Free economic zones in Latvia
Relocating your business to another country or city is not only an excellent way to expand your company but it is also a great way to reduce and optimize costs and taxes. The most common question is: which country (or city) to choose? While Baltic States proved to be popular among Nordic, British, German and investors from CIS countries, the difference between each city also matters. A good example is so-called “free economic zone” which offers a variety of benefits for the investors settled in that area. The information provided below features requirements and tax exemptions of free economic zones in Latvia.
Locations
Currently there are four free economic zones in Latvia: Free port of Riga, Free port of Ventspils, Free port of Liepaja and Special Economic Zone of Rezekne.
The Law on Free Economic Zones establishes regulations applied in the aforementioned zones. Companies established in free economic zones can take advantages of infrastructure, transport connections, professional and well educated work force, location, favorable legal and tax regime.
Three of these free economic zones are located in territory of ports: Riga, Ventspils and Liepaja, but fourth special economic zone is in inland territory of Rezekne.
Riga free port is located in the territory of Riga (Capital of Latvia). Port of Riga is well connected with railway and other ports. Also special economic zone is located in Riga free port where more favorable tax and legal regime is for industrial companies. It is possible to send and receive cargo by trucks, railway and sea.
Free port of Ventspils is situated in transport connection point between the EU, CIS and Central Asia. Companies can benefit from transport solutions by sea, road, rail and air transport connections. E-22 motorway connects Ventspils to other Baltic, European Union countries, Russia and other CIS countries. Venstspils is a part of the East-West railway corridor; railway connects Ventspils with Europe, Russia, CIS countries and Asia. Also in the territory of Freeport of Ventspils the Ventspils Airport is located and special economic zone.
Liepaja free port provides a solid base for logistics connections with the rest of Europe, CIS countries and Asia, thus enabling cost effective shipping time. Port is well connected by railway, road, sea and air. Port is multifunctional dealing with most types of cargos. Special Economic zone is also within territory of Liepaja free port, it is very favorable place for production of goods for export.
Rezekne is eastern boarder city of Latvia and European Union. Road and railway infrastructure provide great supply of raw materials and also allows accessing markets of EU, Russia and CIS countries. t Advantages of Rezekne SEZ is qualified and professional work force, good relationships and cooperation traditions with CIS countries, innovative business infrastructure and support of government and local authorities.
Benefits
Rebate for property tax is 80% and additionally local authorities can give extra 20% discount from calculated amount after 80% discount from regular property tax, which is 0.2-3% from properties cadastral value.
In order for discounts to be applicable, accumulated discount sum have to be taken into account and calculated discount in taxation period could not be more then companies accumulated discount percentage form investment sum.
The following tax incentives are applied to the companies operating in a free economic zone:
|
Taxes |
Free economic zone |
Usual Tax Rate |
|
Corporate tax |
3% |
15% |
|
Real estate tax |
0.032-0.48% |
0.2 – 3% |
If amount of taxes that have to be paid exceeds accumulated discount percentage from investment, then property tax have to be recalculated and if property tax is recalculated then discount for corporate tax can not be applied.
Tax reliefs are also available to indirect taxes- VAT, Excise and custom duties. Also companies operating in free economic zones benefit from infrastructure, possibility to transport cargo by road, railway or sea and support from government and local authorities.
Requirements
In order to be able to take advantage of the above mentioned benefits, the Company have to submit application to Authority of Special Economic Zone and comply with requirements stated in law and:
- Companies registered address and actual place where business activities are performed have to be within territory of Special Economic Zone. Company owns or have a long term lease agreement for property in territory of Special Economic Zone;
- Activities of the investor shall comply with the Law on Free Economic Zones and profile of company’s entrepreneurship comply with development plans of Special Economic Zone;
- The investor shall have all permissions and licenses required for its activities. The licenses (permits) cannot be suspended or revoked, they shall be valid;
- Companies business activities have to meet following criteria: Produce goods, provide services or cargo turnover in the port, invest in property and long term assets, create new work places, pay salaries not lower then average salary in the city;
- Validity control from the State Revenue Service;
- The investor shall submit a request to be granted a permission to establish in a free economic zone and get permit from Executive Body of Special Economic zone to exercise the rights to use direct tax allowance based on the law “Taxation in free ports and special economic zones.”
Permissions for establishment in a free economic zone are granted by the entity which manages the free economic zone. After receipt of the request of the investor, the entity responsible for management of the free economic zone evaluates the application and grants a permission to establish or move company to the free economic zone or refuses to grant the permission. The investor is refused to grant the permission if the investor does not meet the above mentioned requirements or if the land of the zone is already distributed to other investors and there is no possibility to assign another plot. The decision to refuse to grant a permission to establish in a free economic zone can be appealed. It shall be noted that certain activities are prohibited in a free economic zone. Activities related to gambling, lotteries, production of alcoholic beverages and tobacco products, in stamps, coins and other similar objects in addition to broadcasting of radio and television shows are prohibited in the free economic zones.
Eduards Dzintars, attorney at law of the Gencs Valters Law Firm in Riga.
Practising in fields of Financing Law in Latvia, Estonia, Lithuania.
T: +371 67 24 00 90
F: +371 67 24 00 91