The Latvian economy is largely 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 recovered somewhat following the lifting of COVID-19 travel restrictions but continues to experience a slowdown due to Russia’s war against Ukraine.
Latvia’s corporate income tax (CIT) system has been in place since 2018. Latvia’s corporate tax structure exempts retained earnings. The CIT rate on gross distributed profits is 20 percent. Latvia is well connected by more than 100 direct flights to all major European cities.
The Latvian government is expected to spend about $12.3 billion (10.5 billion EUR) of EU structural funds in 2021-2027, which includes about $2.9 billion (2.5 billion EUR) Latvia will receive through the EU’s Recovery and Resilience Facility (RRF). The Latvian government provides several incentives for investment including in the areas of taxes, labor, research and development, and state credit guarantees. Please see the Latvian Investment and Development Agency (LIAA)’s website for detailed information on the available incentives and tax allowances. Detailed information on Latvia’s planned use of the RRF is available here: https://commission.europa.eu/business-economy-euro/economic-recovery/recovery-and-resilience-facility/latvias-recovery-and-resilience-plan_en
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. The U.S. International Development Finance Corporation (DFC) is also able to support some energy projects in Latvia. Nordic Investment Bank announced the opening of its regional hub in Riga in August 2023.
Opportunities exist for expanding trade in various sectors, including energy, IT, forestry, farming, woodworking equipment, transportation (including aviation), agricultural products, and defense. Latvia is part of the $6 billion Rail Baltica greenfield rail transport infrastructure project that will connect Latvia, Lithuania, and Estonia with the European rail network. The project should be completed by the end of 2026. More details on the project are available here: https://www.railbaltica.org/