All you need to know about Latvia’s business environment

All you need to know about Latvia’s business environment

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No matter if you are located in the middle of the Sahara desert or across the Baltic Sea, businesses do not operate inside a bubble, they operate in an environment.

Business environment is the combination of both external and internal factors that influence a company’s operating condition. The business environment usually includes factors such as clients and suppliers; its competition and owners; improvements in technology; laws and government activities; and market, social and economic trends, among others. You should know that both external and internal factors can affect each other and work together to influence a business.

BUSINESS ENVIRONMENT IN LATVIA

Latvia is rather a small nation and an active member of the European Union (EU), with a population of approximately 2 million people. It is considered to have a fairly stable political environment and a dynamic economy. Currently, Latvia is one of the fastest growing countries in the EU with a free market economy.

Latvia is located at the center of the three Baltic Nations (Estonia, Latvia and Lithuania), occupying a strategic location as a hub for commercial, financial, and transportation-related activities in the Nordic/Baltic region and areas to the east. After overcoming one of the worst economic decline in Europe between 2008 and 2010, the Latvian government enacted successful fiscal reforms, returning Latvia’s economy to positive growth, placing it on the 21st place among 183 states. It has a favorable business environment in general, nevertheless, some of the indicators listed below, still need to be reconsidered and improved:

  • Cross-border trade: 15th place.
  • Business start-up procedures: 51st place.
  • In the efficiency of insolvency proceedings: 32nd place.
  • In accessibility of credit: 4th place.
  • In recording real estate transactions: 32nd place.
  • In investor protection: 65th place;
  • Tax burden and simplicity of payments: 67th place.

COMMERCIAL ISSUES

In terms of commerce, Latvia is in generally welcoming to foreign companies. Investment and repatriation profits can be easily made since there are no controls on import, export, or the use and conversion of foreign currencies. English is a commonly spoken language both in government and business related matters.

The legal system, tax structures, and trade and other regulations in Latvia have been significantly improved to match with the EU criteria. Most EU parameters have been incorporated into the Latvian legislative system.

Latvia is well connected by more than 80 direct flights to all major European cities, a direct flight to New York JFK and plenty of connecting flights to other cities in the world. Latvia’s state-owned national airline, airBaltic, has made Riga a regional hub for international commerce.

WHAT ABOUT LATVIA’S ECONOMY?

There are four cornerstones of the Latvian economy: agriculture, chemicals, logistics (e.g. transportation, information technology, and financial services), and woodworking. The construction industry also plays an important role, as do food processing, metalworking, and light industries. During the past years, tourism has been growing rapidly.

Agriculture is the traditional occupation of Latvians and is still vital for the country’s economy nowadays. The yearly production of this sector is worth over a billion Euros. Grain makes up a third of the sector. High-quality dairy goods and honey are some of the most representative high added value export products.

Chemical products (pharmacy, recycling, eco-friendly chemicals and bio cosmetics) manufactured in Latvia are widely exported abroad. Medicinal research and discoveries are among the highlights of the Latvian chemical industry.

The logistics industry is one of the oldest ones in Latvia thanks to its geographic location. Ports, rail, and roads of Latvia have always linked Europe and the rest of the West with the East.

Image courtesy of Barn Images at Flickr.com
Image courtesy of Barn Images at Flickr.com

Woodworking is the most commonly known industry of Latvia for its high export rates. The country keeps the balance between business and nature by designating natural reserves, state-owned forests and applying long-term business strategies.

Good opportunities supported by the government exist for various sectors including energy, computer, forestry, farming, and woodworking equipment; transportation, and agricultural products. Latvia’s increased competitiveness, spurred by its handling of the financial crisis, has increased the potential for investments in both the manufacturing and services sectors.

GOVERNMENT SUPPORT

After the economic crisis in 2008, the government decided to honor all obligations to the international creditors and Latvia’s economy got back on the track between 2011 and 2013. The national credit rating reached a stable A- by 2014. Unemployment decreased to a single digit number by summer 2014.

Focusing on avoiding a recurrent crisis, one of the main goals set by the Latvian government is to ensure that Latvia is among the 20 best countries in the Doing Business ratings, by ensuring a stable, predictable business environment that is attractive to foreign investment. Currently, Latvia has a flat corporate income tax rate of 15%.

During the 2014-2020 period, the Latvian government will administer approximately $6.1 billion of EU structural funds for grants in different business areas. The Latvian government is constantly providing incentives related to tax payment, labor, research and development, and state credit guarantees.

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