Company formation and accounting in Latvia
Last updated: 2016-06-17
Sole trader (individual merchant) is a natural person who as a merchant has registered in the commercial register.

Individual merchant, using his/her own firm (name), can enter into transactions which are related to commercial activities, and can sue and be sued in court.
Sole trader has no status of legal personality.
A natural person himself (herself) enters into transactions on behalf of a sole trader.
A sole trader can also authorize other persons to conclude transactions on his name.

The responsibility for obligations.

For his obligations, a sole trader is responsible with all property (including the property that is not used for commercial activities).
The general limitation period - 3 years after the exclusion from the commercial register. That is, during the 3 years after exclusion of a sole trader from the commercial register, creditors have rights to demand fulfillment of obligations related to commercial activities.

If the term or condition for fulfillment of the obligations occurs (is met) after the exclusion from the commercial register, then the limitation period for claims of the creditor begins at the moment when the time comes or the condition is met to fulfill obligations. In such a case the limitation period may exceed 3 years.

Obligation and right to register.

The procedure and conditions for registration regulates the Commercial law of the Republic of Latvia.

An individual who engages in business activities, must register in the commercial register if:
  • annual turnover from business activities exceeds 284 600 euros, or
  • an individual operates as a commercial agent, or
  • an individual operates as a broker, or
  • annual turnover from business activities exceed 28 500 euros and because of economic activities the natural person employs more than 5 employees.
A commercial agent is a merchant who is authorized on behalf of and for the benefit of another person independently to conclude contracts or to prepare the conclusion of contracts with third parties.
A broker is a merchant who is engaged in mediation of the conclusion of transactions in favor of other persons without permanent contractual relationships with these persons.

But the individual has the right to register as a sole trader also if the above mentioned circumstances does not exist.

Documents required for registration and content of documents.

The basis for registration in the commercial register is an application of a certain form and containing certain content.

In the application must write:
  • Name, surname, personal code (if does not have Latvian personal code, then must write birth date and passport data).
  • Name (firm) of a sole trader. The name must contain words "individuālais komersants" or abbreviation "IK".
  • Legal address.
Signature on the application must certify before a sworn notary. In certain cases an official of the Register of Enterprises can certify signature. You can also sign documents with secure electronic signature.

If immovable property at legal address belongs to another person (who has not signed the application), then to the application must add written consent for registration of legal address.
In the consent must write cadastral number of the immovable property, name, surname and personal code (or name (firm) and registration number) of owner of the immovable property.
If the property at the specified legal address belongs to a person who has signed the application, then a separated consent is not required.

Procedure of registration

  • Preparation of documents. Must choose a firm (name), decide where the legal address will be and also must fill in all the documents.
  • Signing of documents. If you can not sign documents with secure electronic signature, then the signature on the application need to certify in the Register of Enterprises or before sworn notary.
  • Payment of the state fee and the fee for the publication.
  • Submission of the documents. Documents must be submitted to the regional department, corresponding to the legal address. For example, if a legal address is in Riga, Riga district or Jūrmala, then the documents must be submitted to the Riga regional department.
    If the documents are signed with a secure electronic signature, then the documents can be sent to e-mail of the Register of enterprises (info@ur.gov.lv).
  • Receiving of examined documents (the decision about registration). The Register of enterprises usually reviews the documents during 3 working days.
  • After receiving the decision about registration, if necessary, you can apply for value added tax (VAT) number. You need to submit the application and other necessary documents in the State Revenue Service.

To register a sole trader there is no obligation to create the authorized capital (unlike a limited liability company).

What business activities a sole trader can engage in?

A sole trader can engage in the majority of lawful commercial activities.
But for some activities there are additional requirements, to which a sole trader does not match.
For example, in insurance can only be engaged a joint-stock company, an European company or a cooperative society of mutual insurance.

Taxation of a sole trader.

A sole trader, under certain conditions, have the right to register a payer of the micro-enterprises tax.

If a sole trader has not to registered as a payer of the micro-enterprises tax, then a sole trader pays:
  • Personal income tax (23% from profit). Once per year a sole trader must submit income declaration. In declaration must specify total amount of revenues and expenditures, related with economic activities. Profit is the difference between income and expenditures. If a sole trader must pay personal income tax for certain taxation period, then during the next year the sole trader must pay advance payments for the tax.
  • Mandatory social insurance contributions. If amount of income less expenditures per month is equal to minimum monthly salary (for 2016, - 370 euro) or higher, then a sole trader for corresponding month must pay mandatory social contributions (general rate for 2016 is 30.58%).
    But if during a year, amount of income less expenditures reached amount of 12 monthly minimum salaries (for 2016, - 4440 euro), then for following months a sole trader must pay social contributions even if profit in a month is less than amount of minimum salary.

If a sole trade employs employees, then the sole trader must pay taxes from salaries (personal income tax, mandatory social insurance contributions, business risk duty).

If a sole trader is registered as VAT payer, then must pay VAT according to legislation.



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