Risks of Forming a Company in Latvia: What You Should Really Know

This article isn't here to sell a dream. If you're considering forming a SIA in Latvia, you've probably already read plenty of enthusiastic content about 0% corporate tax, 3-day formation, and entrepreneurial freedom. All of that is real. But a decision this structural also deserves to be informed by its risk areas. That's what this guide is for.

Risk #1: Permanent establishment back home

This is by far the most common and most misunderstood risk. Permanent establishment (or, for individuals, effective management) is an international tax law concept that lets a country claim the right to tax a foreign company on its territory, if that company carries out sufficiently regular economic activity there.

In practice: if you're tax resident somewhere and you run your Latvian SIA entirely from your home office there, making every decision, signing every contract and delivering every service from that country, your home tax authority may consider the company's real place of management to be at home. It would then be taxable there like a domestic company, despite being registered in Latvia.

This risk doesn't apply equally to everyone. It's higher if you're the sole director, work exclusively from home, and your SIA has no real presence in Latvia at all. As a worked example: under French tax law (Article 209 I of the French tax code), the tax authority can reclassify a foreign company run entirely from France with no substance in Latvia. Similar effective-management rules exist in most countries, check the specific test that applies where you're tax resident.

Risk #2: Reporting obligations at home

Many entrepreneurs assume a Latvian SIA removes every obligation at home. That's a mistake. As a tax resident somewhere, you generally remain subject to several reporting duties, regardless of where your company is based.

• Foreign asset declarations: many countries require an annual declaration of foreign accounts and structures. In France, for example, this is Form 3916, with a €1,500 penalty per omission
• Declaring dividends received: dividends paid by your SIA generally need to be declared at home and are taxed under your home country's personal income tax rules
• Automatic exchange of information: Latvia and most other countries automatically exchange tax data under OECD standards, opacity isn't an option

To understand precisely where and how tax is actually paid with a Latvian company, see our dedicated guide.

Risk #3: Difficulties opening a bank account

Opening a bank account for a Latvian SIA isn't always straightforward, particularly with traditional banks. Tighter KYC (Know Your Customer) requirements across Europe since 2018 have made many institutions very selective with non-resident companies.

Large Latvian banks (Swedbank, SEB, Citadele) may decline to open an account for a SIA whose shareholders and directors are all foreign, with no demonstrable local substance. Neobanks and fintechs (Wise Business, Paysera, Revolut Business), on the other hand, generally accept Latvian SIAs with no residency requirement, with a fully online onboarding process.

The most pragmatic solution for most entrepreneurs: open a Wise Business or Paysera account alongside formation, and consider a traditional bank later if your activity grows within Latvia.

Risk #4: Latvian accounting and tax obligations

The SIA is subject to strict accounting obligations in Latvia, even if it distributes no dividends and pays no corporate tax. Many entrepreneurs underestimate this at formation.

• Keeping accounts compliant with Latvian standards (similar to IFRS for SMEs)
• Filing an annual report with the companies register (Uzņēmumu reģistrs)
• Monthly filings with the SRS (Latvian tax authority), even at zero
• Regularly updated beneficial owner (UBO) declarations
• Keeping accounting records for at least 5 years

These obligations mean hiring a local Latvian accountant, typically costing €100 to €250 per month depending on transaction volume. Factor this into your profitability analysis.

Risk #5: How local partners and clients perceive it

An often-overlooked risk: how your professional contacts react to a Latvian address on your invoices. Some large accounts, public bodies or clients back home may be reluctant to work with a company headquartered in a country they don't know well.

This risk is generally low for international or digital B2B activity, but can be more sensitive in some regulated sectors (healthcare, finance, public procurement). The best countermeasure is transparency: simply explain that the SIA is a company under EU law, recognised across the Union, tax-compliant, and holding a Eurozone IBAN.

How to minimise these risks effectively

Good news: most of these risks are entirely manageable with correct structuring from the start. Here's what we recommend to all our clients:

• Appoint a local director in Latvia to reduce permanent-establishment risk
• Carefully document the SIA's real activity in Latvia (meetings, decisions, contracts signed in Riga)
• Systematically declare your SIA and its dividends at home, transparency is your best protection
• Choose a reliable Latvian accountant from day one, not in a rush afterwards
• Get support from an advisor who understands both Latvian law and your home country's tax rules

To understand what a correctly structured formation looks like, read our complete guide on forming a SIA as a non-resident.

"A poorly structured Latvian SIA can cost more than it saves. Well structured and well supported, it's one of the most powerful legal tax tools available in Europe."