Located in the Baltic region of northeastern Europe, Latvia is a member of the EU, Eurozone, NATO, OECD, and the World Trade Organization (WTO). The Latvian government recognizes that, as a small country, it must attract foreign investment to foster economic growth, and thus has pursued liberal economic policies and developed infrastructure to position itself as a transportation and logistics hub. As a member of the European Union, Latvia applies EU laws and regulations, and, according to current legislation, foreign investors possess the same rights and obligations as local investors (with certain exceptions). Any foreign investor is entitled to establish and own a company in Latvia and apply for a temporary residence permit.
Latvia provides several advantages to potential investors, including:
Regional hub: Latvia is a transportation and logistics hub between West and East, providing strategic access to both the EU market and to Russia and Central Asia. Latvia’s three ice-free ports are connected to the country’s rail and road networks and to the largest international airport in the Baltic region (Riga International Airport). Latvia’s road network is connected to both European and Central Asian road networks. 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 and multilingual, and its culture promotes hard work and dependability. Labor costs in Latvia are the fifth lowest in the EU.
Competitive tax system: Latvia ranked second in the OECD’s 2021 International Tax Competitiveness Index Rankings. To further boost its competitiveness, the Latvian government has abolished taxes on reinvested profits and has established special incentives for foreign and domestic investment. There are five special economic zones (SEZs) in Latvia: Riga Free Port, Ventspils Free Port, Liepaja Special Economic Zone, Rezekne Special Economic Zone, and Latgale Special Economic Zone, which provide various tax benefits for investors. The Latgale Special Economic Zone covers a large part of Latgale, which is the most economically challenged region in Latvia, bordering Russia and Belarus.
Despite the continued COVID-19 pandemic, Latvia’s GDP increased by 4.8 percent in 2021, rebounding from the 3.6 percent contraction in 2020. According to the government, growth in manufacturing and services sectors contributed to the economic growth. The most competitive sectors in Latvia remain woodworking, metalworking, transportation, IT, green tech, healthcare, life science, food processing, and finance. Recent reports suggest that some of the most significant challenges investors encounter in Latvia are a shortage of available workforce, demography, quality of education, and a significant shadow economy.
Latvia has made significant progress combatting money laundering since its non-resident banking sector first came under increased regulatory scrutiny in 2018 because of inadequate compliance with international AML standards. In late 2019 and early 2020, MONEYVAL and the Financial Action Task Force (FATF) concluded that Latvia had developed and implemented strong enough reforms for combating financial crimes to avoid inclusion on FATF’s so-called “grey list.” The Government of Latvia continues work to restore confidence in its financial institutions and has passed several pieces of additional reform legislation. Latvia also became the first member state under the MONEYVAL review to successfully implement all 40 FATF recommendations.
Some investors note a perceived lack of fairness and transparency with Latvian public procurements. Several 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.
The chart below shows Latvia’s ranking on several prominent international measures of interest to potential investors.
|TI Corruption Perceptions Index||2021||36 of 180||http://www.transparency.org/research/cpi/overview|
|Global Innovation Index||2021||38 of 132||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2021||219 EUR*||https://statdb.bank.lv/lb/Data/128/128|
|World Bank GNI per capita||2020||USD 17,880||https://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
*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.
1. Openness To, and Restrictions Upon, Foreign Investment
3. Legal Regime
4. Industrial Policies
5. Protection of Property Rights
6. Financial Sector
7. State-Owned Enterprises
State-owned enterprises (SOEs) are active in the energy and mining, aerospace and defense, services, information and communication, automotive and ground transportation, and forestry sectors. 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 implemented the requirements of the EU’s Third Energy Package with respect to the electricity sector, including opening the electricity market to private power producers and allowing them to compete on an equal footing with Latvenergo, the state-owned power company. The country’s natural gas market has also been liberalized, creating competition among privately owned gas suppliers.
Latvia, as an EU member, is a party to the Government Procurement Agreement within the framework of the World Trade Organization, and SOEs are covered under the agreement.
In 2015, the OECD published a review of the corporate governance of Latvia’s SOE and found that Latvia’s SOE sector relative to the size of the national economy was larger than the OECD average. The full report is available here: .
Senior managers of major SOEs in Latvia report to independent boards of directors, which in turn report to line ministries. SOEs operate under the Law on Public Persons Enterprises and Capital Shares Governance. The law also establishes an entity that coordinates state enterprise ownership and requires annual aggregate reporting. Detailed information on Latvian SOEs is available here: .
8. Responsible Business Conduct
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 also promotes CSR. Several other initiatives promote CSR, such as the Institute for Corporate Sustainability and Responsibility ( ), the Corporate Social Responsibility Platform ( ), and the Human Development Award ( ).
Latvia adheres to the OECD Guidelines for Multinational Enterprises. Latvia’s national point of contact for the guidelines can be found here: . Latvia also promotes the United Nations Guiding Principles on Business and Human Rights, endorsed by the UN Human Rights Council in 2011.
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 2021 Corruption Perception Index by Transparency International, Latvia ranks 36th out of 180 countries (in order from the lowest perceived level of public sector corruption to the highest).
To strengthen its anti-corruption programs, the Latvian government has adopted several laws and regulations, including the Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing and the Law on Prevention of Conflicts of Interest in the Work of Public Officials. 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 expanded the scope of the term state official to include members of boards and councils of companies with state or municipal capital exceeding 50 percent. Additionally, Latvia is a member of the OECD Anti-Bribery Convention and the Council of Europe’s Group of States Against Corruption (FRECO). In line with OECD and GRECO recommendations, the government is working to strengthen anti-corruption policy and enforcement while improving the functioning of the independent Corruption Prevention and Combatting Bureau (KNAB).
Under Latvian law, it is a crime to offer, accept, or facilitate a bribe. Although the law stipulates heavy penalties for bribery, a limited number of government officials have been prosecuted and convicted of corruption to date. The law also provides 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. In addition, the Latvian government has adopted a whistleblower law that requires all government agencies and large companies to establish protocols to accept whistleblower disclosures and protect whistleblowers from reprisals.
KNAB is the institution with primary responsibility for preventing and combating corruption and carrying out enforcement activities in response to suspected or alleged corruption. It is subordinated to the Cabinet of Ministers and supervised by the Prime Minister.
KNAB has also established a Public Consultative Council to help increase public participation in implementing its anti-corruption policies, increasing public awareness, and strengthening connections between the agency and the public. More information is available at: . The Prosecutor General’s Office also plays an important role in fighting corruption.
There is a perceived lack of fairness and transparency in the public procurement process in Latvia. Several 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 Cabinet of Ministers regulation provides for public access to government information, and the government generally provided citizens such access. There have been no reports the government has denied noncitizens or foreign media access to government information.
10. Political and Security Environment
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 political issues, there have been few 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 since even peaceful demonstrations can turn confrontational. The Embassy provides periodic notices to U.S. citizens in Latvia, which can be found on the Embassy’s web site: .
11. Labor Policies and Practices
The official rate of registered unemployment in January 2022, according to Eurostat, was 7.3 percent ( ). The Latvian State Employment Agency reported 6.9 percent unemployment at the end of January 2022. 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 Russian and English, among Latvian workers. However, foreign managers have reported a shortage of mid- and senior-level managers with “Western” management skills.
Companies must keep wages above the legally specified minimum of EUR 500 per month, as of January 2021. 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: .
One challenge 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 240,000 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 specialized skills. To address this problem, the Latvian government has approved a list of highly skilled professions that employers may use to recruit professionals abroad to work in Latvia: .
The Labor Law addresses discrimination issues, provides detailed provisions on the rights and obligations of employees’ representatives, and created the Conciliation Commission, a mechanism that can be used in the workplace to resolve labor disputes before going to arbitration. Victims of sexual harassment in the workplace can also submit a complaint to the Office of the Ombudsman and the State Labor Inspectorate.
Full-time employees in Latvia work 40 hours a week. Normally, there are five working days per week, but employers may schedule a sixth workday without offering premium pay. Employees are entitled to four calendar weeks of annual paid vacation per year. Employers are 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.
Latvia’s shadow economy – largely driven by undeclared wages and business earnings – continues to be a major challenge. The annual Stockholm School of Economics Riga “Shadow Economy Index” shows that in 2020 the shadow economy grew by 1.6 percentage points and reached 25.5 percent of GDP. The detailed report is available here: .