Latvia Capital Riga Currency Lat (LVL) Language Latvian, Russian Population 2.27 million EU status member GDP 2006 $16.13 billion Employment 93.3% Exports $6.98 billion f.o.b. (2006 est.) Imports $10.33 billion f.o.b. (2006 est.)

Setting up business Number of days to start business 16 Cost (% of income per capita) 3.5% Nonwage labor cost (% of salary) 24.1% Total tax rate (% profits) 42.6%

 

Latvia

Latvia boasts one of the fastestgrowing economies in the European Union and has seen sustained and substantial yearon- year growth since the mid 1990s. The country has proven attractive to investors of all sizes due to its stability, attractive tax regimes and considerable potential for further growth. The Latvian government is on course to adopt the euro as its currency from January 1, 2008.

Reforms implemented in Latvia and its integration with the EU have had a positive impact on the economic development of the country. Since 2000 the average annual growth of gross domestic product (GDP) in Latvia has been 8.1%. In 2005 GDP increased even faster by 10.2%. The high growth rates are due to the stable dynamics of domestic demand and increase in exports. These indicators of development are the highest in the European Union.

FDI Profile

Investment continued growing and increased by 16% in the first quarter of 2006, while received foreign direct investment reached LVL158.9 million – that is a quarterly record for recent years. The stability of the business environment is indicated by the number of newly founded companies, which reached 6,625 in the first half of 2006, an increase of 25.9% over the respective period in the previous year.

Investment growth rates in Latvia have been steadily high for several years. At the same time, the relatively low tax burden and an increase in product sales have positively impacted the financial position of enterprises, increasing opportunities for investment. In 2005 fixed investments in Latvia doubled in comparison with 2000. Investments have increased by an annual average of 15.7% and in 2005 represented 29.8% of GDP. Foreign direct investment stock per capita in Latvia at the end of June 2006 was LVL1502.2 or $2682.5.

The investment dynamics of almost all new EU member states still exceed the EU-15 average several times over. It should be noted that investment dynamics are the fastest in the Baltic States, including Latvia.

Sectorial Development

Investments in the services sector account for the largest share of the foreign direct investment stock (FDI). In 2005 and in the first half of 2006 the heaviest investments were made in the banking sector. However, in addition, certain changes have also been observed in the sectoral structure of investment. In the last five years (2001–2005) investment dynamics in the production sector grew more than one and a half times faster than in the service sector. Since 2000, on the whole, investment in manufacturing sectors of high and medium technologies grew the fastest. Investment in these sectors has more than doubled in the last five years, while investment in lowtechnology sectors in 2005 has increased by 31% over 2000.

Industries and Services

Manufacturing accounts for a large part of Latvia’s economic output, especially in the areas of synthetic fibers, agricultural machinery, fertilizers, processed foods, pharmaceuticals, paper processing, textiles and timber. In recent years the service industry has seen a dramatic rise, partly due to the phenomenal growth in tourism.

Transport

Latvia generally has an impressive transport infrastructure. Riga Airport is well prepared for a sharp increase in traffic, and is currently constructing another new terminal. There are also airports at Liepaja and Ventspils, two major port cities on the west coast. There is a reasonably good road and rail network linking all parts of the country. Latvia has three major seaports in Riga, Liepaja and Ventspils, each of which has container terminals, ro-ro facilities and warehousing, while 84% of their capacity is ice-free. A state-of-the-art digital telecommunications network is in place.

Economic Competitiveness

To attract foreign investment, Freeports have been established in Riga and Ventspils. A special economic zone has also been set up in the flourishing city of Liepaja. The cost of doing business is still relatively cheap in Latvia, with the average wage only being LVL170 (E242) net per month. After acceding to the EU on May 1, 2004, all foreign trade rules and international treaties currently in force within the EU became binding for Latvia.

Tax Advantages

The Latvian government has repeatedly stated its commitment to doing all it can to attract foreign investment. Its corporate tax policy of 15% is among the lowest in the EU, while there is special corporate income tax relief for large-scale investment projects, as well as for companies operating within specially designated economic zones. Foreign companies are taxed on Latvian-source income. VAT is 18%, although some goods are exempt. Personal income tax is at a flat rate of 25%.

 

Contact Information

American Chamber of
Commerce in Latvia
Torna 4, II-A
Room 301
1050 Riga
Latvia
Tel: +371 721 2204
E-mail: amcham@amcham.lv
Website: www.amcham.lv

 

Useful websites

www.bank.lv	Bank of Latvia
www.ltn.lv	Latnet directories
www.lv	Welcome to Latvia
www.em.gov.lv	Ministry of Economics
www.csb.lv	Central Statistics Bureau
www.latinst.lv	Latvian Institute
www.ocma.gov.lv	Office of Citizenship and Migration Affairs

 

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