Kalvis Vitolins, Lawyer, Project Leader (International and Domestic), Lawyer Founder of the Association of Logistics of Latvia, Former Director-General of the Customs Board of Latvia
Although we cannot speak of a fully unified Baltic market, today we can discuss the very profound integration of goods, services, labour, and finance between Latvia and Estonia. First, this is the integration of businesses environment, which in recent years has also witnessed the legal convergence of these markets. Latvia and Estonia have traditionally had different approaches to promoting market development, but their presence in a unified market has also facilitated the practical integration of businesses in these countries, resulting in the creation of a common market with over 3.2 million inhabitants. Lithuania is nearby, but it is not as integrated from a practical perspective of Estonia and Latvia, and it still has a lot of homework to do before we can finally talk about a unified Baltic market with more than 6 million inhabitants.
Latvia and Estonia are widely acknowledged for having the most business-friendly tax systems in Europe, especially for new businesses, as profit only needs to be taxed when the company wishes to distribute or withdraw it. Consequently, the main business convenience is determined by the nearly identical Corporate Income Tax rate, which is 20% in both Latvia and Estonia, but it does not have to be paid immediately. This means that companies do not have to hide their profits, and especially in the early stages of development, this is a significant support and the tax rate in both countries is the same.
Similarly, with e-signatures, that can be used in both countries, and the electronic document opening program immediately recognizes and opens both Estonian and Latvian e-signatures in each country. When it comes to signing contracts, it works seamlessly. Furthermore, with the Latvian ID card, I can electronically access the Estonian Tax Administration portal, submit, and receive documents. With the Estonian e-signature, I can gain access and password to the Latvian Tax Administration system, allowing me to submit and receive all necessary documents. With electronically signed documents from both countries, you can submit all the necessary documents for company registration or changes in Latvia. My first electronically registered company in Latvia was done using my Estonian e-signature because I was living in Estonia at the time. In Latvia, only Estonia and residents of 14 European Union countries can now submit them in the Register without Latvian ID card. In Estonia, you would require an e-residency card (essentially an Estonian e-signature card that can be acquired remotely). If you obtain this card, you can use it in Latvia as well. Alternatively, you would need to visit a notary office in person. However, every day, everything is being improved, and perhaps by the time you read this article, there will be no more formal delays, and integration in this area will be fully completed.
Next, I will mention a few less successful examples of differences between Estonian and Latvian companies, which should eventually result in positive integration. In Estonia, company statutes typically state, “1-5 board members,” and they do not pay much attention to the actual number of board members. They appoint one, but, if necessary, they can appoint more without changing the statutes. Latvia believe that the number of board members is crucial, and if your statutes indicate 3, but the board has only 1, you will receive a warning letter from the Commercial Register, which is a warning of the State Notary! On the other hand, if you want to change your address to a different city in Estonia, you will need to change the statutes, specifying that the “company’s board is located in the city of Tallinn,” and this decision will be made by the Tartu Court in Estonia. See, we still have some difficult-to-explain differences in practice.
Latvia should also consider an e-resident card or e-residency program, but until that’s in place, almost everywhere in Latvia, you can use the Estonian e-resident signature (especially relevant for third-country citizens). In conclusion, I would like to say that in the Baltic business environment, you can rely quite confidently on your knowledge of the English language, but over time, of course, it is essential to know the most important local terms in local language.