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Investment opportunities in Latvian property market

General

Foreign investors can freely buy, develop and dispose of buildings in Latvia, provided that these buildings are acquired separately from the land on which they stand. Direct acquisition of land by foreigners is subject to permission of the local municipality. Foreign investors may purchase land in Latvia indirectly, by investing in a Latvian company, provided that more than 50% of the shares in this company belong to Latvian citizens, or to nationals of the countries with which Latvia entered into investment protection treaties before 1 January 1996.

Foreign investors may lease land for a period of up to 99 years without any restrictions. A land reform program has been developed, and the process of privatizing land should have been completed by 2002. However, the privatization process has not yet been fully completed. No currency restrictions are imposed on Latvian companies and individuals, who are allowed to maintain freely transferable foreign currency accounts inside and outside Latvia. No foreign exchange restrictions are imposed on cross-border currency transfers.

Investing through a local entity versus direct investment

A foreign company wishing to invest in Latvian real estate through a local entity can incorporate a private limited company, or Sabiedriba ar ierobezotu atbildbu (SIA), or a public limited company, or Akciju sabiedriba (AS). In most instances, a foreign investor will elect to set up a subsidiary in the form of a SIA. Foreign entities and individuals are explicitly prohibited from forming or participating in a Latvian-registered partnership until 2005.

Taxation of a foreign company investing directly in real estate will depend on whether or not the company creates a permanent establishment in Latvia. The taxation regime applicable to a permanent establishment is quite similar to that applicable to a limited company.

A form of a permanent establishment that can be legally registered is a branch. The branch represents a relatively new concept in Latvian legislation and, although operating a branch is becoming increasingly popular within the business community, Latvian authorities and local companies are often confused about the status of this entity. This confusion may result in certain difficulties.

The main advantage of investing directly is that capital gains realized by foreign investors are not taxed in Latvia, unless they are attributable to a permanent establishment.