Latvia flag Latvia: Investing in Latvia

Foreign direct investment (FDI) in Latvia

FDI in Figures

 FDI flows to Latvia increased continuously upon its accession to the EU to peak at USD 2.32 billion in 2007, and have been generally on the decline since that date. According to UNCTAD's 2021 World Investment Report, foreign investment flows stood at USD 873 million in 2020, virtually unchanged from the previous year, despite the global economic crisis triggered by the Covid-19 pandemic. The total stock of FDI was estimated at USD 20.5 billion in 2020. Prior to Latvia's transition to a full market economy, privatisation was the main source of FDI for the country. Today, a significant portion of FDI comes from re-investments and classic merger/acquisition operations. The bulk of foreign investments is allocated in financial and insurance activities, wholesale and retail, real estate, and manufacturing sectors. The main foreign investors in Latvia are Sweden, Russia, Estonia and the Netherlands (source: Bank of Latvia). In the first nine months of 2021, 31 new investment projects worth EUR 500 million were attracted, according to the Investment and Development Agency of Latvia. They are expected to help create 2,224 new jobs.

Regarding the business environment, Latvia ranks 19th out of 190 economies in the World Bank’s latest Doing Business report (stable compared to the previous editions). The ease to start a business and the simplicity of the tax payment and import-export processes allow the country to be among the top 20. Latvia can also count on a skilled and relatively inexpensive workforce and a strategic geographical location, between the EU and CIS countries. However, the country has a small-sized market, and it has room for improvement in the protection of minority shareholders and in resolving insolvency. Finally, in February 2021 the national government approved the “Green Channel” initiative, which aims at reducing administrative burdens for high value-added investments in priority industries such as ICT, bio-economics, smart materials, photonics, biomedicine and smart energy, and global business services, as well as construction, transport and logistics if required to carry out projects in the above-mentioned industries.

 
Foreign Direct Investment 201920202021
FDI Inward Flow (million USD) 9011,0135,325
FDI Stock (million USD) 17,97420,52623,744
Number of Greenfield Investments* 372517
Value of Greenfield Investments (million USD) 934879638

Source: UNCTAD, Latest available data

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

 
Country Comparison For the Protection of Investors Latvia Eastern Europe & Central Asia United States Germany
Index of Transaction Transparency* 5.0 7.5 7.0 5.0
Index of Manager’s Responsibility** 4.0 5.0 9.0 5.0
Index of Shareholders’ Power*** 9.0 6.8 9.0 5.0

Source: Doing Business, Latest available data

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

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What to consider if you invest in Latvia

Strong Points

The main assets of the country are:

  • Political stability
  • Healthy public accounts
  • Skilled and inexpensive labour and overall high productivity
  • A competitive business environment with a simple and attractive tax system and a low level of taxation (Latvia's tax system ranked 2nd most competitive in the world - International Tax Competitiveness Index 2020). Legislation harmonised with that of the European Union is also favourable for investment
  • A strategic geographical location making the country a transit point between the European Union and Russia and the former Soviet republics
  • Historically strong international relations, reinforced by the country's accession to the European Union in 2004, giving it good access to international markets
  • The Latvian government is particularly interested and willing to promote the development of its start-up sector.
Weak Points

Some of the obstacles to FDI in Latvia include:

  • The small size of its domestic market, which is dominated by Scandinavian companies
  • A weak industrial base
  • Export activities highly dependent on the Russian economy and bordering countries
  • Low investments in research and development (just 0.64% of GDP in 2019 - OECD, latest data available) generating technological delays
  • A fragile banking sector dependent on bank deposits of non-residents
  • High risk of corruption
  • Insufficient land connections with the rest of the European Union
Government Measures to Motivate or Restrict FDI
Following its independence, Latvia decided to launch itself into the market economy and acquire the capital it was lacking. It progressively opened itself up to direct foreign investments. In order to attract foreign companies, the Latvian government offers financial assistance. Its strategy is especially to promote the high technology industrial sector. A loan and a semi-loan plan have also been launched to promote SMEs.

Foreign investors have the same rights and responsibilities as local investors. Any company can be established with 100% foreign capital and all business sectors are open to foreign investors. Foreign entrepreneurs are also eligible to receive funds from the EU and the Latvian government. Foreign investors in Latvia are represented by a special council, the Foreign Investors Council in Latvia (FICIL), which holds regular meetings with the government to improve the business climate.

Five special economic zones (SEZ) have been established in Latvia (in Liepaja, Rezekne and Latgale). Each SEZ has its own specific rules (such as exemptions from indirect taxes, customs duties or VAT). These SEZs are planned to be in operation until 2035.

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Latest Update: September 2022