Latvia: Investing in Latvia
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. Nevertheless, according to UNCTAD's World Investment Report 2023, foreign investment flows reached a record-high level of USD 3.32 billion in 2021 and stood at 1.5 billion in 2022. At the end of the same year, the total stock of FDI was estimated at USD 24.09 billion, around 57.1% of the country’s GDP. Prior to Latvia's transition to a full market economy, privatization 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 main foreign investors in Latvia are Sweden (28.5%), Estonia (12.9%), Lithuania (7.8%), Russia (6.4%), Germany (6.1%), and Cyprus (5.8% - source: Bank of Latvia). FDI split by sectors shows that most investment is attracted in professional, scientific and technical services (21%). Other significant foreign investments have been accumulated in financial operations (15%), real estate operations (15%), trade (13%), and manufacturing (12%). The latest figures from the OECD show that in the first half of 2023 FDI inflows reached USD 650 million, compared with USD 685 billion recorded in the corresponding period one year earlier.
Latvia can also count on a skilled and relatively inexpensive workforce and a strategic geographical location, between the EU and CIS countries. It also has a competitive tax system (ranked second in the 2023 International Tax Competitiveness Index Ranking) and the government has abolished taxes on reinvested profits. The country counts five special economic zones (SEZs): Riga Free Port, Ventspils Free Port, Liepaja Special Economic Zone, Rezekne Special Economic Zone, and Latgale Special Economic Zone. The law does not discriminate between local and foreign investors, except for some sectors considered of national importance, which require governmental approval prior to transfers of significant ownership interests (these include the energy, telecommunications, and media sectors). The government recently 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. On the downside, the country has a small-sized market, and it has room for improvement in the protection of minority shareholders and in resolving insolvency. Furthermore, its proximity to Russia may hinder the expansion of FDIs in the short term in light of the Russian invasion of Ukraine. Overall, Latvia is considered a business-friendly jurisdiction, and the country ranks 37th among the 132 economies on the Global Innovation Index 2023 and 20th out of 184 countries on the latest Index of Economic Freedom.
Foreign Direct Investment | 2020 | 2021 | 2022 |
FDI Inward Flow (million USD) | 1,005 | 3,322 | 1,508 |
FDI Stock (million USD) | 20,628 | 24,043 | 24,094 |
Number of Greenfield Investments* | 30 | 18 | 20 |
Value of Greenfield Investments (million USD) | 976 | 641 | 709 |
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.
The main assets of the country are:
Some of the obstacles to FDI in Latvia include:
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: May 2024