Latvia

Bureau of Economic and Business Affairs
Report
July 5, 2016

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Executive SummaryShare    

Located in the Baltic region of northeastern Europe, Latvia is a member of the EU, eurozone, NATO, and the World Trade Organization (WTO). The Latvian government recognizes that Latvia, as a small country, must attract foreign investment in order to foster economic growth, and thus has pursued liberal economic policies and developed infrastructure to position itself as a transportation hub. According to the World Bank’s Doing Business Report 2015, Latvia is ranked 22nd out of 189 countries in terms of ease of doing business. In 2015, Latvia made significant progress in negotiations to accede to the Organization for Economic Cooperation and Development (OECD) and hopes to become a full OECD member in 2016.

As an EU member, Latvia applies EU laws and regulations, and, according to current legislation, foreign investors possess the same rights and obligations as local investors with certain exclusions. Any foreign investor is entitled to establish and own a company in Latvia and has the opportunity to acquire a temporary residence permit.

There is a perceived lack of fairness and transparency in the public procurement process in Latvia. A number of companies, including foreign companies, have complained that bidding requirements are sometimes written with the assistance of potential contractors or couched in terms that exclude all but “preferred” contractors.

Nonetheless, Latvia provides several advantages to potential investors, including:

Regional Hub: Latvia bridges West and East, providing strategic access to both the EU market and to those of Russia and Central Asia to the east. Latvia’s three ice-free ports are connected to the country’s rail and road networks and the largest international airport in the Baltic region. The road network is connected to both European and Central Asian road networks. The railroads connect Latvia with the other Baltic states, Russia, and Belarus, with further connections extending into Central Asia and China.

Workforce: Latvia's workforce is highly educated, is multilingual, and its culture promotes hard work and dependability. Labor costs in Latvia are the 4th lowest in the EU.

Low Taxes: Latvia has one of the lowest corporate income tax rates in the EU at a flat rate of 15 percent, and personal income tax rate of 23 percent. To further boost its competitiveness, the Latvian government has established special incentives for investment, both foreign and domestic. There are four special economic zones (SEZs) in Latvia: Riga Free Port, Ventspils Free Port, Liepaja Special Economic Zone, and Rezekne Special Economic Zone, which provide various tax benefits for investors. The national government is in the process of establishing a broader Special Economic Zone to cover a portion of Latgale, the most economically challenged region in Latvia, bordering Russia and Belarus.

In 2015, GDP growth in Latvia remained stable at 2.7 percent. Although growth was strong relative to the rest of the EU, Latvia’s economy was affected by the weak performance of the euro currency area, as well as geopolitical tensions involving Russia. The continued economic slowdown in Russia will continue to affect both exports and investment in Latvia in 2016.

The most competitive sectors in Latvia include woodworking, metalworking, food processing, IT, life science, green tech, and finance.

Recent reports suggest that some of the most significant challenges investors encounter in Latvia include insufficient development of infrastructure, corruption, and non-transparent or non-responsive bureaucracy. The non-resident banking sector has come under increased regulatory scrutiny, with one commercial bank losing its operating license for alleged involvement in money laundering; several other banks are facing heavy fines by Latvia’s Financial and Capital Markets Commission.

The chart below shows Latvia's ranking on several prominent international measures of interest to potential investors.

Table 1

Measure

Year

Index or Rank

Website Address

TI Corruption Perceptions index

2015

40 of 168

http://www.transparency.org/cpi2015result

World Bank’s Doing Business Report “Ease of Doing Business”

2015

22 of 189

doingbusiness.org/rankings

Global Innovation Index

2015

33 of 143

globalinnovationindex.org/content/page/data-analysis

U.S. FDI in partner country (M EUR, stock positions)

2015

136.32

https://statdb.bank.lv/lb/Data.aspx?id=128

World Bank GNI per capita

2014

$15,280

data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

1. Openness To, and Restrictions Upon, Foreign InvestmentShare    

Attitude toward Foreign Direct Investment

The Latvian government actively encourages foreign direct investment (FDI) and works with investors to improve the country's business climate. To strengthen these efforts, the Latvian government introduced the POLARIS process, a mechanism designed to create an alliance between the public sector, including national and local governments; the private sector, covering both national and international companies; and major Latvian academic and research institutions to encourage FDI and spur economic growth. The Latvian government also meets annually with the Foreign Investors Council in Latvia (FICIL), which represents large foreign companies and chambers of commerce, with the express purposes of improving the business environment and encouraging foreign investment. The Coordination Council for Large and Strategically Important Investment Projects is chaired by the Prime Minister. In 2015, FICIL published its Sentiment Index 2015 – a survey of current foreign investors on the investment climate in Latvia. It is available at: http://www.ficil.lv/f/FICIL%20Sentiment%20Index%20Report%202015.pdf

Other Investment Policy Reviews

The Organization for Economic Cooperation and Development (OECD) published an Economic Survey of Latvia in February 2015 (http://www.oecd.org/economy/surveys/economic-survey-latvia.htm). Although there have been no trade policy reviews specifically involving Latvia, the WTO completed its latest review of the European Union in July 2015. (https://www.wto.org/english/tratop_e/tpr_e/tp417_e.htm). Additionally, in January 2016, the Latvian government signed an agreement with the World Bank to conduct a review of the current tax system. Previously, the World Bank carried out a similar review of Latvia’s port infrastructure in November 2013.

Laws/Regulations on Foreign Direct Investment

Incoming foreign investment in Latvia is regulated by the Commercial Law. The court system is generally viewed as being fair to the interests of foreign investors. The website of the Latvian Investment and Development Agency is a helpful resource for navigating the rules and procedures governing foreign investment. (http://liaa.gov.lv/invest-latvia).

Business Registration

The official website of the Latvian Commercial Register – http://www.ur.gov.lv/ – is not available in English and thus the online business registration process can be difficult for foreign companies to navigate. The World Bank’s Doing Business project has done a detailed review of the business registration process in Latvia, which is available here: http://www.doingbusiness.org/data/exploreeconomies/latvia/starting-a-business.

In addition, the Latvian Investment and Development Agency has prepared a guide with step-by-step information on starting a business in Latvia: http://liaa.gov.lv/invest-latvia/investor-business-guide/operating-environment. The agency prides itself on the fact that a business can be registered in Latvia in a single day.

Latvia follows the definitions of micro, small, and medium enterprises (MSMEs) set by the European Commission (http://ec.europa.eu/growth/smes/business-friendly-environment/sme-definition/index_en.htm). Based on these definitions, Latvia has established a special tax regime for micro businesses. A micro business tax payer may be a self-employed person or a limited liability company with individual shareholders; its turnover in a calendar year must not exceed 100,000 euros; and the number of its employees at any time cannot exceed five. The tax rate charged covers social security contributions, personal income tax, and business risk tax for employees, and includes corporate income tax if the micro business taxpayer is a limited liability company. The maximum remuneration per employee (including the owner) is 720 euros a month. This special tax regime is available to foreign nationals and MSMEs.

Industrial Promotion

Latvia has established a National Industrial Policy (NIP), which aims to promote structural changes in the economy, to foster the manufacture of goods and services with higher added value. More information on the NIP is available here: https://www.em.gov.lv/en/sectural_policy/industrial_policy/.

In addition, Latvia has identified the following sectors as having the highest potential for new investment: woodworking, metalworking and mechanical engineering, transport and storage, information technology (including global business services), green technology, health care, life sciences, and food processing. The information is disseminated to the general public and potential investments via the Latvian Investment and Development Agency’s official website (http://liaa.gov.lv/invest-latvia/sectors-and-industries), and through its representative offices (http://liaa.gov.lv/contacts/representative-offices).

Limits on Foreign Control and Right to Private Ownership and Establishment

Latvia reserves the right to discriminate against foreign investors in these areas: control of defense industries; manufacturing and sale of narcotics, weapons and explosives; control of newspaper, television and radio broadcasting stations, or news agencies; recovery of all renewable and non-renewable natural resources including resources found on the continental shelf; fishing; hunting; air transportation services and port management; ownership and control of land; brokerage or real property; gambling and lotteries; private security and surveillance services; auditing services; the cross-border provision of banking and financial services; and the cross-border provision of insurance and private pension services.

With these limited exceptions, physical and legal persons who are citizens of Latvia or of other EU countries may freely purchase real property. In general, physical and legal persons who are citizens of non-EU countries (“third-country nationals”) may also freely purchase developed real property. However, third-country nationals may not directly purchase certain types of agricultural, forest, and undeveloped land. Such persons may acquire ownership interest in such land through a company registered in the Register of Enterprises of the Republic of Latvia, provided that more than 50 percent of the company is owned by: (a) Latvian citizens and/or Latvian governmental entities; and/or (b) physical or legal persons from countries with which Latvia signed and ratified an international agreement on the promotion and protection of investments on or before December 31, 1996; or for agreements concluded after this date, so long as such agreements provide for reciprocal rights to land acquisition. The United States and Latvia have such an agreement (a bilateral investment treaty in force since 1996). In addition, foreign investors can lease land without restriction for up to 99 years. As of May 1, 2014 changes in the Law on Land Privatization in Rural Areas allow EU citizens to purchase Latvia’s agricultural land and forests. Other restrictions apply (to both Latvian citizens and foreigners) regarding the acquisition of land in Latvia's border areas, Baltic Sea and Gulf of Riga dune areas, and other protected areas.

The Latvian constitution guarantees the right to private ownership. Both domestic and foreign private entities have the right to establish and own business enterprises and engage in all forms of commercial activity, except those expressly prohibited by law.

Privatization Program

The Law on Privatization of State and Municipal Property governs the privatization process in Latvia. The Latvian Privatization Agency (LPA), established in 1994, uses a case-by-case approach to determine the method of privatization for each state enterprise. The three allowable methods are: public offering, auction for selected bidders, and international tender. For some of the largest privatized companies, a percentage of shares may be sold publicly on the NASDAQ OMX Riga Stock Exchange. The government may maintain shares in companies deemed important to the state's strategic interests. Privatization of small and medium-sized state enterprises is considered to be largely complete.

Latvian law designates six State Joint Stock Companies that cannot be privatized: Latvenergo (Energy and Mining), Latvijas Pasts (Services), International Airport Riga, Latvijas DzelzceIs (Automotive and Ground Transportation), Latvijas Gaisa Satiksme (Aerospace and Defense), and Latvijas Valsts Mezi (Forestry). Other large companies in which the Latvian government holds a controlling interest include airBaltic (Travel), Lattelecom (Information and Communication), and Latvian Mobile Telephone (Information and Communication). While Latvia sold a 20 percent stake in national carrier airBaltic to a German investor in early 2016, the government to date has not been successful in finding a strategic investor for the airline.

Screening of FDI

In keeping with EU and World Trade Organization requirements, there is generally no screening of foreign investment. However, in cases of greenfield investment requiring licenses regulated by the Public Services Regulatory Commission, or when the state offers tax exemptions or other concessions, significant due diligence measures may be applied. Tender regulations for greenfield investment projects are prepared on a case-by-case basis.

Business activities are regulated by the Commercial Law, which serves as the legal framework for establishing, registering, operating, expanding, and closing a business in Latvia. The law specifies five possible business legal entities: individual merchants, partnerships (general and limited), and corporations (joint stock and limited liability companies). Legislation that went into effect in 2010 offers special tax treatment for qualifying micro enterprises. Latvia has established the Large and Strategically Important Investment Project Coordination Committee to ensure the successful implementation of key investment projects and to organize cooperation between governmental institutions, municipalities, educational institutions, special economic zones, and free ports. The Committee is led by the Prime Minister as the chairman of the board and the Minister of Economics as the deputy chairman.

Competition Law

The competitive environment is supervised by the Competition Council (CC). More information can be accessed at: http://www.kp.gov.lv/en

2. Conversion and Transfer PoliciesShare    

Foreign Exchange

The currency of Latvia is the euro. There are no restrictions on exchanging currencies or capital movement and foreign investors are allowed to extract their profits in any currency with no restraints. As of March 29, 2016, one euro is worth USD 1.1154.

Remittance Policies

Latvian law provides for unrestricted repatriation of profits associated with an investment. Investors can freely convert local currency into foreign exchange at market rates, and have no difficulty obtaining foreign exchange from Latvian commercial banks for investment remittances. Exchange rates and other financial information can be obtained at the European Central Bank web site: https://www.ecb.europa.eu/stats/exchange/eurofxref/html/index.en.html.

Latvia is a member of the Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a FATF-style regional body. Its most recent mutual evaluation report can be found at: http://www.coe.int/t/dghl/monitoring/moneyval/Countries/Latvia_en.asp

According to the 2015 International Narcotics Control Strategy Report (INCSR), Latvia is listed as a country of concern. The full report is available here: http://www.state.gov/j/inl/rls/nrcrpt/2016/vol2/253415.htm

3. Expropriation and CompensationShare    

Cases of arbitrary expropriation of private property by the Government of Latvia are extremely rare. Expropriation of foreign investment is possible in a very limited number of cases specified in the Law on Expropriation of Real Property for Public Interest. If the owner of the property claimed by the government deems the compensation inadequate, the owner has the right to appeal to a Latvian court.

4. Dispute SettlementShare    

Legal System, Specialized Courts, Judicial Independence, Judgments of Foreign Courts

The 1993 Law on Judicial Power introduced a three-tier court system. Judicial power is exercised by district (city) courts; regional courts; and the Supreme Court. In addition, the Constitutional Court reviews the compatibility of decrees and acts of the President of the Republic, the government, and local authorities with the constitution and the law. Unless otherwise stipulated by law, district courts are the courts of first instance in all civil, criminal, and administrative cases. Regional courts are vested with the authority of appellate review for district court verdicts. In addition, regional courts are courts of first instance for cases specified in the Civil Code. Such cases include cases on the protection of patent rights, trademarks, and geographical indications; and cases on the insolvency and liquidation of credit institutions. The Supreme Court is the highest level court in the three-tiered Latvian court system. In accordance with the law, the Supreme Court reviews appeals in its capacity as the court of second instance (de novo review) and as the court of the third instance (cassation review). As of January 1, 2015, the appellate instance in the Supreme Court remains only for civil cases.

City and regional courts are administered by the Ministry of Justice (www.tm.gov.lv). The Supreme Court and Constitutional Court are independent. The Ministry has enacted reforms which have reduced the backlog of cases in the lower courts. Nevertheless, improvements in the judicial system are still needed to accelerate the adjudication of cases, to strengthen the enforcement of court decisions, and to upgrade professional standards.

Bankruptcy

There are two laws governing bankruptcy procedure: the Law on Insolvency and the Law on Credit Institutions (regulating bankruptcy procedures for banks and other financial sector companies). Recent changes to the Law on Insolvency were designed to make the process more efficient and accessible to physical persons.

According to the World Bank’s Doing Business Report 2015 Latvia ranked 43rd out of 189 countries in terms of ease of resolving insolvency.

The business community has expressed concerns over inefficiency and allegations of corruption in Latvia’s insolvency administration system. The Foreign Investors Council in Latvia has prepared a position paper on the system, which is accessible here: http://www.ficil.lv/view/en/63/insolvency-process-2015/

Investment Disputes

Investment disputes concerning U.S. or other foreign investors and Latvia are generally rare.

International Arbitration

A register of arbitration institutions was established in 2005. On January 1, 2015, the new Law on Arbitration courts came into force regulating the establishment and operation of local arbitration courts in Latvia. According to the information available in the register, there are 83 arbitration institutions registered in Latvia (http://www.ur.gov.lv/skirejtiesas.html). In most commercial agreements, parties opt to refer their disputes to arbitration rather than to the Latvian courts.

The Civil Procedure Law, which came into force on March 1, 1999, contains a section on arbitration courts. This section was drafted on the basis of the UNCITRAL model law, thus providing full compliance with international standards. The law also governs the enforcement of rulings of foreign non-arbitral courts and foreign arbitrations. The full text of the law in English can be found here: http://www.vvc.gov.lv/export/sites/default/docs/LRTA/Likumi/The_Civil_Law.doc.

ICSID Convention and New York Convention

Latvia has been a member of the International Center for the Settlement of Investment Disputes (ICSID) since 1997 and a member of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards since 1992. Judgments of foreign arbitral courts that are made in accordance with either can therefore be enforced in Latvia. The Civil Procedure Law stipulates that the judgments of foreign non-arbitral courts can be enforced in Latvia.

Duration of Dispute Resolution – Local Courts

Investment and commercial dispute resolution proceedings in Latvia typically take between two and three years, if the case is reviewed at all possible levels and the involved parties do not deliberately delay the proceedings. It should be noted that the length of these proceedings can differ significantly depending on the Latvian region in which the case is filed.

5. Performance Requirements and Investment IncentivesShare    

WTO/TRIMS

As a member of the WTO, Latvian government does not maintain any measures that are inconsistent with Trade Related Investment Measures (TRIMs) requirements.

Investment Incentives

The Latvian government extends national treatment to foreign investors. Therefore most investment incentives and requirements apply equally to local and foreign businesses. Latvia has two special economic zones and two free ports in which companies benefit from various tax rebates (real estate, dividend, and corporate income) and do not pay VAT. The full list of investment incentives is available here: http://www.liaa.gov.lv/invest-latvia/investor-business-guide/incentives-investors.

Research and Development

The Latvian government offers incentive schemes for investment, both foreign and domestic, in several free ports, special economic zones, and in special support regions, as well as through the POLARIS process. The process provides free support for investors from the preparation phase up until the investment project is completed. More information on these programs can be found here: http://www.liaa.gov.lv/invest-latvia/why-latvia/business-incentives/incentives-rd.

Performance Requirements

Under Latvian law, foreign citizens can enter Latvia for temporary business activities for up to three months in a half-year period. For longer periods of time, foreigners are required to obtain residence and work permits.

A physical third-country national may obtain a five-year temporary residence permit if he or she has made certain minimum equity investments in a Latvian company, certain subordinated investments in a Latvian credit institution, or purchased real estate for certain designated sums, subject to limitations in each case. More information is available here: http://www.pmlp.gov.lv/en/home/services/residence-permits/

Data Storage

The Government of Latvia does not follow a forced localization policy, and there are no requirements for foreign IT providers to turn over source code or to provide access to surveillance. There are no mechanisms in place to enforce the maintaining of a certain amount of data storage within Latvia. Data protection in Latvia is performed by the Data State Inspectorate of Latvia: http://www.dvi.gov.lv/en/.

6. Protection of Property RightsShare    

Real Property

Latvia has full legal rights to property and, according to World Bank’s Doing Business Report 2016, is ranked 23rd out of 189 countries in terms of ease of registering property.

Intellectual Property Rights

In an effort to harmonize its legislation with EU and WTO requirements, Latvia has established a legal framework for the protection of intellectual property. In 1993, the Latvian Parliament passed legislation to protect copyrights, trademarks, and patents. In 2000, the Parliament adopted the Law on Copyrights. The law strengthens the protection of software copyrights and neighboring rights. Foreign owners may seek redress for violation of their intellectual property rights through the appellation council at the Latvian Patent Office; court action can also be sought in such cases. In copyright violation cases, the interested party can request that the use of the pirated works be prohibited, that pirated copies be destroyed, and that remuneration for losses be paid (including for lost profits). The criminal law stipulates penalties for copyright violations.

In July 1994, the United States signed a Trade and Intellectual Property Rights Agreement with Latvia. Latvia has been a member of the World Intellectual Property Organization (WIPO) since January 1993, the Paris Convention since September 1993, the Berne Convention since August 1995, and the Geneva Convention for the Protection of Producers of Phonograms against Unauthorized Duplication of their Phonograms since August 1997. In addition, the Latvian government has amended all relevant laws and regulations to comply with the requirements of the WTO TRIPS agreement (Agreement on Trade-Related Aspects of Intellectual Property Rights), to which Latvia acceded by joining the WTO.

Latvia has also acceded to the following international treaties and agreements:
– Patent Co-operation Treaty (September 1993);
– Budapest Treaty on the International Recognition of the Deposit of Micro-organisms for the Purposes of Patent Procedure (December 1994);
– Madrid Agreement on International Registration of Trade Marks (January 1995);
– Nice Agreement on International Classification of Goods and Services for the Purposes of Trade Mark Registration (January 1995);
– Rome Convention for the Protection of the Rights of Performers, Producers of Phonograms, and Broadcasting Organizations (with a note to not apply article 12 of the convention concerning phonograms of producers that are not nationals of contracting states) (August 1999); and
– Geneva Agreement on Trade Marks (December 1999).

The business community has raised concerns regarding the enforcement of these intellectual property protection standards in Latvia. As in much of Eastern and Central Europe, piracy rates are relatively high. Previously, there have been some reports of infringement of software licensing agreements by government offices, as well as government efforts to rectify such activity. Latvian law enforcement authorities do have the ex-officio authority.)

Every year, the European Commission publishes a report describing the customs detentions of articles suspected of infringing intellectual property rights (IPR), such as trademarks, copyrights and patents. These statistics are available here: http://ec.europa.eu/taxation_customs/customs/customs_controls/counterfeit_piracy/statistics/index_en.htm. Additional information on customs IPR enforcement is available on the website of Latvian Customs Board: https://www.vid.gov.lv/default.aspx?tabid=9&id=2080&hl=2.

The Foreign Investors Council in Latvia has drafted a position paper on IPR protection and promotion, which is available here: http://www.ficil.lv/f/4_14%2005%2030%20Intellectual%20property%20protection%20and%20promotion.pdf.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.

Resources for Rights Holders

- Kevin Burgwinkle
- Economic Officer, U.S. Embassy Riga, Latvia
- +371 6710-7032
- BurgwinkleKJ@state.gov

List of Attorneys in Latvia, compiled by the Consular Section of the U.S. Embassy in Riga: http://riga.usembassy.gov/legal_assist_en2.html

American Chamber of Commerce of Latvia: http://www.amcham.lv/en/home

Contact at Copyright Offices

  • Mr. Reinis Markvarts
  • Director of Copyright Division, Ministry of Culture of the Republic of Latvia
  • +371 6733-0240
  • Reinis.Markvarts@km.gov.lv

Contact at Industrial Property Offices

  • Mr. Sandris Laganovskis
  • Director of the Patent Office of the Republic of Latvia
  • +371 670 99 608
  • valde@lrpv.lv

7. Transparency of the Regulatory SystemShare    

The Latvian government has amended its laws and regulatory procedures in an effort to bring Latvia's legislation in compliance with the EU and WTO GPA requirements. A number of legislative changes were aimed at increasing the transparency of the Latvian business environment and regulatory system. At the same time, the massive legislative changes carried out in a short period of time have led to some laws and regulations that could be subject to conflicting interpretations. The Latvian government has developed a good working relationship with the foreign business community (through FICIL) to streamline various bureaucratic procedures and to address legal and regulatory issues as they arise.

8. Efficient Capital Markets and Portfolio InvestmentShare    

Latvian government policies do not interfere with the free flow of financial resources or the allocation of credit. Local bank loans are available to foreign investors.

Money and Banking System, Hostile Takeovers

In March 2016, the Financial and Capital Markets Commission, Latvia’s financial regulator, canceled Latvian bank Trasta Komercbanka’s operating license following allegations of facilitating money laundering and shortfalls in regulatory enforcement. While Latvian banks servicing non-resident deposits came under increased scrutiny in late 2015 and early 2016 for insufficient regulation, Latvia’s retail banking sector, which is composed primarily of Scandinavian retail banks, maintains a positive reputation.

The regulatory framework for commercial banking incorporates all principal requirements of EU directives. A unified capital and financial markets regulator was launched on July 1, 2001, replacing the Securities Market Commission, the Insurance Inspectorate, and the Bank of Latvia's Banking Supervision Department. Existing banking legislation includes provisions on accounting and financial statements (strict adherence to international accounting standards is required), minimum initial capital requirements, capital adequacy requirements, large exposures, restrictions on insider lending, open foreign exchange positions, and loan-loss provisions. An Anti-Money Laundering Law came into effect in August 2008 and a Deposit Guarantee Law came into effect in January 2003. An independent anti-money laundering unit operates under the supervision of the Prosecutor General's Office. Some of the banking regulations, such as capital adequacy and loan-loss provisions, exceed EU requirements.

According to the Association of Commercial Banks of Latvia, total assets of the country’s banks at the end of March 2015 stood at approximately 31.2 billion euros. More information is available at: http://www.bankasoc.lv/en/statistics/ and http://www.fktk.lv/en/publications/press-releases/5601-bank-performance-in-latvia-2015-year-of-steady-progress.html.

Securities markets are regulated by the 2000 Law on the Consolidated Capital Markets Regulator, the 2004 Law on the Financial Instrument Market, and several other laws and regulations. Protection of investor interests is ensured by strict control over participants in the securities market.

The NASDAQ/OMX Riga Stock Exchange (RSE) (www.nasdaqomxbaltic.com) began operations in 1995. France assisted Latvia in setting up the securities market based on a continental European model. In 1997, the RSE was admitted to the International Federation of Stock Exchanges as a corresponding emerging market. The RSE was the first exchange in Eastern Europe to create an index in cooperation with Dow Jones.

9. Competition from State-Owned EnterprisesShare    

Private enterprises may compete with public enterprises on the same terms and conditions with respect to access to markets, credit, and other business operations such as licenses and supplies. The Latvian government has fully implemented the requirements of the EU’s Third Energy Package, including opening the electricity market to private power producers, allowing them to compete on an equal footing with Latvenergo, the state-owned power company.

SOEs are active in the energy and mining, aerospace and defense, services, information and communication, automotive and ground transportation, and forestry sectors.

Latvia as a member of the EU is a party to the Government Procurement Agreement within the framework of the World Trade Organization, and SOEs are covered under the agreement.

Detailed information on Latvian SOEs is available in the OECD Review of the Corporate Governance of State-Owned Enterprises in Latvia, which is available here: http://www.oecd.org/daf/ca/oecd-review-corporate-governance-soe-latvia.htm

OECD Guidelines on Corporate Governance of SOEs

Senior managers of SOEs in Latvia report to independent boards of directors, which in turn report to the line ministries. As of January 1, 2015, SOEs are operating under a new law, entitled “On Public Persons Enterprises and Capital Shares Governance.” The law has reintroduced supervisory boards for major SOEs, which were eliminated in 2009 as a cost-cutting measure after the financial crisis, in order to represent shareholder interests in between shareholder meetings and to supervise the activities of the boards of directors. The law also establishes an entity that coordinates state enterprise ownership, and requires annual aggregate reporting. On March 29, 2016, the Latvian government committed to establishing supervisory boards for 12 of Latvia's largest state-owned enterprises by the end of 2016, in line with OECD recommendations. The Cross-Sectoral Coordination Center is the agency coordinating the process. Detailed information on Latvian SOEs is available here: http://www.pkc.gov.lv/images/Kapitalsabiedribas/Annual_Report_on_SOEs.pdf.

For additional information please see the OECD Review of the Corporate Governance of State-Owned Enterprises in Latvia of March 23, 2015 here: http://www.oecd.org/eco/surveys/Overview_Latvia_2015_Eng.pdf

Sovereign Wealth Funds

Latvia does not have a sovereign wealth fund.

10. Responsible Business ConductShare    

Awareness of and implementation of due diligence principles of corporate social responsibility (CSR)/Responsible Business Conduct is developing among producers and consumers. Two of the most active promoters of CSR are the American Chamber of Commerce in Latvia and the Employers’ Confederation of Latvia. The Latvian Ministry of Welfare has also taken an active part in promoting CSR. Several initiatives have been particularly active on CSR, including the Institute for Corporate Sustainability and Responsibility (http://incsr.eu/) the Corporate Social Responsibility Platform (http://www.ksalatvija.lv/en), and the

Human Development Award (http://www.cilvekaizaugsme.lv/home/organizers/).

Latvia has adhered to the OECD Guidelines for Multinational Enterprises since 2004. Latvia's National Contact Point for the Guidelines can be contacted through this website: https://mneguidelines.oecd.org/ncps/latvia.htm Latvia also promotes the United Nations Guiding Principles on Business and Human Rights, endorsed by the UN Human Rights Council in 2011.

11. Political ViolenceShare    

There have been no reports of political violence or politically motivated damage to foreign investors’ projects or installations. The likelihood of widespread civil disturbances is very low. While Latvia has experienced peaceful demonstrations related to internal political issues, there have been rare incidents when these have devolved into crimes against property, such as breaking shop windows or damaging parked cars. U.S. citizens are cautioned to avoid any large public demonstrations, as even peaceful demonstrations can turn confrontational. The Embassy provides periodic notices to U.S. citizens in Latvia that can be found on the Embassy’s web site: http://riga.usembassy.gov/.

12. CorruptionShare    

Latvian law enforcement institutions, foreign business representatives, and non-governmental organizations have identified corruption and the perception of corruption as persistent problems in Latvia. According to the 2015 Corruption Perception Index by Transparency International, Latvia ranks 40th out of 168 countries (in order from the lowest perceived level of public sector corruption to the highest).

In an effort to strengthen its anti-corruption program, the Latvian government has adopted several laws and regulations, including the 1998 Law on Money Laundering (amended in 2009), and the 2002 Law on Conflicts of Interest (replacing the 1995 Anti-Corruption Law). The Conflicts of Interest Law imposes restrictions and requirements on public officials and their relatives. Several provisions of the law deal with the previously widespread practice of holding several positions simultaneously, often in both the public and private sector. The law includes a comprehensive list of state and municipal jobs that cannot be combined with additional employment. Moreover, the law expands the scope of the term “state official” to include members of boards and councils of companies with state or municipal capital exceeding 50 percent. Latvia became a member of the OECD Anti-Bribery Convention in 2014. In line with OECD recommendations associated with Latvia’s accession process, the government is working to strengthen anti-corruption enforcement and improve the functioning of its independent agency, the Anti-Corruption Bureau (KNAB).

Under Latvian law, it is a crime to offer or to accept a bribe or to facilitate an act of bribery. Although the law stipulates heavy penalties for bribery, there have been only a limited number of government officials prosecuted and convicted for corruption to date. In 2013 new amendments to the Latvian Criminal Law came into effect that broadened the definition of state and local government employees to enable wider anti-bribery enforcement. The amendments also created the possibility of withdrawing charges against a person giving a bribe in cases where the bribe has been extorted, or in cases where the person voluntarily reports these incidents and actively assists the investigation.

The primary institution responsible for combating corruption is KNAB, whose task is to carry out operational activities on fighting incidents of corruption. The Crime Prevention Council chaired by the Prime Minister is in charge of coordinating and supervising all state authorities’ activities to prevent crime and corruption. The Prosecutor General's Office also plays an important role in fighting corruption. Princeton University in 2012 published a case study on KNAB, which is available here: http://www.knab.gov.lv/uploads/eng/policy_note_id215.pdf.

There is a perceived lack of fairness and transparency in the public procurement process in Latvia. A number of companies, including foreign companies, have complained that bidding requirements are sometimes written with the assistance of potential contractors or couched in terms that exclude all but “preferred” contractors.

A regulation of the Cabinet of Ministers provides for public access to government information, and the government generally provided citizens such access. There have been no reports that noncitizens or the foreign media have been denied access.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Latvia has signed the Council of Europe’s Criminal Convention on Corruption and the United Nations Convention against Corruption, and is also a member of the OECD Anti-Bribery Convention.

Resources to Report Corruption

Contact at Corruption Prevention and Combating Bureau (KNAB)

  • Corruption Prevention and Combating Bureau
  • Brivibas iela 104 block 2, Riga, LV 1001, Latvia
  • +371 67356161
  • knab@knab.gov.lv

Contact at DELNA (Transparency International)

  • Association "Society for Transparency - Delna"
  • Citadeles iela 8, Riga, LV-1010
  • +371 67285585
  • ti@delna.lv

Assistance for U.S. Businesses: The U.S. Department of Commerce offers services to U.S. businesses seeking to address business-related corruption issues. For example, the U.S. Foreign Commercial Service provides services that assist U.S. companies in conducting their due diligence as part of the company’s overarching compliance program when choosing business partners or agents overseas. The U.S. Foreign Commercial Service can be reached directly through its offices in every major U.S. and foreign city, or through its Website at www.trade.gov/cs.

13. Bilateral Investment AgreementsShare    

Latvia and the United States share a bilateral investment treaty that came into force in December 1996. Latvia has additionally concluded bilateral investment agreements with Armenia, Austria, Azerbaijan, Belarus, BLEU (Belgium-Luxembourg Economic Union), Bulgaria, Canada, China, Croatia, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, India, Israel, Kazakhstan, Korea, Kuwait, Kyrgyzstan, Lithuania, Moldova, Netherlands, Norway, Poland, Portugal, Romania, Singapore, Slovakia, Spain, Sweden, Switzerland, Turkey, Ukraine, United Kingdom, Uzbekistan, and Viet Nam.

Currently the EU and the United States are negotiating a comprehensive Transatlantic Trade and Investment Partnership (TTIP).

Bilateral Taxation Treaties

Latvia has concluded the Treaty on Avoidance of Double Taxation with the United States, which entered into force on December 30, 1999.

14. OPIC and Other Investment Insurance ProgramsShare    

Overseas Private Investment Corporation (OPIC) political risk insurance coverage is available for U.S. investments in Latvia. Nevertheless, Latvia was recently added to the list of Very High Income countries defined as countries with a nominal GNI per capita of USD 15,000 or greater, which restricts OPIC from approving new projects in Latvia.

Latvia is a member of the World Bank Group's Multilateral Investment Guarantee Agency (MIGA) which also provides risk insurance.

15. LaborShare    

The official rate of registered unemployment in January 2016, according to Eurostat, was 10.4%. The Latvian State Employment Agency (LSEA) reported 9.1% unemployment at the end of January 2016. According to LSEA, youth unemployment at the end of January 2016 was 20 percent. Unemployment is significantly higher in rural areas. A high percentage of the workforce has completed at least secondary or vocational education. Foreign managers praise the high degree of language skills, especially in Russian and English, among Latvian workers. However, there is a shortage of mid- and senior-level managers with western-style management skills.

Companies must keep wages above a legally specified minimum, which since January 1, 2016, is 370 euros per month. Union influence on the wage setting process is limited. Trade unions do not have significant influence on the labor market. Additional information on trade unions in Latvia, is available here: http://www.worker-participation.eu/National-Industrial-Relations/Countries/Latvia

One challenge that employers have faced since Latvia joined the EU is that many skilled employees can find better employment opportunities in other EU countries. Unofficial statistics suggest that more than 200,000 people have moved from Latvia to other EU countries since May 1, 2004. Despite the fact that the macroeconomic situation has stabilized, skilled and unskilled workers continue to emigrate. The government is implementing a strategy to entice people who have left Latvia to return.

According to several reports there is a significant shortage of workers in manufacturing, wholesale and retail, transport and storage, and ICT sectors. The largest share of registered unemployment is comprised of persons with only primary or secondary education who do not possess the requisite specialized skills.

The Labor Law addresses discrimination issues, provides detailed provisions on the rights and obligations of employees' representatives, and created the Conciliation Commission – an institution that can be established in any workplace.

Full-time employees in Latvia work 40 hours a week. Normally, there are five working days per week, but employers are allowed to schedule sixth work day without premium pay. Employees are entitled to four calendar weeks of annual paid vacations per year. An employer is prohibited from entering into an employment contract with a foreign individual who does not have a valid work permit.

Latvia is a member of the International Labor Organization (ILO) and has ratified all eight ILO Core Conventions.

16. Foreign Trade Zones/Free Ports/Trade FacilitationShare    

There are four free trade areas in Latvia. Free ports have been established in Riga and Ventspils, and special economic zones (SEZ) have been created in Liepaja, a port city in western Latvia, and Rezekne, a city in the middle of the eastern Latvian region that borders Russia. The government plans to create an additional SEZ in part of Latgale, the poorest region in Latvia, which borders Russia and Belarus.

Somewhat different rules apply to each of the four zones. In general, the two free ports provide exemptions from indirect taxes, including customs duties, VAT, and excise tax. The SEZs offer additional incentives, such as an 80-100 percent reduction of corporate income taxes and real estate taxes. To qualify for tax relief and other benefits, companies must receive permits and sign agreements with the appropriate authorities: the Riga and the Ventspils Port Authorities, for the respective free ports; the Liepaja SEZ Administration; or the Rezekne SEZ Administration. The SEZs will be in place until 2035.

17. Foreign Direct Investment and Foreign Portfolio Investment StatisticsShare    

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

 

Host Country Statistical source*

USG or international statistical source

USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other

Economic Data

Year

Amount

Year

Amount

 

Host Country Gross Domestic Product (GDP) ($M USD)

2015

6462.9 million EUR

2014

$31.29 billion

http://data.worldbank.org/country/latvia

Foreign Direct Investment

Host Country Statistical source*

USG or international statistical source

USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other

U.S. FDI in partner country ($M USD, stock positions)

2015

136.32 million EUR

Not available

Not available

http://bea.gov/international/direct_investment_
multinational_companies_comprehensive_data.htm

Host country’s FDI in the United States ($M USD, stock positions)

2015

10.98 million EUR

Not available

Not available

http://bea.gov/international/direct_investment_
multinational_companies_comprehensive_data.htm

Total inbound stock of FDI as % host GDP

2015

54.8%

2014

55.7%

Bank of Latvia (bank.lv)

* https://www.bank.lv/en/statistics/key-macroeconomic-indicators. **These figures significantly underestimate the value of U.S. investment in Latvia due to the fact that these do not account for investments by U.S. firms through their European subsidiaries.


Table 3: Sources and Destination of FDI

The Top 3 sources of Foreign Direct Investment of Latvia are Sweden, Netherlands, Cyprus. It should be noted that foreign investment registered as coming from Cyprus is widely believed to be coming from Russia.

Direct Investment from/in Counterpart Economy Data

From Top Five Sources/To Top Five Destinations (US Dollars, Millions)

Inward Direct Investment

Outward Direct Investment

Total Inward

14,664

100%

Total Outward

1,334

100%

Sweden

3,049

21%

Lithuania

359

27%

Netherlands

1,142

8%

Switzerland

193

14%

Cyprus

1,089

7%

Estonia

129

10%

Russian Federation

1,016

7%

Cyprus

104

8%

Germany

829

6%

Russian Federation

97

7%

"0" reflects amounts rounded to +/- USD 500,000.

Source: IMF Coordinated Direct Investment Survey


Table 4: Sources of Portfolio Investment

Portfolio Investment Assets

Top Five Partners (Millions, US Dollars)

Total

Equity Securities

Total Debt Securities

All Countries

11,079

100%

All Countries

1,740

100%

All Countries

9,336

100%

United States

2,087

19%

Luxembourg

895

51%

United States

2,030

22%

Luxembourg

1,685

15%

Ireland

366

21%

Germany

1,199

13%

Germany

1,244

11%

France

107

6%

Luxembourg

790

8%

France

863

8%

United States

57

3%

France

755

8%

Ireland

855

8%

Estonia

53

3%

Ireland

660

7%

 

18. Contact for More InformationShare    

-Guntars Vicmanis
-Commercial Assistant
-Samnera Velsa iela 1, Riga, Latvia, LV-1510
-+371 6710 7000
-RigaCommerce@state.gov