Latvia Economy Overview

Currency

Euro (EUR)

Working hours

40 hours/week

Public/bank holidays

13 public holidays

Capital

Riga

Languages

Latvian

Population

1.8 million

Minimum hourly salary

Approx. EUR 4.50

Tax year

1st Jan – 31st Dec

Date format

DD/MM/YYYY

Misclassification penalties

Misclassifying employees as independent contractors can lead to penalties, including fines up to EUR 10,000, back payments of social security contributions, and legal disputes.

Fun fact

Latvia is home to the oldest continuously operating pharmacy in Europe, which has been in business since 1422 in the capital city, Riga.

Formerly occupied and annexed by the USSR, Latvia is now an independent nation occupying world leaderboards across a variety of sectors. Geopolitical tensions and the strain on external demand following Russia’s invasion of Ukraine produced economic challenges for the country. However, despite elevated risks, Latvia remains resilient in its finances, with GDP growth estimated at 1.7% for 2024.

Driven predominantly by improving household purchasing power and private and public consumption, GDP growth is forecast to continue its positive trajectory, with an increase of 2.4% expected in 2025 and highs of 3.8% predicted for 2026. Situated in the middle of the 3 Baltic states and home to 1.9 million people, Latvia enjoys one of the lowest inflation rankings in the Euro area.

In the coming years, significant investment into the green, health care, and education sectors is expected to strengthen economic growth further and may have the potential to mitigate risks that are increased by reliance on foreign energy supplies.

Overview of Latvia's Economy

Latvia’s economic growth has been strong and resilient, even in the face of recent geopolitical challenges. The surge in energy prices across the EU, driven by reliance on Russian natural gas, hit many countries hard. However, Latvia’s proactive government measures helped cushion the blow, leading to better-than-expected fiscal performance. As a result, the economy has rebounded swiftly, with healthy growth projections for 2024 and 2025. Currently, the services sector dominates, contributing 62% of the country’s GDP.

Key ElementsDetails
Economic ResilienceRobust and resilient economic growth despite geopolitical tensions
Energy ChallengesSkyrocketing energy prices due to reliance on Russian natural gas imports
Government InitiativesActions taken to curb the impact of energy challenges, leading to better-than-expected fiscal performance
Economic OutlookHealthy economic growth forecast for 2024 and 2025

The Latvian government recognises FDI as fundamental to economic growth and has since taken action to remove bureaucratic obstacles and streamline administrative procedures to cultivate an opportunistic climate for foreign investment.

Tax incentives are available for businesses operating in the tech, logistics and transportation, and renewable energy sectors as Latvia seeks to diversify its domestic energy source in an effort to reduce reliance on foreign imports. Recent funding of the aforementioned sectors has created new employment and expansion opportunities within these industries.

Taxes

Employer Tax: 35%

Social Security Contributions

24.09%

Health Insurance

1.4%

Other Contributions

9.51% (includes various local and sectoral obligations)

Employee Tax: 25%

Personal Income Tax

20%

Social Security Contributions

5%

Income Tax

In Latvia, personal income tax is applied at a progressive rate. Employers also contribute to social security, covering both pension and health insurance, while employees make smaller contributions deducted from their salaries.

Gross Income (EUR)

Up to 105,300

More than 105,300

Tax Rate

25.5%

33%

Business Regulation in Latvia

Aiming to increase foreign investment, Latvia has considerably simplified its company registration process, with the whole procedure now taking no more than a week. Foreign businesses also benefit from a lack of restrictions on ownership and structure.

Companies looking to expand are required to register at the Commercial Register of Enterprises and at the State Revenue Service. Businesses must comply with the relevant taxation and labor laws.

Business Registration

Companies may establish themselves as sole proprietorships, LLCs, partnerships, branch offices, and subsidiaries. To register, businesses are required to choose a unique name and submit documents such as articles of association, a business charter, proof of registered address, and the personal details of shareholders and directors. This registration application must be signed in front of a Latvian public notary. 

Businesses are also required to deposit a minimum share capital, which differs depending on the organization’s structure. Private LLCs are only required to have a share capital of EUR 2800, which may be paid in installments. The requirement for public companies is significantly higher, currently set at EUR 35000. Opening a Latvian bank account and other administrative procedures can be completed online. Any additional payments pertaining to state duty and publication should also be evidenced.

Taxation Laws

A particular benefit for investors is the country’s competitive tax regime. The corporate tax rate is currently between 20-25% and 21% for VAT. However, companies operating in the financial, education, and public health sectors (amongst others) may be eligible for both lower rates and exemptions.

Businesses looking to incorporate in special economic zones (SEZ) could also gain from tax deductions as the country looks to promote and encourage entrepreneurial activities in these areas. All companies conducting business in Latvia will need to register with the relevant tax authorities and remain compliant with taxation laws.

Labor Laws

Workers in Latvia are protected from discrimination and exploitation through legislation. The Labour Protection Law decrees that workers are to be paid a minimum of EUR 740 per month and work no more than 40 hours per week. Overtime is capped at 8 hours and must be paid at twice the standard rate. Employees are also entitled to 4 weeks of paid annual leave and 112 days of maternity leave. This can be extended to 140 days if the mother incurs complications or there are multiple gestations. Employers who fail to comply with these laws may be subject to penalties.

Benefits of Doing Business in Latvia

Latvia’s competitive tax regime, multiple Free Trade Agreements, and access to the EU market have created new investment opportunities for the country. Investment in infrastructure and transport services has also increased the ease and efficiency of exports. Other major benefits include:

Innovative Bioeconomy

Nestled on the east coast of the Baltic Sea, Latvia is skilled in forestry and fishery. In addition to providing an opportunity for much-needed employment in rural areas, the bioeconomy sector is responsible for producing 40% of Latvia’s exports.

Recognising the economic importance of exports, Latvia is taking action to develop its food processing capacity and capability. Ongoing projects are looking into the establishment of a bioeconomy protein facility (ASN), which strives to produce protein through environmentally friendly, carbon-neutral means.

These endeavors have created an array of innovative and profitable investment opportunities for companies interested in the green space.

Thriving IT Sector

Hosting one of the world’s fastest broadbands, Latvia’s IT and IT outsourcing sector has proven itself to be efficient and innovative. Contributing EUR 1.4 billion in exports, government officials have identified the sector as a huge driving force for economic growth and are now taking strides towards establishing Latvia’s capital, Riga, as the next Metacity.

Latvia’s population is largely multilingual, with technically minded students looking to revolutionize the city’s communication potential. Owing to its strong cellular network, efficient infrastructure, and transport connections, Latvia is poised to actualise the government’s commitment to this initiative.

Green Energy Potential

Aiming to diversify its domestic energy source and reduce reliance on external supplies, Latvia is working to utilize the 16GW wind capacity produced along its 500km Baltic coastline. Big players in the energy industry are currently investigating hydrogen solutions as a means of storing initial energy productions, and further research into energy mobilization is being conducted.

With global initiatives hoping to increase carbon neutrality and greener production methods, Latvia provides many opportunities for foreign investors hoping to profit from renewable energy projects.

Business Expansion Options in Latvia

Tax incentives and a simplified administrative process have made Latvia a credible and attractive proposition for foreign investment. Businesses looking to expand can do so through a number of pathways. Two of the most common pathways include subsidiaries and branch offices.

Latvia Employer of Record (EOR)

The Latvia EOR becomes the official legal employer of your Latvia team. This method is fast and efficient, making it perfect for companies that need to quickly deploy staff on the ground. 

An EOR handles payroll, benefits, taxes, and compliance with local labor laws, allowing businesses to focus on their core activities. They may also provide additional services, such as Latvia talent acquisition and visa support. 

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Latvia Professional Employer Organization (PEO)

Latvia’s multilingual labor force and easily accessible incorporation process mean that registering a business can be done without assistance. However, for those seeking expertise when navigating Latvian regulations and hoping to maximize the benefits of global expansion, expert services such as Professional Employer Organizations and Employers of Record can be contracted.

These companies ensure labor and taxation laws are complied with by managing human resources, hiring talent, and overseeing compensation and benefit regulations. Though they handle similar tasks, a PEO shares the liability with the company, acting as a co-employer, while an EOR takes on all liability, acting as a sole employer.

Partnering with a professional employer organization (PEO) allows companies to employ local staff in Latvia without the need to establish a legal entity. This approach is quicker and less expensive, making it ideal for businesses testing the Latvia market or those with limited operations. PEOs handle administrative tasks and ensure that companies comply with Latvia regulations, reducing the complexity and risk associated with hiring local employees. 

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Subsidiary

A preferred method of establishing a subsidiary is through an LLC. Companies using this structure will need to have chosen a unique company name using only Latin or Latvian letters. In addition to the deposit of a minimum share capital, companies may also need to obtain industry-specific permits. The minimum share capital required to establish an LLC is EUR 2800. Though this can be paid in installments, at least 50% is required as a deposit upon registering. Companies are not obligated to submit audits unless they have accumulated EUR 800,000 in annual turnover, amassed EUR 400,000 in assets, or have had an average of 25 employees during the year.

A subsidiary is seen as separate from the parent company. As a result, the parent company will not incur any financial debt, and the corporation is free to tailor its operations according to Latvian culture.

Branch

Companies can also choose to establish themselves as branch offices. Branches are seen as extensions of the parent company, and so the parent company is liable for any financial burdens. The branch will require a representative, though this individual does not need to be a Latvian resident. A branch office must also deposit a share capital of EUR 2800 but does not have the same reporting obligations due to its operations being conducted in line with foreign legislation.

Business Opportunities in Latvia

Latvia is fast becoming a European hub of technological talent and eco-friendly innovation. The nation’s vast bioeconomy offers new opportunities within the green sector, and its cellular strength continues to provide new prospects for employment and investment, contributing to infrastructure and IT.

Proving itself to be a resilient economy with an emphasis on fiscal transparency and plans to tap into its unexploited potential, Latvia offers many exciting and lucrative opportunities for foreign investors looking to enhance and profit from the nation’s economic growth. 

Business OpportunityReason
Information TechnologyLatvia’s IT sector benefits from a skilled, multilingual talent base, robust digital infrastructure, and one of the region’s highest internet penetration rates. A supportive startup ecosystem and policy push for innovation create momentum in cybersecurity, AI, and fintech, where demand is growing across both public and private sectors.
Logistics and TransportationPositioned as a natural bridge between the EU and CIS markets, Latvia offers deep ports, integrated rail and road networks, and efficient airports. This backbone enables value-added services—warehousing, distribution, and last-mile—and taps into rising e-commerce volumes that are reshaping regional supply chains.
Renewable EnergyGovernment targets to raise renewables in the energy mix, together with incentives and feed-in schemes, support investment across wind, solar, and biomass. Complementary plays in energy efficiency and green building technologies broaden the opportunity set and align with EU sustainability goals.
ManufacturingCost-competitive, skilled labor and direct access to EU customers—especially in nearby Nordic markets—make Latvia attractive for advanced manufacturing. Strong niches include wood processing, machinery, and electronics, with additional lift from investor incentives such as tax reliefs and project grants.
TourismRich cultural heritage, historic cities, and diverse nature—from beaches to forests—underpin a growing visitor economy. Expanding accommodation capacity and interest in eco-, wellness-, and cultural tourism are drawing more international travelers and creating room for specialized operators.

Latvia’s business-friendly policies, robust intellectual property protection, and active initiatives to attract foreign investment create a strong foundation for various business opportunities. The country is committed to fostering innovation, improving infrastructure, and deepening its integration into European and global markets.

As these efforts continue, the potential for business growth and success in Latvia is set to rise, making it an increasingly attractive destination for investors.