- Tax and other benefits for businesses within Special Economic Zones
Commercial activities under the Special Economic Zone (SEZ) regime can provide considerable tax benefits such as a 80% rebate on corporate income, real estate and withholding tax for dividends, management fees and payments for use of intellectual property to non-residents as well as 0% VAT on most goods and services provided to businesses in a SEZ or supplied in a SEZ. Additional benefits may also apply, for example, in the form of special customs control measures or indirect tax benefits.
There are four SEZ in Latvia: Riga Free Port, Ventspils Free Port, the Liepāja Special Economic Zone and the Rēzekne Special Economic Zone. Currently the law provides that SEZ regimes are valid until 2017, but the idea of prolonging the term of validity is currently under discussion.
In order to be able to engage in commercial activities under the SEZ regime, investments and intended business incentives have to comply with the development strategy of the specific SEZ, an agreement should be in place with the SEZ authority plus a permit received, and the applicant should generally be prepared to follow the requirements and restrictions applicable to activities within the SEZ. These requirements and restrictions may be specific to each SEZ (eg each SEZ might prefer investments from selected industries) so that potential applicants are advised to co-ordinate their incentives with the specific SEZ authority.
- Corporate Income Tax rebates for investment projects exceeding LVL 3 million
A Corporate Income Tax (CIT) rebate of 25% of the amount of the initial long-term investment may be available if the investment exceeds LVL 3 million (approx EUR 4.3 million) or 15% if the investment exceeds LVL 35 million (approx EUR 50 million).
CIT rebates may be available for investments in a broad spectrum of priority industries such as telecommunication and computer programming, warehousing and support activities for transportation as well as manufacturing food and beverages, wood and woodworking products, chemicals, pharmaceuticals, computers and electrical equipment, and metals. A further condition is that the investment has to be made over a limited period with the purpose of starting a new activity or modernising or expanding existing activities which would include introducing new products, switching between manufacturing processes or otherwise implementing significant changes to operations.
- Credit Guarantees of up to EUR 1.5 million
For businesses based in Latvia in need of additional financing from banks or leasing companies, credit guarantees may be available up to 80% of the amount of the financial facility or EUR 1.5 million.
Credit guarantees are issued by the Latvian Guarantee Agency, a state owned company tasked with supporting innovative business ideas in need of financial services in the form of loans for investment, loans for working capital, financial leasing, factoring or bank guarantees. Credit guarantees may be available to businesses based in Latvia whose own collateral is insufficient or whose business would usually be considered too risky by commercial banks.
Credit guarantees are available for a wide range of production and service industries. However, this does not include certain traditional sectors such as wholesale and retail, financial and insurance services, real estate, agriculture and fishing. The maximum credit guarantee period is limited to ten years.
The application process is handled directly through the banks and leasing companies issuing the financial facility. These will apply to the Latvian Guarantee Agency if a need is identified for additional security in the form of a credit guarantee.
- Five state aid programmes to improve competitiveness, to support start-ups and growth
The five state aid lending programmes are managed by the Mortgage and Land Bank of Latvia. Each of these is developed to addresses the financing needs of different businesses varying in size, industry as well as in their stage of development.
Four of these programmes are addressed either to smaller businesses or specifically agriculture and therefore are not examined here in any detail. However, the remaining programme might appeal to a more general audience.
This is primarily aimed at improving business competitiveness. Under the programme, loans may be available up to LVL 5 million (approx EUR 7.1 million) for investments and up to LVL 2 million (approx EUR 2.8 million) for working capital needs. The programme is co-financed by the European Regional Development Fund and is available for small, medium and larger businesses with sound growth potential but which lack attractiveness in the eyes of commercial banks due to the increased exposure they represent. The majority term might be a maximum of ten years for investment loans and five years for working capital loans. For investment loans businesses are expected to provide their own co-financing in the amount of 25%.
- Subordinate or mezzanine loans from LVL 100,000 to LVL 700,000 for ordinary, developing companies
Loans may be available in the form of subordinate or mezzanine financing from LVL 100,000 (approx EUR 140,000) to LVL 700,000 (approx EUR 1 million) but not more than 40% of the total investment costs for small, medium and larger businesses to finance business development.
Loans are available under the European Union structural fund aid programme – Mezzanine Loans for Improving Competitiveness of Economic Operators. Total European Regional Development Fund support for the programme is approx EUR 25.3 million.
The programme is aimed at Latvian businesses with high growth potential in selected industries but insufficient collateral and equity level to attract bank financing required to cover the full investment costs. Loans will be in the form of mezzanine financing subordinated to bank loans and secured by lower class security than bank loans. The maximum maturity term is ten years.
The application process is handled through the Latvian Guarantee Agency.
- Funding for R&D incentives
Funding for research and development (R&D) incentives may be available under two programmes.
The first is the EU Seventh Framework Programme for research and technological development (FP7) supporting international R&D cooperation projects involving at least three partners from different countries. Total funding available under this programme is approx EUR 50 million but for individual projects support may vary between EUR 300,000 to EUR 3 million. Support is available to commercial as well as academic organisations and the activities supported include research and technology activities carried out by research institutions, demonstration, testing and project management activities as well as other activities which promote research.
Aid levels for small and medium businesses may be up to 50% for demonstration activities, up to 75% for research activities and up to 100% for other activities such as education or project management.
In Latvia the programme is co-ordinated by LIAA.
The second is the EUREKA programme. This is similar to FP7 but is more open to research topics proposed by applicants. Under this programme support of up to EUR 130,000 may be available for businesses, educational and scientific institutions engaged in marketable international R&D projects.
To qualify for support the R&D project should apply to the non-military sector, the project team has to include at least two members from different EUREKA Member States, the resulting product must be market driven and relate to innovations in manufacturing, processing or service sectors in Latvia or on a European level.
The activities supported include remuneration of research and support staff, costs of hardware and equipment, construction and real estate costs, other operating expenses such as materials, supplies plus patent acquisition and approval costs.
Aid levels may be up to 50% for industrial research, up to 75% for experimental development and up to 100% for fundamental research.
- Financial support for training employees abroad
Financial support is available under the Leonardo da Vinci Programme. This is administered by the State Education Development Agency for employee training abroad with partner companies or institutions from the EU Member States, EU Candidate Countries or EEA Member States.
Eligible costs covered by the support include accommodation, transport, insurance, visa, preparatory expenses (eg language classes) and administration. The aid level is usually 100%.
Applications must be made by January 2013 and by at least two collaboration partners from EU Member States, EU Candidate Countries or EEA Member States.
- Support for creation of well-paid employment positions
A new project is in the pipeline whereby funding of up to LVL 1.5 million (approx EUR 2.1 million) may be available for investment in priority sectors which result in the creation of well-paid employment positions
Total funding available under this future programme will be LVL 3 million (approx EUR 4.3 million). The support level will be 50% of total project costs for net salary and general training costs and 25% of total project costs for special employee training costs, with a maximum of LVL 12,000 (approx EUR 17,000) for each newly created employment position which will be divided between a maximum LVL 500 (approx EUR 700) monthly for net salary expenses and a maximum LVL 500 (approx EUR 700) for each project for employee training expenses.
Funding will be available to businesses registered in Latvia which generate at least 50 workplaces and invest at least LVL 3.5 million (approx EUR 4.9 million) using their own financing or whose balance sheet value (including affiliated companies) is at least LVL 250 million (approx EUR 356 million) and who invest at least LVL 1,000 (approx EUR 1,400) for each newly created employment position. To qualify, the salary for each newly created employment position has to be no less than 120% of the average employee net income in Latvia for three years after implementation of the project for small and medium-sized businesses and for five years after implementation of the project for larger businesses. Additionally, the applicant has to own or have a long term lease on the property where the investment is envisaged and this property has to be located within Latvia. Finally, the project has to be at a sufficiently advanced stage of implementation and the financial position of the applicant should be sufficiently stable.
Submission of projects is scheduled to take place during the 3rd quarter of 2012. The application process is handled through LIAA.