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Latvia

Executive Summary

Located in the Baltic region of northeastern Europe, Latvia is a member of the EU, Eurozone, NATO, OECD, and the World Trade Organization (WTO). The Latvian government recognizes that, as a small country, it must attract foreign investment to foster economic growth, and thus has pursued liberal economic policies and developed infrastructure to position itself as a transportation and logistics hub. As a member of the European Union, Latvia applies EU laws and regulations, and, according to current legislation, foreign investors possess the same rights and obligations as local investors (with certain exceptions). Any foreign investor is entitled to establish and own a company in Latvia and apply for a temporary residence permit.

Latvia provides several advantages to potential investors, including:

Regional hub: Latvia is a transportation and logistics hub between West and East, providing strategic access to both the EU market and to Russia and Central Asia. Latvia’s three ice-free ports are connected to the country’s rail and road networks and to the largest international airport in the Baltic region (Riga International Airport). Latvia’s road network is connected to both European and Central Asian road networks. Railroads connect Latvia with the other Baltic States, Russia, and Belarus, with further connections extending into Central Asia and China.

Workforce: Latvia’s workforce is highly educated and multilingual, and its culture promotes hard work and dependability. Labor costs in Latvia are the fifth lowest in the EU.

Competitive tax system: Latvia ranked second in the OECD’s 2021 International Tax Competitiveness Index Rankings. To further boost its competitiveness, the Latvian government has abolished taxes on reinvested profits and has established special incentives for foreign and domestic investment. There are five special economic zones (SEZs) in Latvia: Riga Free Port, Ventspils Free Port, Liepaja Special Economic Zone, Rezekne Special Economic Zone, and Latgale Special Economic Zone, which provide various tax benefits for investors. The Latgale Special Economic Zone covers a large part of Latgale, which is the most economically challenged region in Latvia, bordering Russia and Belarus.

Despite the continued COVID-19 pandemic, Latvia’s GDP increased by 4.8 percent in 2021, rebounding from the 3.6 percent contraction in 2020. According to the government, growth in manufacturing and services sectors contributed to the economic growth. The most competitive sectors in Latvia remain woodworking, metalworking, transportation, IT, green tech, healthcare, life science, food processing, and finance. Recent reports suggest that some of the most significant challenges investors encounter in Latvia are a shortage of available workforce, demography, quality of education, and a significant shadow economy.

Latvia has made significant progress combatting money laundering since its non-resident banking sector first came under increased regulatory scrutiny in 2018 because of inadequate compliance with international AML standards. In late 2019 and early 2020, MONEYVAL and the Financial Action Task Force (FATF) concluded that Latvia had developed and implemented strong enough reforms for combating financial crimes to avoid inclusion on FATF’s so-called “grey list.” The Government of Latvia continues work to restore confidence in its financial institutions and has passed several pieces of additional reform legislation. Latvia also became the first member state under the MONEYVAL review to successfully implement all 40 FATF recommendations.

Some investors note a perceived lack of fairness and transparency with Latvian public procurements. Several companies, including foreign companies, have complained that bidding requirements are sometimes written with the assistance of potential contractors or couched in terms that exclude all but “preferred” contractors.

The chart below shows Latvia’s ranking on several prominent international measures of interest to potential investors.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 36 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 38 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2021 219 EUR* https://statdb.bank.lv/lb/Data/128/128
World Bank GNI per capita 2020 USD 17,880 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

*These figures significantly underestimate the value of U.S. investment in Latvia due to the fact that these do not account for investments by U.S. firms through their European subsidiaries.

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

State-owned enterprises (SOEs) are active in the energy and mining, aerospace and defense, services, information and communication, automotive and ground transportation, and forestry sectors. Private enterprises may compete with public enterprises on the same terms and conditions with respect to access to markets, credit, and other business operations such as licenses and supplies.

The Latvian government has implemented the requirements of the EU’s Third Energy Package with respect to the electricity sector, including opening the electricity market to private power producers and allowing them to compete on an equal footing with Latvenergo, the state-owned power company. The country’s natural gas market has also been liberalized, creating competition among privately owned gas suppliers.

Latvia, as an EU member, is a party to the Government Procurement Agreement within the framework of the World Trade Organization, and SOEs are covered under the agreement.

In 2015, the OECD published a review of the corporate governance of Latvia’s SOE and found that Latvia’s SOE sector relative to the size of the national economy was larger than the OECD average. The full report is available here: http://www.oecd.org/daf/ca/oecd-review-corporate-governance-soe-latvia.htm .

Senior managers of major SOEs in Latvia report to independent boards of directors, which in turn report to line ministries. SOEs operate under the Law on Public Persons Enterprises and Capital Shares Governance. The law also establishes an entity that coordinates state enterprise ownership and requires annual aggregate reporting. Detailed information on Latvian SOEs is available here: http://www.valstskapitals.gov.lv/en/  .

For additional information please see here: http://www.oecd.org/latvia/corporate-governance-in-latvia-9789264268180-en.htm .

8. Responsible Business Conduct

Awareness of and implementation of due diligence principles of corporate social responsibility (CSR)/Responsible Business Conduct is developing among producers and consumers. Two of the most active promoters of CSR are the American Chamber of Commerce in Latvia and the Employers’ Confederation of Latvia. The Latvian Ministry of Welfare also promotes CSR. Several other initiatives promote CSR, such as the Institute for Corporate Sustainability and Responsibility (https://www.incsr.eu/ ), the Corporate Social Responsibility Platform ( http://www.ksalatvija.lv/en ), and the Human Development Award (http://www.cilvekaizaugsme.lv/home/ ).

Latvia adheres to the OECD Guidelines for Multinational Enterprises. Latvia’s national point of contact for the guidelines can be found here: https://www.mfa.gov.lv/en/policy/economic-affairs/oecd/latvian-national-contact-point-for-the-oecd-guidelines-for-multinational-enterprises . Latvia also promotes the United Nations Guiding Principles on Business and Human Rights, endorsed by the UN Human Rights Council in 2011.

9. Corruption

Latvian law enforcement institutions, foreign business representatives, and non-governmental organizations have identified corruption and the perception of corruption as persistent problems in Latvia. According to the 2021 Corruption Perception Index by Transparency International, Latvia ranks 36th out of 180 countries (in order from the lowest perceived level of public sector corruption to the highest).

To strengthen its anti-corruption programs, the Latvian government has adopted several laws and regulations, including the Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing and the Law on Prevention of Conflicts of Interest in the Work of Public Officials. The Conflicts of Interest Law imposes restrictions and requirements on public officials and their relatives. Several provisions of the law deal with the previously widespread practice of holding several positions simultaneously, often in both the public and private sector. The law includes a comprehensive list of state and municipal jobs that cannot be combined with additional employment. Moreover, the law expanded the scope of the term state official to include members of boards and councils of companies with state or municipal capital exceeding 50 percent. Additionally, Latvia is a member of the OECD Anti-Bribery Convention and the Council of Europe’s Group of States Against Corruption (FRECO). In line with OECD and GRECO recommendations, the government is working to strengthen anti-corruption policy and enforcement while improving the functioning of the independent Corruption Prevention and Combatting Bureau (KNAB).

Under Latvian law, it is a crime to offer, accept, or facilitate a bribe. Although the law stipulates heavy penalties for bribery, a limited number of government officials have been prosecuted and convicted of corruption to date. The law also provides the possibility of withdrawing charges against a person giving a bribe in cases where the bribe has been extorted or in cases where the person voluntarily reports these incidents and actively assists the investigation. In addition, the Latvian government has adopted a whistleblower law that requires all government agencies and large companies to establish protocols to accept whistleblower disclosures and protect whistleblowers from reprisals.

KNAB is the institution with primary responsibility for preventing and combating corruption and carrying out enforcement activities in response to suspected or alleged corruption. It is subordinated to the Cabinet of Ministers and supervised by the Prime Minister.

KNAB has also established a Public Consultative Council to help increase public participation in implementing its anti-corruption policies, increasing public awareness, and strengthening connections between the agency and the public. More information is available at: https://www.knab.gov.lv/en/knab/consultative/public/ . The Prosecutor General’s Office also plays an important role in fighting corruption.

There is a perceived lack of fairness and transparency in the public procurement process in Latvia. Several companies, including foreign companies, have complained that bidding requirements are sometimes written with the assistance of potential contractors or couched in terms that exclude all but preferred contractors.

A Cabinet of Ministers regulation provides for public access to government information, and the government generally provided citizens such access. There have been no reports the government has denied noncitizens or foreign media access to government information.

10. Political and Security Environment

There have been no reports of political violence or politically motivated damage to foreign investors’ projects or installations. The likelihood of widespread civil disturbances is very low. While Latvia has experienced peaceful demonstrations related to political issues, there have been few incidents when these have devolved into crimes against property, such as breaking shop windows or damaging parked cars. U.S. citizens are cautioned to avoid any large public demonstrations since even peaceful demonstrations can turn confrontational. The Embassy provides periodic notices to U.S. citizens in Latvia, which can be found on the Embassy’s web site: https://lv.usembassy.gov/.

11. Labor Policies and Practices

The official rate of registered unemployment in January 2022, according to Eurostat, was 7.3 percent (https://ec.europa.eu/eurostat/statistics-explained/index.php/Unemployment_statistics ). The Latvian State Employment Agency reported 6.9 percent unemployment at the end of January 2022. Unemployment is significantly higher in rural areas. A high percentage of the workforce has completed at least secondary or vocational education. Foreign managers praise the high degree of language skills, especially Russian and English, among Latvian workers. However, foreign managers have reported a shortage of mid- and senior-level managers with “Western” management skills.

Companies must keep wages above the legally specified minimum of EUR 500 per month, as of January 2021. Union influence on the wage setting process is limited. Trade unions do not have significant influence on the labor market. Additional information on trade unions in Latvia is available here: http://www.worker-participation.eu/National-Industrial-Relations/Countries/Latvia .

One challenge employers have faced since Latvia joined the EU is that many skilled employees can find better employment opportunities in other EU countries. Unofficial statistics suggest that more than 240,000 people have moved from Latvia to other EU countries since May 1, 2004. Despite the fact that the macroeconomic situation has stabilized, skilled and unskilled workers continue to emigrate. The government is implementing a strategy to entice people who have left Latvia to return.

According to several reports, there is a significant shortage of workers in manufacturing, wholesale and retail, transport and storage, and ICT sectors. The largest share of registered unemployment is comprised of persons with only primary or secondary education who do not possess specialized skills. To address this problem, the Latvian government has approved a list of highly skilled professions that employers may use to recruit professionals abroad to work in Latvia: https://www.em.gov.lv/en/news/18513-the-government-supports-the-application-of-simplified-conditions-for-the-attraction-of-highly-qualified-foreign-professionals .

The Labor Law addresses discrimination issues, provides detailed provisions on the rights and obligations of employees’ representatives, and created the Conciliation Commission, a mechanism that can be used in the workplace to resolve labor disputes before going to arbitration. Victims of sexual harassment in the workplace can also submit a complaint to the Office of the Ombudsman and the State Labor Inspectorate.

Full-time employees in Latvia work 40 hours a week. Normally, there are five working days per week, but employers may schedule a sixth workday without offering premium pay. Employees are entitled to four calendar weeks of annual paid vacation per year. Employers are prohibited from entering into an employment contract with a foreign individual who does not have a valid work permit.

Latvia is a member of the International Labor Organization (ILO) and has ratified all eight ILO Core Conventions.

Latvia’s shadow economy – largely driven by undeclared wages and business earnings – continues to be a major challenge. The annual Stockholm School of Economics Riga “Shadow Economy Index” shows that in 2020 the shadow economy grew by 1.6 percentage points and reached 25.5 percent of GDP. The detailed report is available here: https://www.sseriga.edu/shadow-economy-index-baltic-countries .

14. Contact for More Information

Clare Zimmerman
Economic Officer
Samnera Velsa iela 1, Riga, Latvia, LV1510
+371 6710 7000
RigaCommerce@state.gov

Lithuania

Executive Summary

Lithuania is strategically situated at the crossroads of Europe and Eurasia. It offers investors a diversified economy, EU rules and norms, a well-educated multilingual workforce, advanced IT infrastructure and a stable democratic government. The Lithuanian economy has been growing steadily since the 2009 economic crisis but contracted in 2020 due to economic fallout from the COVID-19 pandemic. However, it recovered relatively rapidly in 2021, reaching 5.1 percent GDP growth thanks to budget surpluses and accumulated financial reserves prior to the crisis, as well as a well-diversified economy. The country joined the Eurozone in January 2015 and completed the accession process for the Organization for Economic Cooperation and Development (OECD) in May 2018. Lithuania’s income levels are lower than in most of the EU. Based on the average net monthly wage, Lithuania is 23rd of 27 EU member states. According to Bank of Lithuania statistics, at the end of 2021, the United States was Lithuania’s 15th largest investor, with cumulative investments totaling $366 million (1.3 percent of total FDI).

The new government elected at the end of 2020 has continued prior governments’ efforts to improve the business climate and lower barriers to investment. In 2013, the government passed legislation which streamlined land-use planning, saving investors both time and money. In July 2017, the government introduced the new Labor Code which is believed to better balance the interests of both employees and employers, and in 2020 it introduced a law on exemption of profit tax for the period of up to 20 years for large and significant investment to the country.

The government provides equal treatment to foreign and domestic investors and sets few limitations on their activities. Foreign investors have the right to repatriate or reinvest profits without restriction and can bring disputes to the International Center for the Settlement of Investment Disputes. Lithuania offers special incentives, such as tax concessions, to both small companies and strategic investors. Incentives are also available in seven Special Economic Zones located throughout the country.

U.S. executives report some burdensome procedures to obtain business and residence permits, and limited instances of low-level corruption in government. Transportation barriers, especially insufficient direct air links with some European cities, remain a hindrance to investment, as does the lack of transparency in government procurement.

Lithuania offers many investment opportunities in most of its economy sectors. The sectors which to date attracted most investment include Information and Communication Technology, Biotech, Metal Processing, Machinery and Electrical Equipment, Plastics, Furniture, Wood Processing and Paper Industry, Textiles and Clothing. Lithuania also offers opportunities for investment in the growing sectors of Real Estate and Construction, Business Process Outsourcing (BPO), Shared Services, Financial Technologies, Biotech and Lasers.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 34 of 180 http://www.transparency.org/
research/cpi/overview
Global Innovation Index 2021 39 of 132 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 $182 https://apps.bea.gov/international/
factsheet/
World Bank GNI per capita 2020 USD 19,620 http://data.worldbank.org/indicator/
NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

At the beginning of 2021, the Lithuanian government was majority or full owner of 46 enterprises. Throughout 2017, the government consolidated many duplicative state-owned enterprises (SOEs) in response to OECD recommendations reducing the number of its companies from 130. The SOE sector is valued at approximately $5.8 billion and employs just over 42,000 people. The greatest number of SOEs by value are found in the electricity and gas sector (38%), followed by transportation (36%) and extractive industries including fishing, farming, and mining (21%). The transportation sector (which in Lithuania’s definition includes the postal service) accounts for over half of all SOE employment, followed by the electricity and gas sectors, which accounts for about one fifth. The largest SOE employers are Lithuanian Railways, Ignitis Group, and Lithuanian Post, which collectively employ over 23,000 people.

A list of SOEs is available at the Governance Coordination Center site: https://vkc.sipa.lt/apie-imones/vvi-sarasas/ 

In response to OECD recommendations issued during Lithuania’s accession process, the government passed several laws to reform SOE governance, addressing such issues as the hiring, firing, and oversight of top management, the introduction of independent board members to professionalize and depoliticize SOE boards and strengthen independent and pragmatic decision making, and a requirement for SOE CEOs to certify financial statements.

8. Responsible Business Conduct

Although Lithuania has a strong private sector, the concept of Corporate Social Responsibility (CSR) is still relatively new in Lithuania. However, over the past few years many companies, especially those in Vilnius, have developed more robust CSR programs. There are an increasing number of private-public partnerships and social projects where the private sector is involved in supporting volunteerism, environmental restoration, and scholarships. Furthermore, successful participation in the European Union market requires higher standards of CSR. Foreign investors in Lithuania have played a very important role in promoting CSR. In 2009, the government developed and approved a National Corporate Social Responsibility Development Program aimed at promoting CSR. Also, in the past few years there has been growing interest from both government and NGOs in promoting CSR values by organizing competitions and awards ceremonies such as the Social and Labor Ministry’s annual Socially Responsible Business Awards Ceremony, Confederation of Industrialists’ Awards, and others. Also, after Lithuania acceded to the OECD Anti-Bribery Convention in 2017, more business organizations and the legal community have started to promote the importance of companies adopting anti-bribery compliance programs.

9. Corruption

A 2019 Eurobarometer study on Businesses’ attitudes towards corruption in the EU shows that corruption is becoming less of an obstacle for business in Lithuania. Only 15 percent of business executives identified corruption as a problem in Lithuania, twice fewer than in 2015. Out of 27 EU countries, Lithuania was ranked seventh for corruption being the least pressing issue in business. Additionally, the Lithuanian Map of Corruption 2019 survey initiated by the Special Investigations Service (STT) – Lithuania’s anti-corruption law enforcement agency – also showed the positive anti-corruption trends in business environment over the past decades. However, nepotism and cronyism – hiring relatives and friends – are still the most prevalent forms of corruption that hinder business development.

More than 50 governmental institutions regulate commerce in one way or another, creating opportunities for corrupt practices. Large foreign investors report few problems with corruption. On the contrary, most large investors report that high-level officials are often very helpful in solving problems fairly. In general, foreign investors say that corruption is not a significant obstacle to doing business in Lithuania and describe most of the bureaucrats they deal with in Lithuania as reasonable and fair. Small and medium enterprises (SMEs) perceive themselves as more vulnerable to petty bureaucrats and commonly complain about extortion. SMEs often complain that excessive red tape virtually requires the payment of “grease money” to obtain permits promptly. Business owners maintain that some government officials, on the other hand, view SMEs as likely tax-cheats and smugglers, and treat the owners and managers accordingly.

Paying or accepting a bribe is a criminal act. Lithuania established in 1997 the Special Investigation Service (Specialiujų Tyrimų Tarnyba) specifically to fight public sector corruption. The agency investigates approximately 100 cases of alleged corruption every year. The STT has a strong track record in investigating and prosecuting corruption cases, but has identified corruption prevention as an area for improvement, which Lithuania’s new anti-corruption law that entered into effect in 2022 aims to address. The law codifies the responsibilities of public institutions to enforce stricter standards of openness and transparency. The law also establishes a network of trained anti-corruption officials throughout all levels and areas of government, implements stricter personnel screening procedures, and standardizes metrics to measure anti-corruption performance.

Transparency International (TI)has a national chapter in Lithuania. TI ranked Lithuania 34th out of 180 in its 2021 Perceptions of Corruption Index with a score of 61 out of 100 (TI considers countries with a score below 50 to have serious problems with corruption.). Medical personnel and local government officials, among others, were cited by TI as prone to corruption.

Lithuania ratified the UN Anticorruption Convention in 2006 and acceded to the OECD Anti-Bribery Convention in 2017.

Resources to Report Corruption

Special Investigation Service
Jakšto g. 6, 01105 Vilnius, Lithuania
Tel: 370-5266333
Fax: 370-70663307
Email: pranesk@stt.lt 

Sergejus Muravjovas, Executive Director
Transparency International
Didžioji st. 5, LT–01128, Vilnius, Lithuania
Tel: 370 5 212 69 51
info@transparency.lt  | skype: ti_lithuania

10. Political and Security Environment

Since its independence in 1991, Lithuania has not witnessed any incidents involving politically motivated damage to projects and/or installations.

11. Labor Policies and Practices

Lithuanian labor is relatively inexpensive compared to Western Europe. However, employment regulations are often stricter than those in other EU countries, according to some foreign investors. By law, white-collar workers have a 40-hour workweek. Blue-collar workers have a 48-hour workweek with premium pay for overtime. Maternity leave in Lithuania is granted for up to 126 days, and the government compensates 100 percent of the mother’s salary. A father is also allowed to take paternity leave for one month. His salary is compensated 100 percent as well. Sick leave in Lithuania is granted up to 14 days at any one time and no more than 90 days a year. For the first two days, the salary compensation is 80 – 100 percent, paid by the employer, with the rest of the days being compensated by SODRA (Lithuanian Social Security body) at 80 percent of salary. Lithuania is a member of International Labor Organization (ILO) and has ratified its core conventions.

The government adjusts the monthly minimum wage periodically. Since January 2022, Lithuania’s minimum monthly wage is $817. The average monthly wage is $1,880.

The ability of Lithuanians to work legally in EU countries generated a sizable outflow of labor, causing a domestic shortage of skilled construction workers, truck drivers, shop assistants, medical nurses, and medical specialists. In March, 2021 unemployment rate stood at 6.7 percent.

Lithuania’s management-labor relations are good. Labor unions are not considered overly influential in Lithuania, according to some foreign investors. More than half of workers at Lithuanian fertilizer firm Achema went on strike in February 2022 in the first major strike since 1991. The primary dispute was over the signing of a collective bargaining agreement with management on wages and other conditions. .

Lithuania has one of the best-educated workforces in Central and Eastern Europe. Lithuania ranks fourth among the EU states in terms of population with higher education and first in the Baltic States. Lithuania is one of the five EU members with the highest percentage of people speaking at least one foreign language. Ninety percent of Lithuanians can speak at least one other language – usually English, Polish, and/or Russian – apart from their mother tongue.

Major Lithuanian companies specializing in IT, biotechnology, and laser technology cooperate closely with the leading Lithuanian technological universities, which provide companies with R&D services and offer students specialized on-the-job training programs. This way companies are able to attract a large number of qualified specialists for both local and international projects. Some technology companies, however, have noted challenges in finding highly- skilled workers with advanced technical degrees.

In 2017, the parliament passed a new Labor Code. These changes aim to encourage foreign investment and job creation by simplifying some employment conditions and clarifying other requirements. The new law decreases the advanced notice required when employers terminate an employment contract, and adds new contract options for employers, such as project-based contracts and job-sharing contracts. The law also clarifies previous informal practices by requiring non-union employers to form works councils to represent employee interests and requiring employers to establish and publicize standard company compensation policies.

14. Contact for more Information

Jonas Vasilevicius, Commercial Specialist
Tel: 370-5 2665671
VasileviciusJ@state.gov 
U.S. Embassy Vilnius
Akmenu str. 6
Vilnius, Lithuania

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