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Latvia’s law on support for start-ups has finally taken a business-friendly form

In 2020, the Law on Support for Startups (“Startup Law”) has undergone significant changes that maintain all existing support mechanisms, but make it much easier for startups to receive this state support. As Olga Barreto-Goncalves, Executive Director of the Latvian Startup Association “Startin.LV”, is convinced, the Law has now taken a form that is particularly convenient for startups.

The Latvian Startup Support Law was adopted in 2017 with the aim of promoting the development of fast-growing startups in Latvia, but the excessively strict requirements included in the law became an obstacle and rather hindered the development of startups in Latvia, as only a few could qualify for the support provided by the state. However, it is now evident that the changes made to the law in 2020 have brought a pleasant change – in the first 5 months of this year, 13 start-ups have already qualified and received state support, compared to only 7 start-ups in the previous four years.

One of the most important changes in the law on support for start-ups is that bootstrapper start-ups, i.e. start-ups that have not previously received venture capital investment for business development, can now also qualify for state support. It is also important to note that start-ups that establish an affiliated company abroad to raise capital are also eligible for State aid.

“People are at the heart of any company, so the tax incentives and support for start-ups provided by the law allow start-ups to focus on building an excellent team to successfully continue their development,” says Olga Barreto-Goncalves, Executive Director of the Latvian Start-up Association. “After the second amendment, the Startup Law has finally taken a form that is friendly to all startups – we can already see that the number of applications has increased in recent months. I therefore urge all startups to give this public support mechanism a second chance and make sure that your startup qualifies for support following the changes to the law.”

When applying for state support, start-ups have the option to implement the support mechanism that suits them best, choosing between two scenarios. The first scenario provides for social tax relief (only EUR 340.90/month per employee) and personal income tax relief (0% personal income tax rate), while under scenario 2, start-ups can receive a remuneration of 45% of the total cost of highly qualified employees.

Illustrative example of the financial calculation for Scenario 1 (1 month, no payroll tax book, €0 tax-free minimum):

Under the general tax regime Under the tax regime proposed by the law
Employee’s salary (gross) 2450 EUR EUR 2450
Employee’s cost to the start-up 3028 EUR 2686 EUR
Employee receives EUR 1681 2200* EUR

*after additional compulsory contributions to the state pension insurance or to a private voluntary pension scheme

Illustrative example of the financial calculation for scenario 2 (1 month, no payroll tax book, €0 tax-free minimum):

Under the general tax regime Under the tax regime proposed by the law
Employee’s salary (gross) 2450 EUR EUR 2450
Employee’s cost to the start-up 3028 EUR 1665 EUR
Employee receives EUR 1681 1680** EUR

** Initially all taxes are paid under the general tax regime; a 45% refund is made once a quarter.

Several successful Latvian start-ups, such as Kedeon, Sonarworks, CENOS and Nordigen, are currently benefiting from the State support for Latvian start-ups. The first step for start-ups to receive state support is to familiarise themselves with the Latvian Law on Support for Start-ups, and then to fill in and submit the necessary documents in accordance with the procedure set out in Cabinet Regulation No 74. All applications submitted by start-ups are assessed by the Latvian Investment and Development Agency (LIAA).

For more information, please watch the webinar “Startup Law: Same, Same… but Different” organised by the Latvian Startup Association “Startin.LV” and the Ministry of Economics, in which Olga Barreto-Goncalves, Head of the Association, presented the essence of the Law on Support for Startups and the significance of the introduced amendments.

  • The Law on Support for Start-ups can be found here: https://likumi.lv/ta/id/287272-jaunuznemumu-darbibas-atbalsta-likums
  • Further information on the changes made to the Law on Support for Start-ups is available here: https://startuplatvia.eu/startup-law-benefits
  • The procedure for applying for and administering start-up support programmes is available here: https://likumi.lv/ta/id/289027-jaunuznemumu-atbalsta-programmu-pieteiksanas-un-administresanas-kartiba

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