Despite a considerable amount of layoffs – both among big tech companies overseas and startups in Europe – European companies still face a notable gap in tech and digital skills. According to the European Digital SME Alliance, the region has a shortage of 1M digitally-skilled workers.
As the European Union seeks to address the talent gap by offering Europeans ways to learn and improve their digital and tech skills in the long run, companies are looking for ways to attract and retain employees now. Latvian startups are no exception.
Luckily, support is available to make Latvian startups more competitive in fighting for tech talent even against larger and wealthier companies. Let's take a look at what's there to receive.
State support in tax incentives and salary co-financing
The Latvian Startup Law entered into force on January 1, 2017. The Law offers two types of aid – financial support to attract highly qualified employees and tax incentives. Both support mechanisms have been used by startups to ease the burden of paying salaries to highly qualified workers. In 2022, for example, 13 startups received financial backing to attract highly skilled workers, while 36 startups were granted tax incentives due to the support provided by the Startup Law.
To receive governmental financing via the Startup Law, a startup needs to meet specific criteria:
- Has received an investment from a VC fund (at least 30K EUR) or accelerator or a business angel (at least 15K EUR) OR Can show evidence demonstrating the development or production of an innovative product;
- Has no more than 150 EUR of tax debt;
- Has no ongoing bankruptcy.
While the support is accessible to many startups, several sectors are not supported – trade, financial intermediation, commercial services, and gambling.
#1 Tax incentives
Regarding tax incentives provided by the Law, startups can receive a flat social tax and personal income tax relief, which is especially convenient in case of high employee salaries.
The flat social tax is a fixed payment of mandatory state social insurance contributions. As a result, startups save on the monthly payment of salaries. If this support is applied, a startup receives a fixed monthly social tax of 422.72 EUR per employee.
How does it benefit startups?
Companies in Latvia apply to a 34.09% social tax, which is made of 10.5% deducted directly from the worker's gross salary + 23.59% paid by the employer on top of that.
Additionally, if the fixed social payment applies, the employee salary is subject to a 0% individual income tax rate – no personal income tax is calculated and paid, contributing to more money saved.
To receive tax assistance, a startup eligible for the above criteria must fill out an application form (available here). The startup is asked to describe its product and innovation, team, market, competition, and other formal details about the company.
#2 Co-financing highly qualified employee salaries
Another way the state supports startups to hire highly qualified employees is by co-financing employee salaries by 45%.
If an eligible startup (according to the Startup Law criteria) has applied and been accepted to receive the support, here's how the salary co-financing works.
The startup pays the salaries itself but submits a quarterly report to the Investment and Development Agency of Latvia and gets reimbursed, receiving back 45% of the total monthly cost of the employee (salary + employer-paid taxes).
To receive the state salary support, besides the already mentioned Startup Law eligibility criteria, an employee of a startup must:
- Receive a higher than-average-in-country gross salary (in Q1 of 2023, it was 1462 EUR;
- Have at least a Master's degree in science or computer science;
- Or have at least three years of working experience in the industry;
- Be directly involved in developing innovations within the startup.
Thus, it's the perfect opportunity to co-finance high-skilled tech and IT workers' salaries and attract tech workers with help from the state.
Support for relocating highly qualified specialists to Riga
Another support mechanism for startups struggling to compete in hiring highly qualified workers is provided by the City of Riga. Startups can apply for salary co-financing of 1500 EUR per employee per month.
To receive financial assistance from the City of Riga, a startup must:
- Employ the to-be-relocated workers for at least four months before applying for the support;
- Have a contract of employment of indefinite duration with the employee;
- Provide the employee with a gross salary of not less than 2.5K EUR;
- Have no ongoing bankruptcy;
- Have no more than 150 EUR of tax debt.
A selected startup can receive relocation co-financing for up to three months per employee, and the maximum number of co-funded experts per company is five.
After receiving the support, the startup must ensure that the employees co-financed by the program declare their permanent residence in Riga administrative territory after receiving a resident status.
To apply for this support, a startup must fill out and submit a form (available here).
The tech worker shortage is undoubtedly a pain among European companies, Latvian startups included. And when it comes to local startups, the struggle to provide highly skilled professionals with an adequate salary is another hurdle. By taking advantage of the available support, startups can attract fresh ideas and experienced individuals to build innovations and boost the local startup ecosystem as a whole.