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 is a transportation and logistics hub between West and East, providing strategic access to both the EU market and to 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; in the case of the latter, via the Russian Federation. Railroads connect Latvia with the other Baltic states, Russia, and Belarus, with further connections extending into Central Asia and China. Latvia’s workforce is highly educated and multilingual, and its culture promotes hard work and dependability. Labor costs in Latvia are the fourth-lowest in the EU. Latvia ranked second in the OECD’s 2022 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 Russia’s war of aggression against Ukraine, and the continued COVID-19 pandemic, Latvia’s GDP increased by 2 percent in 2022. According to the government, growth in manufacturing and services sectors were the main contributors to 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’s year-on-year inflation was 20.1 percent in February 2023, double the EU average (9.9 percent) and slightly higher than inflation in the other Baltic states (Estonia 17.8 percent; Lithuania 17.2 percent).
Latvia has made significant progress combating money laundering since its non-resident banking sector first came under increased regulatory scrutiny in 2018 over poor 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 was the first state under MONEYVAL review to successfully implement all 40 FATF recommendations.
Some investors note a perceived lack of fairness and transparency in Latvian public procurements. Several companies, including foreign companies, have complained that bidding requirements are sometimes written with the assistance of potential contractors or are 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.
*This figure significantly underestimates the value of U.S. investment in Latvia due to the fact that it does not account for investments by U.S. firms through their European subsidiaries.