Company formation in Latvia - answers to most common questions

In Latvia the company formation is the process during which persons involved in the formation (founders/shareholders, directors, lawyers, etc.) perform certain legal activities:

• prepare documents,
• pay equity/share capital
• sign documents and on certain documents certify signature before sworn notary (founders also can sign documents with secure electronic signature and in such case notary services are not necessary),
• pay state duty and other required payments,
• submit documents to the governmental register (the Register of Enterprises of the Republic of Latvia).

You have rights to start business only if you have registered the business at the governmental register (another option is to register economic activities of natural person in the State revenue service).

This article contains answers to most common questions, related with company formation and business in Latvia.

What is an enterprise in Latvia?

Prior to the enactment of the Commercial Law, the concept of the enterprise was established in the law "On Entrepreneurship". The enterprise was a part of the property of the entrepreneur (e.g., limited liability company). The enterprise was a legal entity and was able to have the status of a legal entity. The enterprise must be registered in the Register of Enterprises.
According to the article 18 of the Commercial Law, the enterprise is organizationally economic unit, which includes the values that belong to a merchant and the merchant uses the values for business activities.

Who can form a company?

Any legal, natural (private) person or personal society can form a company (can be a founder and shareholder of Latvian company). No restrictions for foreigners. Minimum number of founders is one.

What types of companies exists in Latvia?

In Latvia you can register limited liability company and joint stock company.
Also you can register your business as personal society (partnership and limited partnership) and as sole trader.

What steps are necessary to form and register a company? Company formation process.

• Choose name and legal address of a company. Also decide regarding amount of equity capital, division of shares among shareholders (if more than one shareholder), choose directors of company and decide other questions.
• Prepare and sign necessary documents (including the decision (agreement) about formation, the articles of association, the compartment of the register of shareholders, the application). Certain documents (an application, a compartment of the register of shareholders) must sign before a sworn notary.
• May need to open temporary bank account.
• Pay equity capital. If founders pays equity capital by material contribution, then in certain cases valuation of material contribution may be necessary. You can incorporate a company without opening temporary bank account and without services of the material contribution valuation expert.
• Pay state duty, payment for publication and other possible payments.
• Submit documents to the Register of enterprises.
• Receive the decision about registration.

Documents required for opening limited liability company.

• An application for entering LLC in the commercial register,
• Memorandum of Association (the decision to establish LLC) or agreement to register a company (if more than one founder),
• Articles of association,
• The compartment of the register of shareholders,
• A statement of the board of directors about the legal address,
• A consent of the property owner to register the legal address in the property (unless the owner of the property signs the application),
• Documents about payment of state duty and fee for publication.

When you go to a sworn notary to certify signature, you need a passport or an identity card.
Legal persons (founders/shareholders of Latvian company) need documents, that proves existence of the legal person, and need document that gives rights to certain natural person to represent the legal person.
You may need to provide a bank document about payment of the equity capital, the statement about material contribution, as well as other documents depending on the situation.

How can I submit formation documents?

If you have the safe electronic signature, you can submit documents online or submit documents by email.
More information about electronic signature you can get here.
If you do not secure electronic signature, then you must submit paper form documents to the Register of Enterprises.

How long does it take?

• Collect all necessary information and send to company-taxes.info: time depends on you.
• A lawyer of company-taxes.info prepares all necessary documents: 1-2 business days.
• Appoint form meeting at the notary and sign documents: 1-2 business days.
• Pay state duty, payment for publication and submit documents to the Register of enterprises: 1 working day.
• Receive the decision about registration of a company in the commercial register: 4 business days. But if in particular address more than 10 companies registered, then to receive the decision it takes ~ 14 working days.
• Receive the decision about registration of a company in the register of VAT payers: 5 business days.

What information I need to provide to start formation process?

About a founder natural (private) person and about directors need:

• Name,
• Surname,
• birth date,
• address,
• a passport number, issuer of a passport, date of issuance of a passport.

About a founder legal person need:

• Company name,
• registration number,
• legal address,
• information about a natural person, that has rights to represent the founder - legal person.

Additionally need:

• A legal address of the Latvian company,
• Amount of the equity capital,
• How founder(-s) will pay the equity capital (by money or in-kind),

What costs are involved in forming a company in Latvia?

• State duty (20 euro for "Small Capital Company"; 150 euro for "standard" limited liability company),
• payment for publication in official newspaper (14.23 euro for "Small Capital Company"; 27.03 euro for "standard" limited liability company),
• payment for certification of signature(-s) (if you certify a signature before sworn notary in Latvia, then price is approximately 30 euro for one person),
• payment for preparation of documents and legal services (approximately 200 euro, depending on amount of work),
• depending on situation may need to pay for legal address (~360 euro per year), translation, legalization of documents, bank commissions.

Can a foreign company be the sole shareholder of Latvian company?

Yes, a foreign company can be the only shareholder of Latvian company. In such case need document that proves existence of the foreign company and also need document that certifies rights of a private (natural) person to represent the foreign company.

Who can be a company director?

Only capable individual (natural/private person) can be a company director. A member of a council, an auditor and a member of council of a holding company of a group (concern) can not be a director of a company.
Founders (shareholders) appoint a director (directors).
A founder (shareholder) can also be a company director.

Does a company need a secretary?

No, Latvian company does not need a secretary (no such requirement in legislation).

How can I pay equity capital?

If you register "standard" limited liability company, you can pay equity (share) capital by money and by other property (material contribution).
Share capital of the small capital company must pay only by money and founders can confirm payment of the share capital, making special mark in the registration application.
If you form a limited liability company with equity capital 2800 euro and more, and want to pay equity capital by money, then you need to open a temporary bank account. For a limited liability company with equity capital less than 2800 euro, there is no requirement (obligation) to open temporary bank account.

If you decide to pay equity capital by other property (material contribution / in-kind contribution) then you need to prepare and sign the statement about evaluation of the material contribution. In certain cases an independent expert evaluates the material contribution.
Founders can assess property contribution if, creating a company, the total property contributions do not exceed 5,700 euro (until 01 January 2014 limit was 4,000 lats) and the amount of the property contributions is less than 50% of the total amount of share capital. Otherwise, there is an additional cost because it is necessary to hire a special appraiser of the property contribution.

Making decisions if more than one shareholder.

If there are several founders of a company, then you need to agree regarding the number of shares that will be owned by each founder (shareholder).
According to the article 216 of the Commercial law, the decision of shareholders is made if "yes" voted by more than half of the votes represented at the meeting, unless in the law or in the company's articles of association, for making certain decisions, more votes are required.
If the shareholders make decision without convening a meeting, then the decision is made if "yes" voted more than half of all the votes (part 4 of article 215 of the Commercial Law).

According to the article 212 of the Commercial Law, shareholders meeting called for the first time has rights to make decisions if the shareholders participating in the meeting represents more than 50% of the share capital (votes), unless the articles of association requires a higher representative rate.
If the meeting called for the first time has no rights to make the decision, because the required share capital is not represented, then re-convened meeting (with the same agenda) has the rights to make decisions regardless of the number of votes represented.
If for a company there are two shareholders and each owns 50%, then making a decision may be difficult.
But, if there are two shareholders and one shareholder owns 51% of the share capital, then this shareholder alone can make decisions, and for the second shareholder it may be not possible to make a decision (unless the articles of association or in the law provides otherwise).
Therefore, during the process of formation of a company it is necessary to choose the optimum division of shares.

What company to register (small capital of standard)?

You may need to decide whether you want to create a limited liability company with registered capital of 2,800 euro (until 01 January 2014 was 2,000 lats) and more, or wish to create a limited liability company with registered capital of less than 2,800 euro (so called "Small Capital Company").
Creating a small capital company, the state fee is less than for company with equity capital 2,800 euro or more.
Also, for the Small Capital Company the fee for the publication in the official newspaper is less.
But, keep in mind that in the event of insolvency of the small capital company, shareholders are jointly and severally liable for the obligations of the company. An amount of the liability is 2,800 euro, minus (less) the paid amount of the share capital.
To have the right to establish a small capital LLC need to meet the requirements of the article 185.1 of the Commercial law.

Do I need to arrive to Latvia? Participation in formation process.

Directors personally need to certify signature before sworn notary on consent to be a director of Latvian company.
Founders (shareholders) either personally sign all necessary documents, or may authorize (with authorization certified by sworn notary) certain natural person to sign the documents, necessary for company formation.
If you issue notary certified authorization, you can register a company without arriving to Latvia.

Does the company need to register as VAT payer?

You must register as VAT payer if any of following conditions is true:

• An amount (sum) of VAT taxable transactions during any 12 months reaches certain limit (for Year, 2017 - 50 000 euro and more; for Year, 2018 - 40 000 euro and more);
• A company provides services to a EU registered person that does (performs) economic activities;
• A company receives services from a person that does (performs) economic activities;
• A company purchases goods in EU and total amount (without VAT) of goods during a calendar year is 10 000 euro and more.

Should I form a new company or buy the-shelf company?

If there are no special reasons to buy the-shelf company, you should form a new company.
A special reason may be: You need a company with the business history.

Understanding Latvia related terms

• SIA (sabiedrība ar ierobežotu atbildību) - Ltd./LLC (company with limited liability).
• VSIA - governmental company with limited liability.
• MSIA - company with limited liability that is in insolvency process.
• AS (akciju sabiedrība) - JSC (joint stock company).
• UR (uzņēmumu reģistrs) - The Register of enterprises.
• VID (Valsts ieņēmumu dienests) - tax authority / State revenue service.
• PVN (pievienotās vērtības nodoklis) - VAT (value added tax).
• VSAOI (valsts sociālās apdrošināšanas obligātās iemaksas) - state mandatory social insurance contributions.
• IIN / IeIN (iedzīvotāju ienākuma nodoklis) - personal income tax.
• UIN (uzņēmumu ienākuma nodoklis) - company income tax.

What are the tax and accounting obligations for a company in Latvia?

Latvian company must do accounting and usually until 15th day of a month must record business activities of a previous month in the accounting ledger.
Must keep all accounting documents (invoices, bank statements, agreements etc.).
In certain cases must calculate salaries (process payroll).
Must prepare and submit annual report.
Most common payable taxes are:

• Personal income tax,
• State mandatory social contributions,
• State duty on business risk,
• Company income tax,
• Value added tax,
• Micro company tax (micro-enterprise tax).