Latvia – Establishing a company

Each country has its approach and practice on doing business. In Latvia the two most popular forms of running a business are – limited liability company and joint stock company. Establishment of a legal entity is simple, fast and proportionate in costs. A limited liability company can be established with a minimum share capital of EUR 1,00, subject to compliance with certain requirements; whereas share capital of a full-scale limited liability company is EUR 2.800,00. For a joint stock company a share capital of at least EUR 35.000,00 is required.

Types of the companies and their specifics 

Limited liability company

The limited liability company (LLC) is one of the most popular corporate structures used in Latvia. A LLC is a private company, the shares of which are not publicly tradable.

In parallel to the LLC, there is also micro-capital LLC permitted with the decreased requirement for the share capital, starting from EUR1. Micro-capital LLC has certain limitations to comply with, inter alia:

1. it can have no more than 5 founders (shareholders) all of them being individuals;
2. any member of the Board of Directors must also be a shareholder of the company; and
3. one person can be a shareholder in only one micro-capital company at a time. A micro-capital LLC is mostly used for business activities of a small scale and start-ups.

When it comes to establishing a LLC the main criteria are:

1. any amount of founders (shareholders), no nationality criteria, both individuals and legal entities permitted. For a micro-capital LLC – not more than 5 individuals;
2. share capital – minimum of EUR 2.800,00. For a micro-capital LLC, share capital can be any in a range from EUR 1,00 to EUR 2.800,00;
3. for a regular LLC, the share capital can be paid up either by financial means or investment in kind;
4. the Board of Directors of a LLC must consist of at least one member. The same requirement is applicable to micro-capital LLCs.

The composition of shareholders and any changes in relation thereto are notified to the Company Register (Commercial Register), which is a public register.

The management structure of the LLC consists of the Board of Directors, Supervisory Board (if any) and Shareholder Meeting.

Joint stock company

A joint stock company (JSC) is a public company, the shares (stock) of which may be publicly tradable.

The main criteria for establishment of a JSC:

1. any amount of founders, no national criteria;
2. share capital at least EUR 35.000,00;
3. share capital can be paid up either by financial means or investment in kind;
4. the Board of Directors shall consist of at least one member. If the stock of the JSC is publicly traded – at least 3 members.

The management structure of the JSC consists of the Board of Directors, Supervisory Board and Shareholder Meeting.

When it comes to differences between LLC and JSC it shall be noted that shareholder register in a JSC is an internal document of the company; whereas in respect to LLC all shareholders are showed in the public data base of the Company Register (Commercial Register).

Registration process – must know tips 

Registration of a company in Latvia involves necessity to submit more or less same documents as in any other country, like application for registration, decision or agreement on incorporation and articles of association. However there are few specific aspects to be taken into account.

Name of the company

Before applying for registration, first check whether the name desired is available – both in trade mark register and data base of the Company Register (Commercial Register).

Please also note that there are certain local requirements on the company names, inter alia:

1. Latvian or Latin letters to be used solely;
2. it is permitted to use only symbols like – &, @, %, +, =;
3. it is prohibited to include in the name words “Republic of Latvia”.

Share capital

For micro-capital LLC payment of the share capital must be performed in full before applying for registration of the company. In its turn for a regular LLC the share capital must be paid up in amount of at least 50% and for a JSC in amount of 25%.

Payment of the share capital always involves opening a temporary account in a local bank.

In case share capital is in some part covered by investment in kind, it should be noted that evaluation of a certificated expert of such investment may be required.

Address

The Board of the company must ensure receipt of correspondence at the company’s registered office. While there is a practice to use virtual offices, though in each case it must be evaluated whether such address will be sufficient for the operation of the company.

Moreover:

1. each desired address must be checked in official state address data base (kadastrs.lv) to indicate the address correctly in the registration documents;
2. only premises or building can be used as registered office but not a property consisting only of a land;
3. written consent of the owner of the real estate used as address will be required for registration of the company.

Document signing

It must be noted that certain documents related to registration of the company will require approval of notary public and legalization (Apostille). Documents can be bilingual; however always one language must be Latvian.

Registration

A company will be registered within 1-3 working days.

If concurrently applied also registration with tax administration (State Revenue Service) can be very fast made.

State fees for registration are reasonable, but it should be noted that additional expenses like for assistance of a lawyer, notary fees or translation expenses will come on the top.

Taxation

Each of these corporate structures is full-scale taxpayers in Latvia. They are subject to corporate income tax at a rate of 20% divided by ratio 0.8, such ratio being applied for the calculation of the gross taxable base out of net paid dividends (so practically a rate of 25% is applied). Once the value of services provided or goods supplied within last 12 months exceeds EUR 40.000,00, a company shall be registered with the Value Added Taxpayer’s Register of the State Revenue Service.

From an income tax perspective, small companies corresponding to certain statutory criteria (like micro- capital LLCs) may also apply for a micro-enterprise tax payer status, which is applied to turnover per taxation period of a micro-enterprise. The rate of micro-enterprise tax applied is 15% subject to adjustments in specific cases provided for by the law.

As regards tax reporting, since 2018 the annual report on income is cancelled. Tax payers shall submit a return and pay the corporate income tax each month by the 20th day of the following month. Taxpayers who have a taxation period of a quarter shall submit a tax return and pay tax every quarter by the 20th day of the month following the relevant quarter. With respect to value added tax, the annual tax return shall be submitted by May 1 of the year following the taxation period. Micro-enterprise tax payers have special reporting rules.

It shall be also noted that in Latvia companies have a statutorily designated possibility to halt and restore their economic activity. Activity can be halted for up to 3 years, and during this period, as a general rule, the company shall be subject to regular tax reporting duties.

It shall be noted that information provided in this article covers only general lines of the requirements and processes, therefore it is advised to contact an experts and seek advice to run the processes properly.