Company formation and accounting in Latvia
Last updated: 2016-11-12
Business / economic activity is any systematic, independent activity for remuneration.

Systematic activity is regular activity that constantly repeats, does not stop during a certain period of time.

Independent activity. Unlike an employee who performs work under the direction of the employer, the person conducting business activities, is not subject to other party in a transaction. So the person, performing business activities can independently conclude transactions and set working hours.

The remuneration equals the market price of goods and services. The remuneration may be in a form of money and also in other form (services, goods).

From the definition above can see, that economic activity contains three signs: regularity, independence and remuneration.

Types of business (economic) activities in Latvia.

  • Commercial activity. Open economic activity, conducted by a merchant with aim to get profit.
  • Cooperative activity. Aim of such activity - to provide services to increase effectiveness of economic activities of companions of the cooperative society.
  • Business activity of association and foundation. Aim of such activity may be to achieve the goals set out in the articles of association (the charter). Aim of business activity must not be profit-making.
  • Economic activity of natural person, which is not a merchant. For example, activities of a doctor or a attorney at law.

The phrase "economic activity" is mentioned in several laws of the Republic of Latvia.

Commercial law.

According to the Commercial law business activity is any systematic, permanent activity for remuneration.

Natural person, doing economic activities, in certain cases must register in the commercial register (the Register of enterprises) as a sole trader.
Cases (conditions) are following:
  • Annual turnover from economic activities increases 284 600 euro.
  • Natural person provides services as a commercial agent or a broker.
  • Activities of natural person corresponds to both of the following parametres (indicators):
    • annual turnover from economic activities increases 28 500 euro;
    • natural person to ensure economic activities, at the same time employes more than 5 employees.

The law On personal income tax.

According to the law On personal income tax business activity of natural person is any activity for remuneration, if the activity is aimed to:
  • producing of goods,
  • execution of work,
  • trading,
  • provision of services.
Also business activity of natural person is:
  • Activities related to the execution of undertakings contract.
  • Professional activities.
  • Management (maintenance) of an immovable property.
  • Activities of a commercial agent, a broker, a sole trader.
  • Activities of and individual enterprise (agricultural of fishing farm), that belongs to natural person.
  • Making of transactions, that corresponds to at least one of the following criteria:
    • The transactions are systematic (3 or more transactions during a year or 5 or more transactions during three years),
    • Income from transactions increases 14 229 euro (except income from sale of personal property),
    • Economic substance (essence) or number of items (goods) owned by a natural person points to systematic activities with aim to get profit. Need to take into account intention of a person. For example, if a person buys one item for personal consumption and after some time sells the item because it is not necessary anymore, then it would not be economic activity. But if a person buys and sells an amount of goods that is too large for personal use, then such activity must be deemed as economic / business activity.
Professional activity is any independent providing of professional services outside an employment relationship, also scientific, literary activities, activities of teacher, actor, director, doctor, attorney at law, sworn auditor, notary public, chartered surveyor, sworn appraiser, artist, composer, musician, consultant, engineer, bailiff, accountant and architect.

If natural person is engaged in economic activities, then in most cases such natural person must register activities with the State revenue service. Also a natural person by him(her)self must submit tax reports, calculate and pay taxes.

The Value added tax law.

According to Latvian the Value added tax law economic activity is any systematic activity for remuneration, including activity of any manufacturers, traders, service providers, as well as agricultural activity.
Also economic activity is the use of tangible or intangible property with the purpose systematically receive income from the property.

Salary that an employer pays to an employee is not remuneration. Also other payment to an employee, if such payment is taxable with social insurance and personal income tax, is not remuneration.

Point 25 of article 1. Location of economic activities is main location of of economic activities, place, where management of a taxpayer is located and place where a taxpayer makes main administrative decisions, related with economic activities.

Point 1 of article 3. As VAT payer is deemed any person, that permanently, in any place makes any economic activities, regardless of the purpose or the result of the activities.

Point 1 of article 5. VAT taxable are certain transactions, made in course of economic activities.

The law on taxes and duties.

The law does not contains definition of economic activity.
According to the law certain taxpayers must report to the tax authority about all cash transactions with natural persons (that must not register business activities / not engaged in business activities), if amount of one transaction increases 3000 euro.

The law On immovable property.

According to the law, an economic activity is manufacturing of goods, execution of work, trading, provision of services and other type of activities for remuneration.
The law provides for exceptions and for application of the law the following are not considered as economic activities:
  • Provision of paid services according to the functions of the state or local government budget agencies.
  • The use of land for agricultural production for own (personal) consumption.
  • Renting of a flat or individual residential house (part of the house) for residence (living).
  • Renting of premises, which type of usage is related with residence (garage, parking, cellar, storage and utility room), if all the following conditions are met:
    • the owner or the legal possessor of the property is a natural person or a religious organization,
    • the tenant is a natural person,
    • the property is not used for economic activities.
  • Using state-protected monument of cultural heritage for the realization of cultural functions. But if the property is used for movie theater activities, then such activity is considered as economic activity.
If a property is not used in the economic activities, then such property is taxed at a lower rate or even is exempt from the immovable property tax.

The law on corporate income tax.

For application of the law economic activity is activity aimed to manufacturing of goods, fulfilment of work, trading, provision of services and other type of activities for remuneration.

If non-resident (a company, registered outside Latvia) in Latvia directly is engaged in the same economic activities as its permanent representation, then income of the non-resident company is included in taxable income of the permanent representation.

The law on natural resources tax.

For application of the law economic activity is realization of natural resources, manufacturing of goods, fulfilment of work, trading, provision of services and other type of activities for remuneration.

Definition (meaning) of economic activity is important for determining of:
  • status of a payer of the natural resources tax,
  • taxable objects,
  • tax rates and obligation to pay the tax.

Associations and foundations law.

The court can terminate the activities of the association and foundation, if the main activity is economic activity with aim to get profit.

Registration of economic and commercial activities.

An individual (natural person) for free can register his (her) economic activities in the State Revenue Service. To register, you must present a passport or identity card and fill in the registration application.

A person who plans to engage in commercial activities, must register in the commercial register (the Register of enterprises). With the Register of enterprises you can register:
  • a limited liability company,
  • a joint stock company,
  • a sole trader.
For registration you must pay state duty, publication and possibly other payments. Registration in the commercial register is a bit complicated than registration in the State revenue service.

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