Company formation and accounting in Latvia
Last updated: 2015-12-05
SIA is abbreviation from "sabiedrība ar ierobežotu atbildību" (exact translation is company with limited liability).
SIA is very similar to UAB (in Lithuania), OÜ (in Estonia), GmbH (in Germany), SARL (in France, Luxembourg). Status and features of SIA are stated in several articles of the Commercial law of the Republic of Latvia.

SIA (or limited liability company) is a closed commercial company (legal person) with equity (share) capital that consists from shareholders investments (shares).
SIA is the most common business form in Latvia.

A closed company means that shares can not be publicly traded (unlike the Joint Stock Company). If a shareholder wants to sell his shares, the shareholder at first must offer the shares to other shareholders of the company.

Commercial company means that the aim is to make a profit.
SIA is a merchant (komersants in Latvian). Concept of merchant in Latvia includes concepts: “sole trader” and “commercial company”. Merchant is person that is recorded in commercial register (The Register of Enterprises of the Republic of Latvia).

Legal person means that a limited liability company is able to have rights and obligations.
Legal person is (virtual) independent person that is registered according to certain rules.
Legal person can own property, can get rights and undertake obligations, be plaintiff and defendant in the court. Property of Latvian limited liability company initially consists from investments (contributions) of shareholders (owners of the company).

Founders (shareholders), directors and supervisory institution.

Management institutions of a company are: shareholders, a board of directors and a council (not mandatory).
Shareholders and members of the board of directors make decisions on behalf of SIA.
Members of board of directors make daily (operative) decisions.
Shareholders make "global" decisions regarding a company. Certain decisions can be made only by shareholders. For example, only shareholders (meeting of shareholders) can appoint and revoke members of the board of directors.
A council (if created) supervises activities of the board of directors.
Structure of SIA, status of shareholders and members of board of directors and relations among them are stated in foundation documents (articles and memorandum of association).

SIA and shareholders of the SIA are different persons (a company has distinct identity; a company is artificial or fictitious person). For comparison a sole trader, registered in Latvian commercial register is the same as "an owner" of the sole trader (sole trader is natural person).
Liability of SIA and its shareholders is separated, except if the shareholders agreed otherwise. In general (with some exceptions) shareholders are liable for debts of a company only with their contribution in the share capital.
A company is not responsible for debts of shareholders, members of a board directors and a council.

The founders (shareholders) can be both natural person (individual) and legal entity. No restrictions for foreigners. A foreign company can be the only shareholder of Latvian limited liability company.

Founder of SIA can be one person (comparing to personal society, where must be at least two members). Shareholder and member of board of directors of SIA can be different persons.

Only natural person (individual) can be a director (a member of the board of directors) of limited liability company. Foreigners also can be directors of a company. The maximum number of directors is not limited (except for small capital company, where the maximum number is 5) and all directors also must be the founders / shareholders.

A member of the board of directors can not be following persons:
  • A legal person. Another company can not be a director of Latvian company.
  • Member of a council or auditor of the same company.
  • Legally incapable person.
  • A person who is not allowed to hold the post of board member. For example the State revenue service may include a person in a list of high-risk individuals.
  • A person who has been deprived of the right to engage in commercial activities or to occupy the post of board member.

Founders of SIA may form a council (supervisory institution). A council must consist from at least three individuals (natural persons). Member of council can not be a member of boar of directors of the same SIA.

Personal liability of shareholders.

In general, shareholders are not personally liable for debts of a company. So shareholders are responsible only with contribution to the authorized capital (as opposed to an individual merchant).
But some exceptions exist.
Shareholders are personally liable (with all property) for debts of Latvian company in following cases:
  • During registration of a company shareholders agreed that at least on of them is personally liable (so called a company with additional liability).
  • A shareholder committed illegal action and as a result a company suffered losses (and the company cannot fulfill its obligations against creditors).
  • Founders incorporated so called "a small capital company". In general, minimum amount of equity capital is 2800 euro. But as an exception it is possible to register company with equity capital less than 2800 euro (even with equity capital in amount of 1 euro). In such case, if a company can not pay its creditors, shareholders are personally liable in amount of 2800 euro less actually paid equity capital.

The authorized capital of a limited liability company.

SIA is a corporation (company with capital / Capital Company). One of the main features of Capital Company is the existence of share capital / equity capital (for example, comparing to sole trader or personal society).
Share (equity) capital consists of money and other material contributions that shareholders give to the SIA (so the money and other material contributions become property of SIA).
In reward the shareholders receive rights to make decisions regarding to SIA and receive dividends.
In legislation is stated minimum amount of share capital and requirements regarding material contribution.
There is a small capital limited liability company. Minimum equity capital for this type of company is one euro.
Minimum amount of equity capital for “standard SIA” is 2800 euro (until 01 January 2014, - 2000 lats).
Small capital SIA is suitable in most cases. "Standard SIA" should be registered, for example, in cases where it is impossible to meet the conditions, which give the rights to register a small capital SIA. Also, the "standard SIA" should be registered, for example, if in the future you plan to get a transport services license. There may be other cases when it is necessary to register "standard SIA".

From the Commercial law can make conclusions that one of aims of share capital is protections of rights (interests) of creditors of SIA. But actually not existence of share capital, nor amount of the share capital can not guaranty protections of rights of creditors. It is because, that after registration, a company can use all it's assets for business (including money and material contribution, invested as share capital). For example, company may pay money (invested as share capital) for rent of premises (office). If a company has no income, then all money (share capital) is paid for rent and the company has no money to pay to other creditors.

Legal address.

From the owner of the property, where the legal address is located, you must receive the written permission to use the property for a legal address.

Choosing a legal address, must make sure that particular address is not so called risk address (30 point, article 1 of Law on taxes and duties). The risk address is an address if exists at least one of the following conditions:
  • The State revenue service is detected, that in particular address and in address of a structural unit (if company has a structural unit) it is not possible to make a business,
  • the legal address or residence address of sole shareholder and sole director is an address of a special social institution or a prison.

Name.

Only Latin and Latvian letters can be used in the name (title, firm) of a company. More information about the name you can read here.

Foundation documents.

According to the article 142 of the Commercial law the foundation documents are the memorandum and articles of association.

The memorandum of association must contain following information:
  • Information about founders (shareholders).
  • Company name.
  • The amount of the authorized capital (share capital), number of shares and par value of each share. The minimum nominal value of one share is 1 euro.
  • The amount of the share capital, subscribed by each shareholder.
  • The amount of the share capital, payable before the registration of the company. Also must write payment terms (time, procedure).
  • Number of shares owned by each founder of a company.
  • The number and amount of the par value of the shares which, establishing a company, will be paid in-kind contributions (not money).
  • If the share capital will be paid in-kind contributions, then need to specify the data about persons who have assumed obligations to invest property in the share capital of a company. Also must list items of the property investments.
  • The amount of allowable foundation costs and procedure of payment of the expenses.
  • Information about any duties, rights and privileges that during the process of establishment are granted to a person who takes part in the process of establishment of a company. For example, shareholders granted the right to a certain person to open a temporary bank account.
  • Information about members of the board of directors.
  • Information about a council and an auditor, if founders decided to create the council and appoint the auditor.
  • Other important provisions which complies with legislation.

The articles of association must contain following information:
  • Company name (firm).
  • Duration or purpose of a company (if a company created for a definite period or for a particular purpose). In other cases do not need to specify duration of a company and a company can operate an unlimited period.
  • The amount of the authorized capital, number of shares and par value per share.
  • The number of members of the board (the minimum number is one). Also, it is necessary to specify the right of the board to represent a company separately or jointly. If separately, then each member of the board alone has the right to enter into transactions on behalf of a company.
  • If a company has a council, then it is necessary to specify number of members of a council.
  • If founders have agreed to specific conditions of alienation of shares, then must specify the conditions.
  • Other important provisions which are not contrary to legislation.

Accounting.

A company must maintain accounting records. Accounting registers must be in the Latvian language and the original (source) documents must locate in Latvia.
A company also need to submit an annual report (in most cases a company must submit an annual report until 30 April).
A sworn auditor must examine an annual report only if exceeded two of the following criteria: balance - 400 000 euro, net turnover - 800 000 euro, the average number of employees during the reporting year - 25. Regarding to annual reports starting from 1 January, 2016 different criteria will apply (the new law will come into force).

What main taxes pays Latvian company?

If a company has registered as payer of value added tax( VAT), then a company must pay VAT. The basic rate is 21%.

If a company has chosen the micro-enterprise tax regime, then a company must pay the micro-enterprise tax. During 2017 tax rate is 12% from net turnover while turnover is less than 7000 euro and 15% from turnover, when turnover reaches at least 7000 euro.

If a company has not chosen the micro-enterprise tax regime, then a company must pay:
  • The company income tax (a tax on profit). The tax rate is 15%.
  • The state mandatory social contributions payments. The basic rate is 34.09% of gross salary.
  • The personal income tax. The tax rate is 23% of part of salary.
  • The business risk duty (0.36 euro per month for each employee).

If a company pays dividends to shareholders, then a company may need to pay tax on dividends (rate - 10%).

Other information related with registration of limited liability company.

Necessary time for preparation of registration documents is one business day after all necessary information is received.

Founders and directors need to certify their signatures before a sworn notary / notary public (if an individual is registered in Latvia, then the individual can certify the signature in the Register of Enterprises of the Republic of Latvia). It takes about an hour to certify a signature in Latvia.

If the documents are not in Latvian, then need to translate the documents into Latvian (usually takes 1-3 business days) and the translation must certify before a notary public.

Founders can register a company without arriving to Latvia. In such case you can certify the signature on documents before a sworn notary in the country where you live. In this case, the text of the documents need to translate into the Latvian language. Depending on the country where you certify the signature, legalization of documents or Apostille may be necessary.
Legalization and Apostille is not required if the signature is certified in Belarus, Kyrgyzstan, Moldova, Poland, Russia and Uzbekistan.

Legalization of documents or Apostille may be necessary (for example, to open bank account in another country). Legalization or Apostille takes additional time.

The Register of enterprises reviews the documents within 3-4 business days. But if in particular address (legal address of a company) are registered more than 10 companies, then the Register of enterprises reviews documents during ~ 14 working days. Because in such case need permission of the tax authority to register company in the address.

After registration a company gets unique 11 digits tax ID number. Company can apply for VAT number, that includes tax ID number and words "LV" before the number.
In certain cases Latvian company has obligation to register as VAT payer.
To check if a company has valid VAT number, click here and fill out necessary fields.

According to Latvian legislation, limited liability company has rights to open bank account in any country. If company opens bank account outside Latvia, then member of board of director must inform the State revenue service about opened bank account (bank name, bank code and account number).

Latvian company has rights to open branches and representations in other countries.

If necessary, founders can reorganize a company (eg, convert to a public joint stock company or merge with another company).

In most cases a company has the right to start business immediately after registration. A license is required for relatively few activities (eg, commercial transportation of passengers and goods, consumer loans (loans for natural persons), security services, employment services).

Foundation costs.

To read information about costs, please, visit this page.



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