Latvia is a small nation with a stable political environment and a dynamic economy that is at present one of the fastest growing countries in the European Union. Latvia is similar in size to North Carolina, with a population of approximately 2 million. The country provides an attractive market for American IT equipment and services, capital machinery and equipment, medical and consumer products, and energy products. Located at the center of the three Baltic States, Latvia is a member of the European Union (EU) and occupies a strategic location as a commercial, financial, and transportation hub for the Nordic/Baltic region and areas to the east. After suffering the worst economic decline in Europe between 2008 and 2010, the Latvian government enacted successful fiscal reforms, returning Latvia’s economy to positive growth. Latvia became a member of the Eurozone on January 1, 2014.
The commercial environment is generally friendly to foreign companies, and EU directives are implemented and observed. There are no controls on import, export, or the use and conversion of foreign currencies, which facilitates investment and the repatriation of profits. The Latvian government has adopted modern laws establishing copyrights, patents and trademarks and the means for enforcing their protection. Telecommunication services are modern and among the highest in quality in the EU, and the real estate market provides both modern residential and business space. English is widely spoken in government and business.
Many U.S. companies doing business in Latvia rate the business environment among the best in Central and Eastern Europe. Since May 2014, the credit rating agency Standard & Poor’s has given Latvia the fourth highest investment grade A- indicating its economic strength and improving national wealth. The legal system, tax structures, and trade and other regulations have been significantly modified to harmonize with EU standards. Most EU directives have been incorporated into the Latvian legislative system.
Latvia has been a member of the WTO since 1999. The country joined the EU and NATO in 2004 and Latvia began the process to accede to the Organization for Economic Cooperation and Development (OECD) in May 2013.
The Latvian economy is based on service industries including transportation, information technology, and financial services. The construction industry also plays an important role, as do wood and forestry products, food processing, metalworking, and light industries (e.g., textiles). Tourism has been growing rapidly.
Latvia has a flat corporate income tax rate of 15%. The country is well connected by more than 80 direct flights to all major European cities, a direct flight to New York JFK (twice a week), and plenty of connecting flights. Latvia’s state-owned national air carrier, airBaltic, has made Riga a regional hub.
During the 2014-2020 period, the Latvian government will administer approximately $6.1 billion of EU structural funds. The Latvian government provides several incentives for investment including tax incentives, labor related incentives, incentives for research and development, and state credit guarantees. Please see the website of the Latvian Investment and Development Agency for detailed information on the available incentives and tax allowances: http://www.liaa.gov.lv/invest-latvia/investor-business-guide/incentives-investors.
The European Bank for Reconstruction and Development (EBRD) operates in Latvia out of its regional office in Vilnius, Lithuania. Latvia qualifies for U.S. Export Import Bank (ExIm) financed projects.
Good opportunities exist for expanding trade in various sectors including energy; computer; forestry, farming, and woodworking equipment; transportation (including aviation); and agricultural products. Latvia’s increased competitiveness, spurred by its handling of the financial crisis, has increased potential for investments in both the manufacturing and services sectors.
Due to the country's small size, if a company is considering doing business only in Latvia, one potential limiting factor is local labeling requirements, which could prove costly relative to the possible customer base. Many companies focus on Latvia as part of the broader Baltic region or EU market. Other challenges that businesses face in Latvia are the potential for market saturation and the difficulty of protecting business secrets due to the small market size.
U.S. products in Latvia face strong competition from EU countries, Russia, and the formerly Soviet-occupied states. Due to historical trade relations, companies from Scandinavian countries and Germany typically approach the Latvian market with greater confidence.
Entrenched government bureaucracy and relatively higher levels of corruption (see Chapter 6) are impediments to the growth of U.S. trade and investment in Latvia. Some concerns exist regarding the protection of intellectual property, but legislative changes have given law enforcement additional tools to address these issues.
All the above information is a part of an Executive Summary of the Country Commercial Guide.
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