Please note, this article is a personal account of registering a business in Latvia in 2015! It should help you get a rough idea of the processes you’re likely to face.
Registering as self employed or setting up your own business is never going to be the simplest of processes anywhere in the world, and unsurprisingly Latvia is no different. Much like haggling for a Soviet-era war medal at Latgalīte market with zero knowledge of the Russian or Latvian language, it’s going to be a nightmare, and you’ll probably get robbed in the process.
Let’s look at the options.
Types of registration
You can register as “self employed” – meaning you can choose to pay a small fixed amount of income tax if the income does not exceed 14,424 Euros a year (I think it’s around 5%). If your income exceeds that threshold, then you’re liable to pay around 720 Euros plus 7% of the amount that goes over. I believe you may get higher tax for the following few years as a result, too. To be honest, self employment tax is probably an entire book’s worth of writing alone, so let’s not get into that.
You can register a SIA (the Latvian equivalent of an Ltd or LLC) and there are two main types of SIA at the moment:
A regular SIA, where you are likely to pay 15% corporate income tax and I don’t think there are any obvious thresholds in place, or limits on things like dividends or salary.
A “Micro enterprise” SIA (or “mikrouzņēmums”) where you pay less corporate income tax, but can only pay yourself a salary of up to 720 Euros per month (sounds like an odd number, but it comes from the conversion from Lats to Euros – this amount used to be 500 Lats on the nose).
It would appear that the Latvian government are trying to phase out micro enterprises over the next few years, since they probably see it as a way for people to get around paying more tax than they have to, and hey – why make it easy for someone to start a business, right?
The tax rate for micro enterprises with annual turnover under 7000 Euros is 9%. Those with higher turnover pay 11% in 2015, 13% in 2016 and 15% in 2017. By that time, it’s probably worth changing the status of your organisation to a regular SIA, so that you’re not restricted salary-wise.
In Latvia, your SIA needs to be registered for VAT (you will get a VAT registration number for your company, which is basically also your company registration number).
If you provide services (design, consultation etc.) as opposed to tangible products, then there are some things to bear in mind about VAT:
- If you provide services to companies outside of Latvia, then they do not need to pay VAT on your services.
- If you provide services to companies within Latvia, then you have to charge them VAT (currently 21%).
(There is a reduced rate of VAT in Latvia of 10%, which is applied to pharmaceuticals, veterinary medicine, infant products, books, certain mass media products, hotel accommodation costs, water supply, certain utility services, sport tickets, electricity and heating for inhabitants.)
This means for me, as a design and creative services provider, it’s more beneficial to work with companies based outside of Latvia. With Latvia’s adoption of the Euro in 2014, it’s also much easier for me to work with companies within the Eurozone.
The information you see in this post shouldn’t be taken as gospel, and everyone’s situation will be different. I’d recommend seeking professional advice before committing to your business, however I can at least tell you what I did, and my experiences as I did it. Hopefully it will provide an insight into the general methods.
1 – Find an accountant
I can’t recommend this enough. An accountant who can handle all your invoicing, returns and paperwork is going to be very useful. I work with Valteri SIA.
2 – Find a lawyer
Don’t be afraid to get a lawyer on board to handle the registration process. It’s a complex ordeal and they will know what to do. I had a Latvian contact who was able to recommend an English-speaking lawyer to help me.
3 – Pull together the relevant documents
I met with the lawyer and we discussed what I would require for my business, and from what I gathered, this is the list:
- 2846 Euros share capital (or anywhere from 1 Euro, up to this amount, plus valuation on something I owned which could make up the amount). This bit confused me since I could provide half the money, and half was to be provided at a later date (within the first year). The bottom line is I needed at least some cash to open a temporary business bank account – my “share capital” basically.
- A document stating how many shares exist in the company, and who owns them. Fortunately for me it didn’t matter so we decided on an arbitrary number, and allocated me 100% ownership of all shares.
- A document that stated the legal address of the company, along with permission from the owner of the property (presuming it’s not you already).
- Information from the bank about my business bank account (which I had yet to open at this point).
The next step was for the lawyer to pull together all of these documents and send them to me for proofing, while I pulled together the required cash.
4 – Open a temporary bank account
I met the lawyer again with the proofed and printed documents, my passport, a wad of cash and relevant information at a nearby bank branch (I opted for Swedbank). We opened a business account and paid in the initial share capital. I then got a temporary business bank account from the bank with a notification of the amount I’d paid in.
5 – Notary
Because nobody trusts anybody else in Latvia (true fact), notaries are as common as sandals with socks on a warm day in Riga. There’s at least two or three on every street (in fact, if you were to be anything in Latvia, then a notary would be a good choice – easy money!). I had to take the document with the employee and shares information to a notary to get it counter-signed and to prove that I had signed it (a pointless and stupid affair if ever there was one). This cost me somewhere in the region of 10-20 Euros (lucky they didn’t need a notarised signature on the receipt!), but can be more costly depending on where you go. Your lawyer may have a preferred notary (AKA their mate, who probably passes a cut back to them).
6 – Company registration
With all the documents, the info from the bank on share capital, the notary-stamped papers and the lawyer on hand, we went to the company registration office on Pērses Iela (2) in the centre of Riga.
We were seen fairly quickly, and required an in-house notary to sign more papers for us. After that, they checked all the papers and I had to pay a fee for opening a business. This was around 100 Euros and was the required “state fee” to open a business of this type.
Somewhere along the way we also registered for VAT. I think this was all part of the same process as it was recommended to me that it was all done at the same time. Probably an extra bit of paper which I had signed.
Then we waited…
7 – Ta-daa
Around 10 days later I got a call from the lawyer saying I could go and collect my business paperwork, so back to number 2 Pērses Iela I went. I was given a certificate and relevant paperwork (some of which I still don’t understand) – and hey presto, my business was officially registered.
8 – Anything else
After this, I needed to speak to my accountant about registering for tax payments, and creating an electronic signature, which can make some things easier. My taxes are submitted on my behalf through the accountant each quarter, along with reports about my invoices each month, and all I do is make sure there’s enough business coming in to cover paying myself a salary.
I now have an official “Micro enterprise”.
So far so good.
9 – Time to find some clients
I can’t tell you how to find clients or run your business, but I can tell you if you’re looking for decent website design or brand identity, then come and see me!
10 – Remainder of share capital
I wrote most of this article shortly after registering my business, however I’m almost 2 years into my stay in Latvia now, and I’ve got to the process of paying in the second half of my share capital. If you thought it was plain-sailing so far, get ready…
Firstly, I needed to raise the money. Despite getting plenty of client work and having more than sufficient money coming into my business account, I’m not able to use that to count towards the second half of the share capital. So I needed to magically produce a grand and a half out of thin air (or savings, I guess). My first conundrum.
I managed to find out that since it was recently the end of my financial year, I was able to pay myself some dividends. I decided that I could get out just exactly the right amount to pay back in as share capital, and apparently that would be sufficient.
My first issue was bank transfer limits, so after 3 days of online back-and-forth, as well as 2 calls to the bank to increase transfer limits, I was able to make the dividend payment from my business account to personal, and then a day later, from personal back into my business account – losing some tax on the payment in the process. So it’s already cost me a small percentage to pay myself this money.
Next step was to get proof of payment from the bank, and take that to the lawyer, who was then able to prepare the remainder of my required documents. This also cost me about 60 Euros in lawyer fees.
After that I needed to take those documents to the business registry, however, my lawyer had failed to inform me that I also needed to get a bunch of the signatures on the documents notarised, so there went a few more days, another meeting and almost 90 Euros in notary fees.
Then I had to take all that back to the business registry and pay a further fee, in order to submit the paperwork. Around 45 Euros, plus a 9 Euro “publication fee”.
So in order to pay my money to myself (yes, you read that correctly), to prove that I have the remainder of my share capital (despite having the share capital amount already in my business account) it has cost me at least 3 days of time (and time is money, people), and almost 200 Euros. All for which I get nothing. Yes. Literally nothing. Well… Maybe a few more bits of paper.
Rest assured it does not surprise me when people avoid paying taxes, or avoid registering their business, preferring to pay cash only. Latvian legislation does not make it easy for new business owners, and there is little to no support for anybody who doesn’t speak Latvian or Russian here.
If you want my advice, I’d say find somewhere better to open your business and see if you can find a better way.
Other things to note
Each month I have to send my accountant any receipts, a summary of my business bank account, as well as any invoices I have sent to clients that month.
My invoices need to be in Latvian. I have mine in both languages, since my clients are all English speaking, but Latvian law requires them to be in Latvian too.
The lawyer’s fee was around 150 Euros.
The bank I opted for was Swedbank. They spoke English well enough for things to run smoothly. I have both personal and business accounts with them, which means a handy shared login, and less hassle when making salary payments to myself.
The paperwork I have is in Latvian (because I have someone on-hand who can help me with translating it if required) but the lawyer offered to put it together in English too – at an additional fee.
You can charge certain expenses to the business. You will have a card for the business account, which you can use to pay for things, but before you jump in, it’s worth creating a card or bit of paper with your business name, registration number and address (“rekvizīti”) on it. Business purchases will require you to give this information to the cashier, who will then stamp your receipt with the seller’s business stamp, validating it for you to claim expenses. Some places (DEPO hardware store, for example) keep your details on file associated with a store card.
The best piece of advice you can take away from this is that the complex processes will certainly require someone who knows what they’re doing. A lawyer or special company to help you will cost money, but will also be worth it in order to save you headaches trying to do it all yourself. I don’t pity anybody who is going to attempt this all on their own.
Most Latvians I’ve spoken to have said something to the effect of “Even for those who speak fluent Latvian, this is a difficult process”, so add to that the language barrier, and you’ve got a potential bureaucratic nightmare.