Subsidiaries in Latvia

Latvia is a part of the European Union and has an open economy. Per the Ease of Doing Business Index, which the World Bank prepares, Latvia is ranked 14th among 192 countries. Hence, setting up a subsidiary business in Latvia is relatively easy. 

Latvia is classified as a developed economy with a high level of income. The country has a GDP of $40 billion. With a 76.8%  employment rate, you will easily find people to work for your subsidiary business in Latvia. Some significant industries that offer great business opportunities are processed foods, textiles, pharmaceuticals, and electronics. 

The country has a very robust system for exports. Hence, you can incorporate a foreign subsidiary in Latvia to provide export services. Countries like Lithuania, the United Kingdom, and Russia are some of Latvia’s major export partners. 

The guide will help you with everything you need to know about starting a subsidiary business in Latvia. 

What are the Types of Subsidiaries in Latvia?

Let’s understand the types of subsidiaries that can be incorporated in Latvia in detail:

Limited liability company

• One of the most popular forms of subsidiary business in Latvia is a limited liability company. The company is a legal person with fixed capital.
• The capital amount of the LLC comprises the sum of nominal value parts that different shareholders bring to the company. 
• The limited liability company’s shares are not traded publicly in Latvia. 
• All companies incorporated as LLCs must have a minimum paid-up capital of EUR 2800. 
• The unique thing about a limited liability company is that the owners are not responsible for any of the company’s liabilities.
• To establish a subsidiary business in Latvia that is an LLC, at least one shareholder is required.
• There are no restrictions on the nationality of the shareholders for a Latvian LLC. 

Joint stock company

• A joint stock company is also known as Akciju Sabiedriba in Latvia. Like LLC, a joint stock company is also considered a legal person. 
• The shares of a joint stock company are freely traded on the country’s stock exchange. 
• You must bring an equity paid-up capital of EUR 36,000 to start a joint stock company in Latvia.
• Both legal entities and natural persons can be the shareholders of a joint stock company. 
• While having at least one shareholder is mandatory, there is no limit on the maximum number of shareholders.
• The rights of the shareholders depend on the category or class of shares. 
• The shareholders elect a board of directors to manage the company’s day-to-day operations and decide how profits are distributed. 

Limited partnerships

• Incorporating a limited partnership as a subsidiary business in Latvia is quite common. A limited partnership is known as Komanditsabiedriba in Latvia.
• In a limited partnership, at least two partners are required. Out of which, at least one partner has a limited liability, i.e., their liability is limited to the investment they bring into the company. 
• All other members have unlimited liability unless decided otherwise during the formation of the partnership deed. 
• Limited partners cannot participate in the limited partnership’s bookkeeping or object to a complementary action.
• All profits and losses are divided among the partners based on the ratio of their investments. However, a limited partner does not share the burden of losses.

General partnership

• A general partnership is also called Pilnsabiedriba in Latvia. 
• To incorporate a general partnership subsidiary business in Latvia, having at least two partners is essential.
• In a general partnership in Latvia, all the business partners have unlimited liability. Hence, their assets can be used to pay off creditors. 
• The profits and losses of the company are divided in the ratio of the partners’ investments. 

How to Set Up a Subsidiary in Latvia?

You must complete some necessary steps while establishing a subsidiary business in Latvia. These steps are:

Step 1: Select a business structure

• Before you begin with the incorporation process of the subsidiary business in Latvia, you first decide what type of company you want to incorporate. 
• You must decide on the budget and the company’s objectives to choose the most optimum business entity. 

Step 2: Check for name availability 

• Using the Enterprise Register, look for the availability of names you want to propose for your business. 
• You must ensure that the name you choose is not the same or similar to trademarks registered with the patent office. 

Step 3: Prepare the documents for submission

• You must prepare all the documents before submitting them to the Register Office. 
• The notary must notarize and duly sign all the documents before submitting them to the Latvian Companies Registry. 

Step 4: Pay the share capital

• You must open a temporary bank account in a Latvian bank and transfer the share capital to that account.
• It is vital to get a receipt of the payment from the bank, as you will need it along with the other documents. 

Step 6: Reach out to the Enterprise Register

• Once you pay the share capital, you must pay all the state duties. 
• Submit all the documents to the Enterprise Register and collect the registration decision document from there. 
• You can also register the company by availing of the e-service in the Latvia Commercial Registry. 

Step 7: Tax registration

• Complete the tax registration process when you submit all the documents to the Enterprise Register. 
• You can use the SRS Electronic Declaration System to register the Value-Added Tax or the VAT system.

Step 8: Open a bank account

• Opening a bank account for your subsidiary business in Latvia is mandatory after the tax registration.
• The document requirements depend on the type of business you are incorporating in Latvia.
• You must fill in all the bank forms and obtain all the remote access codes for the bank account of your subsidiary business in Latvia. 
• If you cannot travel for the process, you must appoint a company representative. 

Benefits of Setting Up a Latvia Subsidiary

There are several benefits to setting up a subsidiary business in Latvia. These benefits are:

• A subsidiary business is considered a legal entity, allowing you to expand your business operations nationwide. 
• Latvia ranks 42nd out of 180 countries on the Corruption Perception Index. Hence, you can incorporate a foreign subsidiary in Latvia without falling into corrupt practices. 
• Latvia maintains a pro-business stance and encourages people to establish new businesses there. 
• Latvia is an essential member of the European Union. Hence, you can access the entire European market with a subsidiary business in Latvia. 
• Latvia allows you to complete the entire incorporation process online. Hence, setting up a subsidiary in Latvia is quite easy. 
• Latvia’s economy is stable, and the inflation rate is relatively low. Hence, you can operate your business smoothly at a low cost. 
• The country’s economy is highly privatized. Hence, there are numerous opportunities for private companies that want to open a subsidiary business in Latvia. 
• Most people in Latvia speak English. Hence, you can easily communicate and work with your teammates without language barriers. 

Documents to Prepare When Opening a Subsidiary in Latvia

You must collect all the essential documents before incorporating a foreign subsidiary business in Latvia. The list of the documents is enclosed below:

• Information of the founders: Name, passport details, residential address, and personal identity number if it exists.
• Suppose a founder is a legal person like a company. In that case, you need to submit information related to the company, like the name, registration number, legal address, certificate of incorporation, and the people who will represent the company. 
• Personal details of all the company board members
• The document showcasing the right of the board members to represent the company
• The official physical address of the company
• Receipt of payment of the share capital to the temporary bank account
• The Articles of Association
• Duly filled and signed trade register application
• The charter of the company
• Receipt of payment of the publication charge

What Business Forms Cancan Latvia Subsidiaries Take?

Latvia is an advanced economy that is highly developed. Hence, it allows the incorporation of all kinds of subsidiary businesses in Latvia. You can incorporate a wholly-owned and partially-owned subsidiary business in the country based on the ownership structure you want the company to have. 

One of the most incorporated subsidiaries in Latvia is a limited liability company. Setting up an LLC is more straightforward as compared to the other forms of business. You just need to follow standard procedures to incorporate an LLC in Latvia. Also, the legal identity of an LLC is separate from its owners. Hence, an LLC can exist for eternity and can function independently. You can also incorporate a different business form depending on the business requirements. 

Latvia Subsidiary Laws

You must follow all the subsidiary and labor laws established by the Government of Latvia. It is essential to incorporate all the labor laws into the company policy. These laws also aim at protecting the rights of the employees working in your subsidiary business in Latvia. 

Some subsidiary laws that you must follow are:

• Collect the certificate of incorporation from the relevant authorities before you begin your business operations. 
• Submit the incorporation certificate of the parent company during the incorporation process.
• Open a Latvian bank account to ensure all the company transactions are executed hassle-free.
• Before starting the incorporation process, deposit the minimum share capital into a temporary bank account. 

You can take the help of a PEO like Multiplier, who will help you interpret and implement the subsidiary laws in Latvia. 

Post-Incorporation Compliance

You must adhere to the compliances for a foreign subsidiary in Latvia once your company is incorporated.

• All the companies need to hold an annual meeting to discuss the company’s progress and other issues. It is crucial to maintain the minutes of the meeting. 
• If the assets on the company’s balance sheet exceed EUR 800,000 and the company’s net turnover goes beyond EUR 1,600,000, you must get the company’s financial statements audited.
• You must make the VAT payments to the authorities on time. 
• You must pay the income tax to the relevant authorities on your employees’ behalf by every month’s end. 

Taxes on Subsidiaries in Latvia

The best thing about incorporating a foreign subsidiary in Latvia is its low corporate tax. The Latvian corporate tax rate is 20%. However, this might go up to 25% if the company’s annual turnover exceeds the limit the Government of Latvia decided.

Other taxes levied on a subsidiary business in Latvia include VAT, property tax, and natural resource tax. The subsidiaries also contribute towards social security. 

Tax Incentives for Firms Setting up a Subsidiary in Latvia

Latvia has double tax treaties with several countries. Hence, it safeguards companies from the issue of double taxation. Latvia has launched several tax incentive programs for companies operating in Special Economic Zones. These companies have free access to several ports. 

Companies incorporated in free zones are exempt from paying different taxes like property taxes, CIT, and withholding taxes. Any foreign taxes paid on earnings that are part of the tax base are eligible for a credit against the CIT assessed on dividends for the entire year.

Other Important Considerations

Establishing a subsidiary business in Latvia is a time-consuming process requiring much effort. It will be an excellent option to take a few days off and focus on expanding the Latvian subsidiary. It is also vital for the business to meet all legal obligations. You can appoint a representative to complete the entire process on your behalf.

It is also essential to fix a budget for establishing a subsidiary and sticking to it. Once you have a fixed budget, you can plan all the activities accordingly. 

How Can Multiplier’s Employer of Record Help You Hire and Expand in Latvia?

It is challenging to devote time and money to establishing a subsidiary system in Latvia. Also, navigating the difficulties of a new market can be challenging. To overcome all these barriers, you must partner with a global PEO like Multiplier. 

Multiplier will handle all the procedures and formalities you must complete before entering a new market. Our knowledgeable staff will help you incorporate a compliant subsidiary business in Latvia that adheres to all the country’s labor laws. With the help of a PEO like Multiplier, you can onboard a great team and make the best use of the resources available in Latvia.