Located in the Baltic region of northeastern Europe, Latvia is a member of the European Union (EU), eurozone, North Atlantic Treaty Organization (NATO), Organization for Economic Cooperation and Development (OECD), and the World Trade Organization (WTO). The Latvian government recognizes that, as a small country, it 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 regional transportation hub. According to the latest World Bank’s Doing Business Report, Latvia is ranked 14th out of 190 countries in terms of ease of doing business. On July 1, 2016, Latvia became a full member of the OECD. 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 limited 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 Russia and Central Asia to the east. 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. Latvia’s 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 and 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 both 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. Latgale Special Economiz Zone covers a large part of Latgale, which is the most economically challenged region in Latvia, bordering Russia and Belarus.
In 2016, GDP growth in Latvia slowed down to 1.6 percent, which commentators attributed to the effects of the weak performance within the broader euro currency zone and a temporary delay in absorption of EU structural funds, as well as geopolitical tensions with Russia. The most competitive sectors in Latvia include woodworking, metalworking, transportation, IT, green tech, health care, life science, food processing, and finance. Recent reports suggest that some of the most significant challenges investors encounter in Latvia include shortage of labor, corruption, and non-transparent or non-responsive bureaucracy and judiciary.
The non-resident banking sector has come under increased regulatory scrutiny in recent years for inadequate compliance with anti-money laundering provisions. The government, the banking regulator, and key industry players have taken steps to improve compliance and to punish banks implicated in money-laundering schemes - e.g., Latvia’s Financial and Capital Markets Commission has cancelled one bank’s operating license and has levied heavy fines against others - and analysts are watching closely to assess whether improved compliance measures are effectively implemented.
The chart below shows Latvia’s ranking on several prominent international measures of interest to potential investors.
Table 1
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards 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 (including 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 2016, FICIL published its Sentiment Index 2015-2016 - a survey of current foreign investors on the investment climate in Latvia. It is available at: http://www.ficil.lv/f/FICIL%20Sentiment%20Index%202016%20FINAL_m.pdf.
Limits on Foreign Control and Right to Private Ownership and Establishment
Latvia reserves the right to enact policies and legislation that discriminate against foreign investors in the following 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. In March 2017, Latvia also passed new legislation that, on the basis of national security concerns, requires governmental approval prior to transfers of significant ownership interests in the energy and media sectors.
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 Dec. 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.
In March 2017, Latvian parliament amended the Law on Land Privatisation in Rural Areas to simplify and clarify the process for local farmers to purchase land. If enacted, the law would prohibit foreigners who are not permanently residing in Latvia from purchasing agricultural land, and require that any person who wishes to purchase agricultural land must possess knowledge of Latvian language at a certain level and be able to present their plan for the future use of the land for agricultural purposes in Latvian.
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.
Other Investment Policy Reviews
The Organization for Economic Cooperation and Development (OECD) published an Economic Survey of Latvia in February 2015 ). Although there have been no trade policy reviews specifically involving Latvia, the WTO completed its latest review of the European Union in July 2015. ). 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 2013 ).
Business Facilitation
A new Start up Law took effect in Latvia in 2017 that seeks to encourage startup ventures through favorable tax treatment. The law created two tax payroll tax mechanisms for employees of startups: (1) a special flat tax, currently 252 euros/month per employee, regardless of salary (in exchange for which the employee qualifies for minimal social welfare benefits) and (2) a special program for highly qualified employees (i.e., those with a doctors or masters degree or 5+ years of experience) where the state waives social and personal taxes and the employees are still entitled to full social welfare benefits.: https://www.em.gov.lv/files/attachments/2017-01-04_16_58_28_startup_eng.docx.
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.: 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://www.liaa.gov.lv/en/trade/market-entry/business-forms-and-registration. The agency prides itself on the fact that a business can be registered in Latvia in a single day.
Using the European Commission definitions of micro, small, and medium enterprises (MSMEs), Latvia has established a special tax regime for microenterprises. Under the microenterprise tax, qualifying businesses (generally those with limited employees and less than 100,000 euros in revenue) pay a single tax that 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. As of Jan. 1, 2017, the microenterprise tax rate is 12 percent for microenterprises whose annual turnover is less than 7,000 euros, and 15 percent for enterprises with more than 7,000 euros in annual turnover. This special tax regime is available to foreign nationals.
Outward Investment
The Latvian government does not incentivize outward investment or restrict Latvians from investing overseas.
2. Bilateral Investment Agreements and Taxation Treaties
Latvia and the United States share a bilateral investment treaty that came into force in December 1996. Latvia has also concluded bilateral investment agreements with the following countries: 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.
Please see the UNCTAD Investment Policy Hub for a full list of partners with whom Latvia shares a treaty that contains an investment chapter: http://investmentpolicyhub.unctad.org/IIA/IiasByCountry#iiaInnerMenu
Latvia concluded the Treaty on Avoidance of Double Taxation with the United States, which entered into force on Dec. 30, 1999.
3. Legal Regime
Transparency of the Regulatory System
The Latvian government has amended its laws and regulatory procedures in an effort to bring Latvia’s legislation in compliance with EU, OECD, and WTO GPA requirements. A number of legislative changes have been 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.: http://rulemaking.worldbank.org/data/explorecountries/latvia
International Regulatory Considerations
As a member state of the EU, Latvia has incorporated the European norms and standards into its regulatory system. As a member of the WTO, Latvia has the duty to notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade.
Legal System and Judicial Independence
Under the 1993 Law on Judicial Power, Latvia has a three-tier court system comprising 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 have appellate jurisdiction over district court cases and original jurisdiction for certain cases specified in the Civil Code, such as 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 Latvia and - depending on the origin of the case - has either has de novo review of both factual and legal findings or, in instances where it is the second appellate court reviewing a case, cassation review of only legal findings.
City and regional courts are administered by the Ministry of Justice (www.tm.gov.lv ), while the Supreme Court and Constitutional Court are independent.
Many observers have voiced concerns about the length of civil cases in Latvia and the nature and opacity of judicial rulings have led some investors to question the fairness and impartiality of some judges. These concerns are not specific to foreign or local investors, however, and the court system is generally viewed as applying the law equally to the interests of foreign and local investors. Although the Ministry of Justice has enacted reforms designed to reduce the backlog of cases in the lower courts, 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.
Laws and Regulations on Foreign Direct Investment
Incoming foreign investment in Latvia is regulated by the Commercial Law. The website of the Latvian Investment and Development Agency is a helpful resource for navigating the rules and procedures governing foreign investment. ).
Competition and Anti-Trust Laws
The competitive environment is supervised by the Competition Council (CC). More information can be accessed at: http://www.kp.gov.lv/en
Expropriation and Compensation
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 believes government compensation is inadequate, he or she may challenge the government’s decision in a Latvian court.
Dispute Settlement
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. The Civil Procedure Law stipulates that the judgments of foreign non-arbitral courts can be enforced in Latvia.
Investor-State Dispute Settlement
There have been no claims by U.S. investors under the Bilateral Investment Treaty against Latvia.
International Commercial Arbitration and Foreign Courts
A register of arbitration institutions was established in 2005. On Jan. 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 77 arbitration institutions registered in Latvia ). 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/Civil_Procedure_Law.pdf.
Bankruptcy Regulations
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).
According to the latest World Bank’s Doing Business Report Latvia ranked 44th out of 190 countries in terms of ease of resolving insolvency.: http://www.doingbusiness.org/data/exploreeconomies/latvia#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/f/16%2004%2006%20FICIL%20Insolvency%20Abuse.pdf
4. Industrial Policies
Investment Incentives
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.: https://www.em.gov.lv/en/sectoral_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 ), and through its representative offices ).
Because the Latvian government extends national treatment to foreign investors, most investment incentives and requirements apply equally to local and foreign businesses. Latvia has three 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.: http://www.liaa.gov.lv/en/invest-latvia/investor-business-guide/business-incentives.
Foreign Trade Zones/Free Ports/Trade Facilitation
There are five 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. Latvia has also established 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 five 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; the Rezekne SEZ Administration; or the Latgale SEZ Administration. The SEZs are expected to be in place until 2035.
Performance and Data Localization Requirements
Except for specific requirements for investors acquiring former state enterprises through the privatization process, there are no performance requirements for a foreign investor to establish, maintain, or expand an investment in Latvia. In the privatization process, performance requirements for investors, both foreign and domestic, are determined on a case-by-case basis.
Under Latvian Immigration Law, foreign citizens can enter and reside in Latvia for temporary business activities for up to three months in a six-month period. For longer periods of time, foreigners are required to obtain residence and work permits.
A 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.
5. Protection of Property Rights
Real Property
Latvia recognizes the full spectrum of property rights, including mortgages and liens, and, according to latest World Bank’s Doing Business Report, is ranked 23rd out of 190 countries in terms of ease of registering property. Latvia does not have significant problems with unclear legal titles.
Intellectual Property Rights
In an effort to harmonize its legislation with the 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 a 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 (IPR) through the appellation council at the Latvian Patent Office; court action can also be sought in such cases. In copyright violation cases, aggrieved parties can request that the use of the pirated works be prohibited, that pirated copies be destroyed, and that violators compensate them for losses (including 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. In the past, there were reports of infringement of software licensing agreements by government offices, which the government has taken steps to rectify. Latvian law enforcement authorities have the authority to investigate IPR infringement cases.
Every year, the European Commission publishes a report describing the customs detentions of articles suspected of infringing IPR, such as trademarks, copyrights and patents.: http://ec.europa.eu/taxation_customs/customs/customs_controls/ counterfeit_piracy/statistics/index_en.htm.: http://www.ficil.lv/f/ 4_14%2005%2030%20Intellectual%20property%20protection%20and%20promotion.pdf.
Latvia is not listed in USTR’s Special 301 report or the notorious market report.
For additional information about national laws 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
Dan Rittenhouse
Economic Officer, U.S. Embassy Riga, Latvia
+371 6710-7032
RittenhouseDO@state.gov
List of Attorneys in Latvia, compiled by the Consular Section of the U.S. Embassy in Riga: https://lv.usembassy.gov/u-s-citizen-services/attorneys/
American Chamber of Commerce of Latvia: http://www.amcham.lv/en/home
Contact at Copyright Offices
Ms. Ilona Petersone
Director of Copyright Division, Ministry of Culture of the Republic of Latvia
+371 6733-0240
Ilona.Petersone@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
6. Financial Sector
Capital Markets and Portfolio Investment
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
Latvia’s retail banking sector, which is composed primarily of Scandinavian retail banks, generally maintains a positive reputation, but Latvian banks servicing non-resident deposits have come under increasing scrutiny since late 2015 for inadequate compliance with anti-money laundering standards. The Financial and Capital Markets Commission (FCMC), Latvia’s financial regulator, canceled Latvian bank Trasta Komercbanka’s operating license in March 2016 following allegations of facilitating money laundering, and has leveled record fines against other Latvian banks for inadequate regulatory compliance.
The regulatory framework for commercial banking incorporates all principal requirements of EU directives. A unified capital and financial markets regulator has been established. 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 and Deposit Guarantee Law have been adopted. 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 2016 stood at approximately 29.5 billion euros. More information is available at: http://www.bankasoc.lv/en/statistics/ and http://www.fktk.lv/en/publications/press-releases/6154-bank-performance-in-latvia-2016-stable-situation-banks-need-to-change-strategic-approach.html.
Securities markets are regulated by the Law on the Consolidated Capital Markets Regulator, the 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.
Foreign Exchange and Remittances
Foreign Exchange
As one of 19 members of the Eurozone, Latvia’s currency is the euro, which is managed by the European Central Bank and a board comprised of Eurozone members’ central bank governors. 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.
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), an 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 2016 International Narcotics Control Strategy Report (INCSR), Latvia is listed as a country of concern.: https://www.state.gov/j/inl/rls/nrcrpt/2016/vol2/index.htm
Sovereign Wealth Funds
Latvia does not have a sovereign wealth fund.
7. 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.
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.: http://www.oecd.org/daf/ca/oecd-review-corporate-governance-soe-latvia.htm
Senior managers of major SOEs in Latvia report to independent boards of directors, which in turn report to the line ministries. As of Jan. 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.: 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
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 Dzelzces (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.
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 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 ) the Corporate Social Responsibility Platform ), and the Human Development Award ).
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.
9. Corruption
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 2016 Corruption Perception Index by Transparency International, Latvia ranks 44th out of 176 countries (with 1as the lowest perceived level of public sector corruption and 176 as the highest).
In an effort to strengthen its anti-corruption programs, the Latvian government has adopted several laws and regulations, including the Law on Money Laundering and the Law on Conflicts of Interest. 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. 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. New amendments to the Latvian Criminal Law came into effect in 2013 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.
KNAB is the institution with primary responsibility for combating corruption and carrying out operational activities in response to suspected or alleged 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.: 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.
Resources to Report Corruption
Contact at government agency or agencies are responsible for combating corruption:
Corruption Prevention and Combating Bureau
Brivibas iela 104 block 2, Riga, LV 1001, Latvia
+371 67356161
knab@knab.gov.lv
Association “Society for Transparency - Delna"
Citadeles iela 8, Riga, LV-1010
+371 67285585
ti@delna.lv
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 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, which can be found on the Embassy’s web site: http://riga.usembassy.gov/.
11. Labor Policies and Practices
The official rate of registered unemployment in January 2017, according to Eurostat, was 9.7%. The Latvian State Employment Agency (LSEA) reported 8.5% unemployment at the end of January 2017. According to LSEA, 19.2% of unemployed were youth of age 15-29 years old. 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 the legally specified minimum of 380 euros per month, as of April 2017. Union influence on the wage setting process is limited. Trade unions do not have significant influence on the labor market.: 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 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 the needed, specialized skills.
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.
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.
12. OPIC and Other Investment Insurance Programs
Overseas Private Investment Corporation (OPIC) political risk insurance coverage was previously available for U.S. investments in Latvia. However, because Latvia was recently added to the list of High Income countries (defined as countries with a nominal GNI per capita of USD 15,000 or greater), OPIC coverage is no longer available for new projects in Latvia.
Latvia is a member of the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA) which also provides risk insurance.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
*http://www.fm.gov.lv/en/s/macroeconomics/main_macroeconomic_indicators/
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 five sources of Foreign Direct Investment in Latvia are Sweden, Cyprus, Russian Federation, Netherlands, and Estonia. It should be noted that foreign investment registered as coming from Cyprus is widely believed to be coming from Russia and other post-Soviet states.
Source: IMF Coordinated Direct Investment Survey
Table 4: Sources of Portfolio Investment
Data not available.
14. Contact for More Information
Guntars Vicmanis
Commercial/Economic Specialis
Samnera Velsa iela 1, Riga, Latvia, LV-1510
+371 6710 7000
RigaCommerce@state.gov
Tags
Bureau of Economic and Business Affairs Bureau of European and Eurasian Affairs Latvia
Source: U.S Department of State, Bureau of European and Eurasian Affairs
