CM October 2021

COUNTRY FOCUS
AUTHOR – Adam Bernstein
that, freight, carried by land and pipeline,
fell by 19.7 percent and via ports by 29.7
percent. The same situation was seen
in tourism with a fall in the number of
foreign tourists of 61.2 percent between
January and November 2020 compared to
the year before. However, retail grew by
1.5 percent.
MARKET OPPORTUNITIES
It’s natural for those looking to export to
Latvia to enquire about the opportunities
for business in the country and the UK
Government lists a number.
Starting with Infrastructure, Latvia
has plans to improve rail in the short to
medium term through what has been
termed ‘Rail Baltica’ that will link Finland,
the Baltics and Poland to the rest of the EU.
The project has reportedly been valued at
£5.8bn. On top of this, there are a number
of key construction projects that include
a new terminal at Riga airport, new roads,
military projects and a new concert hall
for Riga.
Energy next, and it should be noted
that Latvia has almost no natural
resources which leaves the country to
import all its energy products, mainly
from Russia. That said, the sector is going
green, and renewables are high up on
the agenda. The Government has a target
of 40 percent of its energy requirements
coming from renewables – especially
that used by businesses. Latvia is also
developing an offshore wind facility
with Estonia in the Riga Gulf. Beyond
that, there are opportunities for energy
efficient systems generally.
There are opportunities in technology
– ICT and software – as well as the
creative industries, cybersecurity, 5G
mobile telephony, mobile payments, and
artificial intelligence.
Education is highly prized in Latvia
despite the relative decline in spending
in the sector. And since English is the
main language spoken in the workplace,
courses in the language are highly sought
after.
STRENGTHS AND WEAKNESSES
Credit Agricole reckons that Latvia
should be a destination market because
of its political stability, a skilled but lowcost
work force that is productive, an
attractive tax system, a central position
for accessing both Europe and Russia,
and a Government interested in backing
business start-ups.
But on the negative side, Latvia faces
a few challenges that cannot be set aside.
These involve a small domestic market
with a strong Scandinavian influence,
a relatively weak industrial base, a
high level of reliance on Russia, and a
reasonably high risk of corruption.
That said, the country is open to
foreign direct investment and will assist
those interested in Latvia. No sectors
are off limits to foreign investors who
can access funding from both the EU
and the Latvian Government. It’s also
worth pointing out, as highlighted by the
Investment and Development Agency
of Latvia, that Latvia has three ice-free
ports and five special economic zones
(SEZ) – Riga Free Port, Ventspils Free Port,
Liepaja, Rezekne and Latgale. Each SEZ
has its own benefits for companies which
generally include rebates on real estate
tax, corporate income tax, withholding
tax for dividends, management fees
and payments for usage of intellectual
property for non-residents and others.
These zones are planned to operate until
2035.
TAX RATES
Corporation tax
Businesses must follow a model of
taxation that was introduced at the start
of 2018. Under this regime, undistributed
profits are exempted regardless of
whether the entity is active (trading) or
passive (not trading). The regime covers
interest, dividends, and the sale of any
and all assets and no corporate tax is due
until the profits are distributed at which
time a rate of 20 percent will apply to the
taxable base.
To add complexity to the process,
before applying the statutory rate,
the taxable base must be divided by a
coefficient of 0.8. As the taxable base is
increased by the coefficient, the effective
rate is actually 25 percent.
Microbusinesses – whether existing or
newly formed – can opt to use a system
set up under the Micro-business Tax Act
if they meet certain criteria. The regime
allows for the option to pay tax at 15
percent based on revenue of up to €40,000
which covers payroll taxes, business risk
duties, and corporate tax.
INCOME TAX
Latvian residents are liable to Latvian
income tax on their worldwide income.
However, non-residents are liable to
income tax only on their Latvian-source
income.
Income tax is banded so that a rate
of 20 percent applies up to €20,004; 23
percent from €20,004 to €62,800; and
anything above that last figure is taxed at
31 percent.
Dividends attract a rate of 20 percent –
but not if corporation tax has been paid,
in which case, there is nothing to pay. The
same 20 percent rate applies to capital
gains.
NATIONAL SOCIAL INSURANCE
CONTRIBUTIONS (NSIC)
The employee's part of national insurance
is deducted at source at the rate of 10.5
percent. The employer's contribution is
charged at 23.5 percent on top of gross
employment income. NSIC applies to
annual income up to €62,800. Beyond that
is a solidarity tax on income over €62,800
at the same rates as NSIC.
VAT
There are four rates of VAT in Latvia –
zero for certain services related to the
export, import and transport of goods;
a five percent lower tariff for fresh
foodstuffs; a 12 percent tariff for goods
such as medicaments, publications,
heating products and domestic public
transport; and a 21 percent standard rate.
Education, financial services, medical
services, insurance services and real
estate are exempt from VAT.
All of the detail is on the Latvian
Ministry of Finance website.
CONCLUSION
It’s a regret that these country profiles are,
by virtue of appearing in print, limited
in scope and size. When reading around
the subject that is Latvia there is much to
warrant it being a target for any exporter.
The advice is clear to those wishing to
invest: there’s a land of opportunity,
albeit small in population, but it’s backed
by a Government willing to help firms do
business.
Adam Bernstein is a freelance
business writer.
Advancing the credit profession / www.cicm.com / October 2021 / PAGE 27