Business Relocation to Latvia
Business relocation to Latvia might be a smart idea for companies who are looking to expand in to rapidly developing market within EU or to companies who are looking for option on how to reduce daily operation costs.
With GDP growth rate of 5,3% and inflation rate of only 3,0% Latvia shows strong macroeconomic stability and fiscal discipline. Latvia’s debt ratio to GDP is at low 40% while the average number in EU is 81,6%. Budget deficit of Latvia is one of the lowest in European Union – 0,60% of GDP.
In January 2018, Latvia made a significant tax reforms, from which the most important change with regards to business was change of corporate taxation system. That’s right – Latvia did not simply decrease or increase the corporate income tax. Latvia changed corporate income tax system in a way where corporate income tax is levied only upon distributed income at rate of 20%. Such change means that if company is reinvesting in to development, then corporate income won’t be taxed, which is useful for companies in their development stage who are constantly reinvesting their profit for development purposes. These reforms moved Latvia to the 2nd spot in OECD tax competitiveness rating.
Unemployment rate in Latvia is 6,9% which is slightly above EU average - 6,6%. In reality this translates in to 60 000 unemployed people who are looking for the job at the moment. According to OECD data, level of education in Latvia is above average in EU if compared with data from mathematics performance, reading performance and science performance. In reality, we can say that people who are interested in employment in international companies are fluent in at least 2 languages – their native (Latvian or Russian) and English. It is not complicated to find an employee who is fluent in at least 3 languages – Latvian, Russian and English.
The average gross monthly salary in Latvia is EUR 1022. Industry specific salary in Latvia is:
- Financial and insurance activities – EUR 2020 (gross monthly);
- Information and communication (IT) – EUR 1549;
- Electricity, gas, steam and air supply– EUR 1373;
- Public administration and defence – EUR 1226;
- Mining and quarrying – EUR 1163;
- Professional, scientific and technical activities – EUR 1114.
Labour taxes in Latvia very similar to other EU Member States. We will illustrate them by presenting salary computation with gross monthly salary of EUR 2000,00.
- Total cost for employer: EUR 2482
- Social Tax (employer contribution): 481,80
- Business risk fee: 0,36
- Social Tax (Employee): 220,00
- Personal income tax: 365,99
- Gross salary: 2000
- Net Salary: 1414,01
The main sector of business in Latvia is services sector which contributes to 75% of GDP and employs 68% of employed people in Latvia. This mainly includes financial sector, IT and communications, legal services, etc. It is followed by industry sector which contributes 21% of the GDP and employs approximately 25% of employed people in Latvia. Industrial sector is expected to increase due to the current real estate market development. The agricultural sector in Latvia contributes around 3% from GDP and employs 7,7% of employed people. Source of data: World Bank.
Another important aspect in business relocation or setup in another country is real estate market. According to information from Global Property Guide, the average price of real estate in Latvia is EUR 2789 M/2. This is significantly lower than average price of property in other European Union countries. Please see the graph below:
Even though the graph illustrates prices for residential properties in EU, it is good indicator to understand the large difference between real estate prices in Latvia and in Western and Central European countries. If we explore the current available properties in the market, then newly renovated office in centre of Riga in size of 100 m2 costs EUR 75 000 – 300 000. Monthly rent for the similar office would be in range of EUR 500 – 1200.
This section provides brief illustration of situation in Latvia by listing the main arguments for business relocation. Development of economy; well-educated and available employees; low real estate prices; great tax environment for business development.
If your company is interested in market research services based on the specific business development, our team will gladly assist you.