of the State Revenue Service shall allocate a unique registration number to such an employee and the employer will be apprised of the number.
Mandatory social security contributions and payers are governed by:
Regulations of the Cabinet of Ministers Regarding Registration of Persons Making Mandatory Payments of State Social Insurance and Reports Regarding Mandatory Payments of State Social Insurance and Personal Income Tax
Enterprises (companies), their representative offices and branches, public organisations and their associations are registered as taxpayers in the Enterprise Register as provided under the Law On the Enterprise Register. The Enterprise Register shall allocate a unified registration number to the legal person and issue a registration certificate, which also serves as a taxpayer certificate.
The Enterprise Register shall forward the information on the registered legal person electronically to the State Revenue Service (VID) within one business day of registration.
Legal persons who are not required by law to register with the Register of Enterprises shall be registered as taxpayers with the VID. Legal persons and other persons registered as taxpayers with the VID can, for example, be trade unions, notarial practices and advocates’ practices, as well as the permanent establishments of foreign traders.
Taxable persons in the sense of the Law on Value Added Tax shall be registered by the VID as prescribed by law.
Under Cabinet Regulations taxpayer registration deadlines are as follows:
- religious organisations and their institutions - within 10 days of registration with the Board of Religious Affairs;
- advocates’ practices - within 10 days of the date of their establishment;
- notarial practices - within 10 days of starting in practice;
- the permanent establishments of foreign traders according to the location of their activities in Latvia - within 10 days of commencing activity in Latvia.
In order to register with the local VID office the taxpayer must submit an application containing information about the taxpayer, the taxpayer’s bank accounts, the taxpayer’s founders, officers who have the authority to sign documents; the nature of the taxpayer’s activities and the passport of the person submitting the application and that person’s authority to do so.
Legal persons and other persons, with the exception of a taxpayer's divisions, are required to submit the copies (and present the originals) of the following documents:
- advocates’ practices – a statement in writing by the Latvian Council of Sworn Advocates attesting to the registration of the practice with the Council;
- notarial practices - a statement in writing from the Minister of Justice (or a copy thereof) attesting to the inclusion of the practice on the notaries register;
- the permanent establishments of foreign traders – the foreign enterprise’s registration certificate.
The VID shall, within 10 days, examine the documents submitted by the taxpayer, register the taxpayer in the taxpayers’ register and issue the taxpayer registration certificate. The main enterprise shall receive the registration certificate of any of its subsidiary’s divisions.
Where registration has been refused, the taxpayer may correct the documents and submit them again for registration.
When starting up business it is advisable to find out, if a special licence is needed for the activity of your choice as quite often the way the licence can be obtained and used is governed by several rules and regulations, thus complicating the process of obtaining the licence.
For example, the retail sale of tobacco and alcohol requires a licence governed by the following rules and regulations:
Individual traders intending to sell alcoholic beverages, beer and tobacco products in their retail outlets must obtain a special permit for retail of alcoholic beverages, beer and tobacco products from the Excisable Goods Department of the State Revenue Service. Individual traders are issued with a separate special permit for each group of excisable goods.
In order to receive a special permit for the retail sale of alcoholic beverages, beer and tobacco products, you must submit an application to the Excisable Goods Department of the State Revenue Service and enclose:
- A document attesting to your right to use the business premises;
- A plan of the premises in question, which is not necessary if business is to be carried on in non-stationary retail locations;
- A copy of vehicle (mobile shop) technical certificate, if the application is being made for a special permit (licence) for the retail sale of alcoholic beverages, beer and tobacco products in mobile shops;
- A route map approved by the local authority for the area where the mobile shop will operate.
The following fees are payable for the special permit (licence) for retailers:
- for the retailing of tobacco products – LVL 20 per each trading premises;
- for the retailing of alcoholic beverages – LVL 30 per each trading premises;
- for the retailing of beer – LVL 30 per each trading premises.
The Services Directive: One-stop shop
The Services Directive is a European law that aims to make life easier for businesses that wish to provide services in the European Union – in their home country or abroad. The Directive defines the rules that apply to entrepreneurs wishing to establish a business or perform temporary services in the EU/EEA area (the 27 EU member states, plus Iceland, Liechtenstein and Norway). It obliges member states to eliminate unnecessary bureaucracy, simplify formalities for businesses and make public administrations more efficient.
For the implementation of the Directive, each member state had to set up ‘Points of Single Contact (PSC)’, e-government portals which help businesses complete their administrative procedures on-line. The PSCs provide comprehensive information on all administrative matters related to setting up or expanding a services business in a given country. This includes for example:
- Which licences, notifications or permits do I need to obtain to start a business (at home or abroad)?
- What do I need to do when I want to offer my services abroad on a temporary basis?
- What do I need to do to apply for a licence? Which authority is responsible?
- Are the licences subject to a fee? What kinds of deadlines apply?
- Which acts and decrees apply in my sector?
- What do I need to do to establish, for instance, a restaurant or a shop? Or to work as a tour operator in another country without actually setting up a company?
- Where can I turn for personalised advice and further information?
With the PSCs, you no longer need to approach various authorities one by one!! The PSC allows you to find all relevant information and to send in your online applications to the responsible authority through one single contact point, the PSC. You can complete your administrative formalities electronically through the PSC. Just contact the PSC of the country that you want to do business in.
All PSCs are part of the European EUGO network; through a central website you can easily access all PSCs in Europe. Of course, the services of the PSCs are optional. You may always address yourself directly to the relevant authorities, too.
The Investment and Development Agency of Latvia (LIAA) provides information on starting up businesses, raising funds, government assistance schemes and export opportunities in international markets.
The Latvian Small and Medium-Sized Enterprise Forum provides information to small and medium-sized enterprises (SMEs) on their development in the context of European Union expansion. The portal contains a database of Latvian SMEs and allows online search for SME partners. The portal is intended for Latvian SMEs and their partners. Riga City Council and its partners.
The Latvian Export and Import Directory website aims to provide handy online information exchange about import and export possibilities for Latvian and foreign enterprises. The website offers an online data base containing export-oriented information that serves as an up-to-date tool for promoting foreign trade. Any foreign or Latvian business with access to the Internet can post its information on the website or use the information it contains.
The Latvia Technology Park (LTP) is actively involved in the development of various local and international (Phare, Leonardo da Vinci etc.) projects as well as in their implementation. It was founded to support and promote the start-up and development of technological and innovative businesses, collaboration with local and foreign organisations and institutions, ministries and local authorities, universities and enterprises by using Latvian scientific and market-oriented products that are recognisable locally and abroad.
The Latvian Guarantee Agency (LGA) provides a mechanism for traders for obtaining actual financial support for the implementation of innovative business ideas, by receiving guarantees permitting them to obtain credit or leases from Latvian commercial banks. A special export guarantee programme has also been developed as a tool for promoting exports and aiming to cover risks associated with export operations; it also serves as an export operation guarantee where funding is needed.
The government's Programme for the Promotion of Business Competitiveness and Innovation 2007-2013 sets out competitiveness, innovation and industrial policy goals for Latvian businesses through to 2013. The programme’s main aims are to provide favourable conditions for business development; to promote increased capacity and efficiency of innovation systems; to achieve substantial growth in competitiveness and productivity in industry by facilitating increased production of value added goods.
The ALTUM Promotional Programme provides high-risk loans to promising small business projects that commercial banks reject due to insufficient security or other risks. A small business may apply for a loan of up to LVL 700,000 for a period of 3 to 10 years. The programme is managed by a division of the Latvijas Hipotēku un zemes banka (The Mortgage and Land Bank of Latvia), which is in charge of national and EU-financed programmes.
Source: Your Europe