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Home » Countries » Europe » Latvia

Global expansion is a step to make for any business, regardless of what you wish to achieve. The opportunities that can come with an expansion can be both incredibly exciting as well as intimidating and confusing, especially when you consider all of the registration procedures that needs to be done and documentation required.

Expanding to countries such as Latvia – which is characterized by a skilled and driven workforce, multi-layered employment and tax laws, and a developed infrastructure network linking to the rest of the Baltics and Europe, and leading sectors in textiles, processed wood products, processed foods, chemicals, metalwork, and machine building – can bring both excitement to the possibilities, but also significant stress to ensuring the entity with the country’s rigorous legal structures and laws.

Ensuring compliance without the sufficient knowledge of the country’s laws also adds to the stress of getting your new entity off the ground and ready to test new markets. Going at it without the proper support can increase the costs, time and risks involved.

Each new markets bring new challenges, and these can be worked through more efficiently and cost-effectively with the support of an International Professional Employer Organization (PEO) such as Bradford Jacobs, especially through our Employer of Record (EOR) framework. This can be best utilized when businesses are just beginning their expansion process and require more information before committing to incorporating an entity and fully establishing themselves in that market.

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Latvia – The Economy

The economy of Latvia is an open economy in Eastern Europe and is part of the European Single Market. Latvia is a member of the World Trade Organization (WTO) since 1999, a member of the European Union since 2004, a member of the Eurozone since 2014 and a member of the OECD since 2016.

Latvia is ranked the 19th in the world by the Ease of Doing Business Index (2020) prepared by the World Bank Group. Due to its geographical location, transit services are highly developed, along with timber and wood processing, agriculture and food products, and manufacturing of machinery and electronic devices.

The country boasts skilled and inexpensive labor and overall high productivity, as well as a competitive business environment with a simple and attractive tax system and a low level of taxation (Latvia’s tax system ranked 2nd most competitive in the world – International Tax Competitiveness Index 2020). Legislation harmonized with that of the European Union is also favorable for investment.

Latvia also enjoys a strategic geographical location in the Baltics, making the country a transit point between the European Union and Russia and the former Soviet republics. It also has historically strong international relations, which is reinforced by the country’s accession to the European Union in 2004, giving it good access to international markets.

The Republic of Latvia ranks very high in the Human Development Index. It performs favorably in measurements of civil liberties, press freedom, internet freedom, democratic governance, living standards, and peacefulness. Latvia is a member of the European Union, Eurozone, NATO, the Council of Europe, the United Nations, the Council of the Baltic Sea States, the International Monetary Fund, the Nordic-Baltic Eight, the Nordic Investment Bank, the Organization for Economic Co-operation and Development, the Organization for Security and Co-operation in Europe, and the World Trade Organization.

Small and Medium-Sized Companies

SMEs play a particularly important role in the non-financial business economy of Latvia.

Micro-sized enterprises that employ up to nine people make up the majority of SMEs in Latvia, with approximately 101 thousand of them in 2021. They generate 71.1% of total value added and 79.4% of total employment, well above the respective EU averages of 56.4% and 66.6%.

However, the average productivity of Latvian SMEs, calculated as value added per person employed, at only €17,900, is less than half the EU average of €44,600. As in most EU countries, the most important sectors in terms of SME value added and SME employment are manufacturing and wholesale and retail trade. On average, SMEs in Latvia employ 4.6 people, above the EU average of 3.9.

CountryLatvia (Republic of Latvia)
No. of States/Provinces5 planning regions of Latvia (Latvijas plānošanas reģioni) – Kurzeme, Latgale, Riga, Vidzeme and Zemgale.
Principal CitiesRiga, Daugavpils, Liepāja, Jelgava, Jūrmala, Ventspils, Rēzekne, Jēkabpils, Valmiera, & Ogre
Local CurrencyEuro (EUR)
Major ReligionLutheran
Time ZoneEastern European Time (GMT+3)
Country Dial Code+371
Population1.85 million
Border CountriesEstonia (north), Russia (east), Belarus (southeast), and Lithuania (south)
Tax Year1st January – 31st December
VAT %21%
Minimum Wage€500 per month
Taxpayer Identification NumbersCompany Registration Number
Tax Identification Number (Nodokļu identifikācijas numura)
VAT Number
Social Security Number
Leading Sectorstextiles, processed wood products, processed foods, chemicals, metalwork, and machine building
Main importsRefined Petroleum, Broadcasting Equipment, Packaged Medicaments, Hard Liquor, and Cars
Main exportsBroadcasting Equipment, Sawn Wood, Wheat, Fuel Wood, and Packaged Medicaments
Main trading partnersLithuania, Estonia, Russia, Germany, United Kingdom, Poland & Sweden
Government TypeUnitary parliamentary republic
Current Prime Minister/PresidentKrišjānis Kariņš (Prime Minister) & Egils Levits (President)

The Main Sectors of the Latvian Economy

Latvia focuses on the following key sectors, which all have a significant impact on the country’s economy:

  1. Food processing – Agriculture enjoys the fertile soil and temperate climate of Latvia. It is the traditional trade of Latvians and is still relevant today. Grain makes up a third of the sector. Quality dairy products and honey lead the niche of high added value exports.

    Although the agricultural sector contributes to only 3.9% of Latvia’s economy, it employs about 8% of the country’s labor force. With regards to agricultural practices, the government of Latvia disfavors biotechnology.

    Instead, it promotes organic farming which aims at establishing sustainable agricultural practices. Subsequently, Latvia ranks among the EU member states with the highest proportions of land used for organic farming.
  2. Industry – Latvia was among the first countries to be industrialized. Its major industries are textiles, processed wood products, processed foods, chemicals, metalwork, and machine building. Latvia builds both small and big machines such as railway cars, buses, washing machines, and radios. The chemical industry makes up a huge chunk of exports.

    The industry relies on highly specialized and educated human resources who have made great medicinal discoveries over the years. Products manufactured include bio cosmetics and eco-friendly cosmetics. The decline in demand for fibers and detergents may affect the chemical industry over time.
  3. Chemicals – Chemical industry relies on highly educated human resources. Pharmacy, recycling, eco-friendly chemicals, and bio cosmetics are manufactured in Latvia and widely exported abroad.

    University educated local experts provide innovative fundamental research and development (as in the Institute of Organic Synthesis). Medicinal discoveries are among the highlights of the Latvian chemical industry.
  4. Logistics – The transport and logistics field is attractive and lucrative in Latvia, as 6621 companies operate within the sector, with total employment of 71, 005 people.

    Logistics is well established since time immemorial thanks to the geographic location of Latvia. Ports, rail, and roads of Latvia have always linked Europe and the rest of the West with the East. 25 million customers are reachable within 48 hours in the Baltic region next to Latvia. Airport of Rīga provides European and transcontinental flights to almost a hundred destinations.

    In 2020, Latvia had more than 145 million tons of cargo transported through railways, roads, and ports – 24 million tons through railway, 45 million tons sent internationally out from Latvian seaports, 76 million tons transported by road and 11 thousand tons of cargo delivered by air transportation.
  5. Woodworking – Woodworking thrives on the green gold of Latvia. Half of the country is covered by lush forests, some of which are cut and exported. Raw lumber and manufactured products are a notable component of Latvian exports. Designated natural reserves, state owned forests and long-term business strategies keep the balance between business and nature.

    This industry is very export oriented. The forest sector contributes 19% of total Latvia’s exports or 2,6 billion EUR (2020). Currently, Latvia exports approximately 70-75% of forest sector output, indicating the historically high quality of Latvian woodworking products. Forestry, wood processing, and furniture making represent around 5.3% of GDP (2020).

    The forestry and woodworking sector is also one of the biggest employers in Latvia, employing around 38 813 people (2020).
  6. ICT (information and communications technology) – This progressive sector is one of the fastest-growing industries in Latvia. In Latvia, the ICT industry demonstrates 30% profit growth YoY. In our country, we observe 5% added value growth YoY. ICT sector contributes 6% of total GDP (2020).

    There are also 36k people employed in the ICT sector in Latvia, and a growing number of ICT enterprises – 7056 in 2020.

Compliance Highlights

  • State Revenue Service – a direct administrative authority under the supervision of the Minister of Finance, which ensures:
    • the accounting of tax payments and taxpayers
    • the collection of taxes, duties and other mandatory payments specified by the State in the territory of the Republic of Latvia
    • the collection of taxes, duties, and other mandatory payments into the budget of the European Union
    • the implementation of the customs policy and organization of customs matters.
  • The State Labor Inspectorate (SLI) – a direct management authority which is subordinated to the Minister of Welfare. The legal status, function, tasks, and the operational procedure of the SLI is defined in the State Labor Inspectorate Law adopted on 19 June 2008.

    It is the authority responsible for the enforcement of labor law including both general working conditions and occupational safety and health.

Labor Contracts Law

In Latvia, employment contracts must be presented to employees in writing. An indefinite contract is the standard, with fixed-term contracts admitted only in certain conditions.

Labor law in Latvia is based on both employer and employee protection. The employment relationship and its terms are hierarchically determined by the Constitution, international treaties, the local labor law, collective bargaining and agreements, employment rules and business practices, with the individual contract being last in the order.

All employee contracts, irrespective of type, should contain the following conditions:

  • the place of work
  • the employee’s specific occupation and its corresponding functions
  • the salary
  • the probation periods
  • the working hours
  • the required notice periods
  • the conditions of the collective agreement or work procedure regulations that apply to the employment relationship
  • the start date and duration of the employment relationship (for fixed-term contracts only)

Payroll – Tax Contributions and Benefits

Income Tax: Personal Income Tax (PIT) in Latvia is withheld by the employer and paid to the tax authorities every month. An employee’s income is taxed progressively, depending on their annual income.

Any individual earning an income must pay local taxes in Latvia, regardless of their residential status. Permanent residents are taxed on their worldwide income, whilst foreign nationals living and working in Latvia are only taxed on the income they receive in Latvia.

Filling tax returns can be done in person at the nearest State Revenue Service office, but it is generally done online via Electronic Declaration System (EDS). For tax-filing in Latvia, it is mandatory for a taxpayer to obtain a personal identification code (PIC).

Social Insurance/Security: In Latvia, the employer is obliged to withhold social security payments from the employee’s monthly salary payments, as well as contribute their own payments to the local social security fund monthly.

Social insurance contributions are legally mandated payments paid into a special budget account which give the right to socially insured persons to receive social insurance benefits stipulated by law, including unemployment, maternity, illness and parental benefits, disability, old-age and survivor’s pensions, and compensation for workplace accidents and work-related illnesses and healthcare services.

Social security payments depend on the employment relationship, and the status of the company in Latvia, as the table below shows:

For employees that are earning more than EUR 62,800 per year, employers are also obligated to contribute to a solidarity tax, which is split into an extra 23.59% from the employer’s side and an extra 10% from employee’s side. However, employers are entitled to reimbursement.

Sick Leave & Pay: Employees are entitled to 10 paid days of sick leave by the employer, and the maximum amount of time an employee can take for sick leave is 26 weeks. The second and third days of sick leave should be paid at 75% of the regular wages, the fourth through tenth day should be paid at least 80%.

From the 11th day to the limit, The Social Insurance Agency will pay employees 80% of their regular wages.

Paid Vacations: Employees in Latvia are entitled to 28 days of annual leave, which can increase according to the length of employment. By agreement between an employee and the employer, annual paid leave in the current year may be granted in parts, although one part must be at least two uninterrupted calendar weeks.

Maternity & Paternity Leave: Pregnant employees are entitled to 112 calendar days of maternity leave, which is divided evenly into pre-natal leave (56 days) and post-natal leave (56 days). This leave is covered by the Social Insurance Agency. If there are any complications, or the pregnant employee gives birth to two or more children, they qualify for 14 days’ additional maternity leave.

Employees are also entitled to 10 days of paternity leave, which must be taken within 2 months of the child’s birth.


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