Latvia is an attractive center for international entrepreneurs due to its EU membership, strategic Baltic location, and ease of doing business. However, even a small mistake in the company formation process can lead to the rejection of your company registration, the inability to open a bank account, heavy fines, or future tax audits.
This article addresses the most common mistakes made during company formation in Latvia step by step, explaining the practical consequences of each mistake and how to avoid them. We will particularly focus on the SIA (Limited Company) structure, as it is the most preferred model by both local and foreign entrepreneurs.
Why Are There So Many Mistakes When Setting Up a Company in Latvia?
The procedures in Latvia are actually transparent; however, the legislation is frequently updated, the process has been fully moved to an electronic environment, and the EU-compliant KYC/AML (Know Your Customer / Anti-Money Laundering) rules are extremely strict.
Common traps foreign entrepreneurs fall into:
- Confusing local legal requirements with the rules in their own country
- Underestimating “technical” points such as electronic signature, NACE code, VAT
- Realizing KYC/AML and tax aspects only when it comes to opening a bank account
Identifying and preventing these mistakes from the very beginning is critical in terms of time, cost, and reputation. At Corpenza, we focus on minimizing these types of risks in company formation in Latvia, international tax planning, payroll (EOR/payroll), posted worker, and investment-based residency – citizenship processes.
1. Choosing an Incorrect or Inappropriate Company Name
Choosing a company name may seem like the simplest step in the procedure, but it is one of the common reasons for application rejections in Latvia.
Most Common Name Mistakes
- Choosing a name that is already registered: A name that is the same as or very similar to another company registered in the Latvian Commercial Register (Enterprise Register).
- Misleading/deceptive expressions: Words that imply a license or official status that is not actually held.
- Lack of legal form suffix: Not adding the company type statement, such as SIA (Sabiedrība ar Ierobežotu Atbildību), at the end in full or as an abbreviation.
These mistakes can result in your file being sent back for correction, leading to delays of up to 1–2 weeks.
How to Prevent It?
- Use the online name availability checking tool of the Latvian Commercial Register.
- Always specify the company type suffix (e.g., “SIA”) at the end of the name.
- When choosing a name in regulated sectors (finance, insurance, investment, etc.), consider whether you actually hold the relevant licenses.
Corpenza minimizes the risk of rejection by checking the compliance and registrability of your company name with Latvian legislation before you even submit the file.
2. Failing to Comply with Electronic Signature and Digital Registration Rules
As of 2024, all new company registrations in Latvia can only be done electronically. You must submit your application via Latvija.lv or ur.gov.lv (Registration Office) with an electronic signature.
Common Mistakes Made by Foreign Entrepreneurs
- Starting the process without a valid e-signature or Smart-ID: Even if your documents are ready, you cannot log into the system.
- Continuing the habit of paper applications: The old-fashioned approach of sending physical documents certified by a notary is no longer valid.
These can cause significant time loss, especially for non-EU entrepreneurs. If you do not have an e-signature or Smart-ID, working with a local representative or expert in Latvia can speed up the process.
Corpenza coordinates the necessary e-signature processes and digital application on your behalf through local partners in Latvia; thus, you do not need to be physically present in Latvia for the technical parts.
3. Mistakes in Corporate Documents and Articles of Association
The partnership agreement and articles of association form the legal backbone of your company in Latvia. These documents should clearly reflect the management structure, shareholder rights, profit distribution, and compliance with international standards.
Common Document Mistakes
- Missing/incorrect information: Errors or inconsistencies in basic data such as the number of founders, capital amount, share distribution, and limits of authority of the managers.
- Articles that do not reflect international operations: For example, not defining intra-group transfer pricing, international subsidiary structure, or profit distribution mechanisms in the document.
- Skipping Latvia-specific formal requirements: Ignoring mandatory clauses, language, and signature rules.
Such mistakes can lead to:
- Rejection of your company registration,
- Suspicion of non-compliance when opening a corporate account at the bank,
- Inter-partner disputes in the medium to long term
Corpenza prepares the articles of association and partnership agreements in compliance with both local law and international investor expectations, in a format acceptable to banks and regulators.
4. Choosing the Wrong NACE Code
As of 2025, when registering a new legal entity in Latvia, it will be mandatory to declare the correct NACE activity code in accordance with EU classification.
Consequences of Incorrect NACE Code
- License issues: If your activity requires a special license (finance, crypto, payment institution, etc.), applying with the wrong code can make it practically impossible to obtain a license.
- Bank account rejection: Banks and payment institutions compare the declared activity code with your actual business model. If they detect a discrepancy, they may refuse to open an account or freeze your account.
- Tax non-compliance: Some tax obligations vary depending on the type of activity; an incorrect code can lead to retrospective tax risks.
How to Choose the Correct NACE Code?
- Identify your actual main source of income: Base it on the “most revenue-generating” business sector.
- Review the EU NACE classification and match it with the corresponding ones in Latvia.
- Always seek professional support in banking or licensed areas.
Corpenza helps you determine the most suitable combination of NACE codes that will not conflict with banks, payment systems, and regulators by analyzing your business model.
5. Underestimating KYC/AML Compliance
Now, not only banks but also payment providers like Payoneer, Wise, Stripe, and PayPal implement strict KYC/AML policies as rigorously as banks do. Ignoring this aspect when setting up a company in Latvia can lead to your account not being opened at all or being suddenly blocked.
Necessary KYC/AML Steps
- Full identification of founders and ultimate beneficial owners (UBO): Documents proving identity, address, source of funds, and that they are not on sanction lists.
- Establishing an internal KYC/AML policy: Especially if you operate in sectors like crypto, fintech, investment, or payment services, having written procedures is expected.
- Transparent ownership structure: Complex offshore chains, undisclosed shareholders, and proxy structures significantly increase compliance risk in Latvia.
Submitting an application without completing these steps can lead to constant “additional document” requests from banks and payment providers, or even getting blacklisted.
Corpenza establishes an end-to-end KYC/AML compliance framework for its clients’ companies in Latvia; shaping the ownership structure, fund flow, and document set according to banks’ expectations.
6. Mistakes Regarding Tax Registration and VAT
Although Latvia offers significant advantages such as a 0% corporate tax on undistributed profits, mistakes made in VAT and payroll obligations can lead to serious penalties.
Most Common VAT and Tax Mistakes
- Failing to register for VAT when required: VAT registration may be mandatory when certain thresholds are exceeded in intra-EU sales of goods/services. The “We are small, we don’t need it” approach can lead to heavy penalties.
- Applying for VAT registration without economic justification: Latvia may reject structures that only seek a VAT number without real economic substance.
- Applying the wrong VAT rate: Different rates may apply depending on the type of product/service; the wrong rate can be a reason for retrospective assessment.
- Ignoring social security and payroll costs: If you employ personnel, you need to reflect social security contributions and employer burdens in your business plan.
Corpenza optimizes tax registration, VAT planning, payroll, and social security obligations in Latvia from both an internal operations perspective and in terms of the posted worker model. This way, you avoid both double taxation and unnecessarily high labor costs.
7. Neglecting Legal Address, Bank Account, and Operational Setup
When setting up a company in Latvia, you must provide a valid and verifiable legal address. Nevertheless, many entrepreneurs view this step as a “routine formality” and resort to random virtual addresses.
Address and Operational Setup Mistakes
- Using an unverifiable or fictitious address: PO boxes, incorrectly formatted addresses, or addresses without commercial use permission can lead to the rejection of your application.
- Underestimating the difficulty of opening a bank account: Latvian banks conduct strict scrutiny, especially in structures with foreign partners; they often require face-to-face meetings or detailed documentation.
- Failing to plan post-registration steps: Leaving tax office registration, payroll system setup, accounting, and reporting processes until the last minute.
Corpenza provides end-to-end support in providing a reliable legal address for your company in Latvia, managing the bank account opening process, and establishing a compliant accounting infrastructure from day one.
8. Inappropriate Company Structure and Lack of Medium-Long Term Planning
Although SIA (LLC) is the most popular type of company in Latvia, it is not ideal for every business model. You may need different structures, especially for complex partnership structures, IPO plans, or large-scale investment projects.
Effects of Choosing the Wrong Legal Structure
- Additional notary, state fee, and consulting costs for future type changes or restructuring
- Lack of trust from investors in the legal framework
- Unnecessary complexity in tax planning
Corpenza takes a holistic approach to your company in Latvia, considering your subsidiaries in Turkey, the EU, and other countries, as well as your personal asset plans. This way, you establish a structure that not only “opens a company today” but also plans for “exit or growth in 5–10 years.”
9. Ignoring the International Personnel, Posted Worker, and Payroll Aspect
Many international employers setting up a company in Latvia plan to employ personnel across the EU or send and employ personnel from Turkey/other countries in the next step. Here, the posted worker model, EOR (Employer of Record), and payroll management become critical.
Common Mistakes
- Not considering the labor law and social security rules of the country when sending personnel to another EU country under a Latvian contract.
- Thinking of the payroll process as “just salary payment,” neglecting declaration, deductions, and local reporting obligations.
- Establishing the most costly model without evaluating tax optimization opportunities.
Corpenza offers EOR, posted worker, and international payroll services to companies wishing to employ personnel across the EU through Latvia-based structures. This way, you ensure full compliance both in Latvia and in the country where the personnel are actually working while optimizing your total labor costs.
Error-Free and Sustainable Setup in Latvia with Corpenza
The most common mistakes in company formation in Latvia often stem from a lack of information, viewing processes in a fragmented manner, and the approach of “let’s open first, then fix it.” However:
- Incorrect company name,
- Lack of e-signature,
- Incorrect NACE code,
- Weak KYC/AML setup,
- Incomplete VAT and tax planning
can lead to much greater time and financial losses in the future.
Corpenza offers an integrated framework in Latvia and other European countries for:
- Company formation and legal structuring,
- International tax and VAT planning,
- KYC/AML and bank-payment institution compliance,
- Payroll, EOR, and posted worker,
- Investment-based residency and citizenship solutions
Thus, we design the process not only as company registration but also in conjunction with residency permits, tax optimization, personnel policies, and your international growth goals.
Conclusion: Avoid These Mistakes When Setting Up a Company in Latvia
Latvia provides a strong platform for opening up to the EU market, establishing a tax-efficient structure, and managing an international workforce when set up correctly. However:
- Underestimating name and registration rules,
- Ignoring the e-signature and electronic application requirement,
- Preparing corporate documents with a “template” mentality,
- Leaving technical issues like NACE, KYC/AML, and VAT to the last minute
can reverse all advantages at once.
If you approach company formation in Latvia as a professionally designed project aligned with your personal goals, group structure, and long-term growth plans, you will strengthen the sustainability of your company and its reliability in the eyes of investors and banks from the very beginning.
Important Disclaimer
The information contained in this text is general in nature and does not constitute legal, financial, or tax advice. Latvian legislation, tax rates, and administrative practices may change over time. We strongly recommend checking current official sources and obtaining personalized advice from a qualified professional (lawyer, financial advisor, or competent international consultant) before making decisions on matters such as company formation, tax planning, VAT registration, KYC/AML compliance, and international personnel deployment.
