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Latvia is a country located in Baltic region and it is a member of the EU. With its qualified labor force, closeness to markets and with incentives offered by the government attract foreign investors’ attention. The increase in foreign investments lately is one of the most important signs for that. It may be very profitable to invest in Latvia, where extremely suitable conditions exist for investors, but there are some factors for you to consider. When you consider them, you almost prevent risks and increase the success rate of your investment.
Foreign Direct Investment with Figures
Latvia has always attracted attention of foreign investors. But, especially after EU membership, foreign direct investment broke a record and reached $2,32 billion. After that, amount of foreign investment done in the country has been stabilized. When World Investment Report published in 2020 is examined, foreign investment amount in Latvia in 2019 was $789 million. Back in 2018, the value was around $994 million.[*]
Before shifting to whole market economy, Latvia’s source of direct foreign investment was privatization but now it has changed. Nowadays, the sources are new investments, merging businesses and purchasing activities. The most popular business fields preferred by foreigners investing in Latvia are as below:
- >>> Finance and insurance activities (%24)
- >>> Wholesale and retail (%16)
- >>> Real estate (%15,3)
- >>> Manufacturing (%11,7)
Sweden (17,5%), Russia (11%), Estonia (10%) and Holland (7,2%) are the countries with the highest investments in Latvia.
According to the latest OECD figures, direct foreign investment in the first half of 2020 in Latvia reached to $374 million. In a period where more than 40% decrease is experienced in global markets, these figures reached by Latvia are definitely attractive.
According to the Doing Business report published by World Bank, which shows easiness of running a business, Latvia is 19th among 190 countries. One of the most important reasons behind this success is the fact that Latvia has qualified and relatively cheaper labor force. Another important factor is offering legal procedures on investor side and protection of rights. Incentives offered in smart energy, renewable energy, biomedicine, smart products etc. can be stated as other reasons for foreign investors to prefer Latvia to invest.
Advantages and Disadvantages of Investing in Latvia
With its features, Latvia attracts more and more foreign investors each day. But, at this point, being careful is important. Because, as there are many advantages of investing in Latvia, there may be some disadvantages as well.
There are, in fact, too many opportunities offered by Latvia to foreign investors. Some of them can be listed as below:
- >>> Having political stability
- >>> Being an EU member since 2004
- >>> Strong international relations historically
- >>> Competitive business environment with simple and attractive tax system and low taxation level (Latvia’s taxation system is the second most competitive one in the world – International Tax Competitiveness Index 2020)
- >>> Regulations compatible with the EU
- >>> Qualified and cheap labor force
- >>> High efficiency
- >>> Strategical location as a gateway between the EU and Russia
- >>> Supports and incentives offered by the government to entrepreneurs and investors
- >>> Healthy structure of public accounts
As the advantages of making investment in Latvia, the disadvantages should also be considered. Depending on the business field, some disadvantages may be more important and crucial. Disadvantages of making an investment in Latvia for foreign investors are as below:
- >>> No land connection with most of the EU members
- >>> Dependency to Russia and other contiguous countries for export
- >>> Small-scale domestic market
- >>> Dominance of Scandinavian companies in domestic market
- >>> Low investment to R&D (only 0,64% of GDP – OECD, latest existing data)
- >>> Dependency of banking sector to foreigners’ bank deposits
Government Incentives and Precautions About Direct Foreign Investment to Latvia
After obtaining its independency, Latvia implemented market economy and decided to get missing capital. In order to attract foreign investors, different steps were taken. Offering financial support for foreigners, Latvia especially aims promoting industrial sector that includes high technology.
Foreigners who make investment in Latvia have the same responsibility and rights as local investors. Companies can be founded with 100% foreign capital and run in every business field. Not like many other countries, there is no limitation or restriction in this topic in Latvia.
During meetings with the government in order to improve business environment in Latvia, foreign investors are represented by the Foreign Investors Council. Except that, entrepreneurs have the right to get funding from the EU and Latvian government.
Latvia has decided to create 5 special economic zones (SEZ) in order to bring foreign investment to the country and increase investment amount. Each special economic zone has its own tax exemption regulation and incentives. With these, investors can invest in the zone that is suitable for their business and obtain serious level of advantages.
It can be stated that, in general, the procedures do not create any difficulty for foreigners making investment in Latvia. Foreigners can found companies running in any field. They can obtain majority share of a local company or holding. For declaration, Investment and Development Agency of Latvia is authorized.
Importance of Receiving Consultancy While Making An Investment in Latvia
Making an investment in Latvia can be very profitable. Although Latvian government offers support and incentives for foreign investors, it shouldn’t be forgotten that operations in Latvia is a little bit complex. With consultancy service offered by Investlatvia, you can complete many different processes like company establishment, company purchase and sale, company registration etc. according to legal procedures. This way, you won’t experience financial loss and lose time due to mistaken and missing activities. Having serious level of expertise and experience, Investlatvia will ensure that those complex procedures are completed positively in short time. In order to contact us, click here.
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Igors Krumins continues his activities as a commercial and international lawyer within the body of “Jurmala Invest”. He has more than 10 years of experience, especially in the investment sector, and has provided consultancy services to numerous companies with his legal expertise. He successfully completed his undergraduate studies at Baltic International Academy and graduate studies at Latvijas Universitate. Apart from his native Latvian language, he can also speak Russian and English fluently.