Significant changes in Startup law
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Startup law

Year 2020 brought significant changes in the so-called Startup law, finally making the qualification criteria less complicated. Now it has taken a form, which is friendly for all startups. And what’s more important – it seems that receiving support from the government has never been easier!

Startup support law came into force in 2017 aiming to strengthen the startup environment in Latvia. However, the excessively strict requirements for qualifying for governmental support became an obstacle, which only a few startups could overcome. In fact, the qualification criteria were so strict, only 7 startups qualified for the state support in 4 years' time.

But now it’s polished almost to perfection. One of the most notable changes in the Startup law is regarding bootstrapper startups and startups, which receive a venture capital investment abroad (i.e. registering a “mother” or “daughter” company), as they now are eligible to qualify for one of the two support mechanisms. To give a glimpse of the significant and, apparently, successful changes in the Startup law: in the first 5 months of 2021 already 13 new startups have met the criteria and are now receiving state support.

Olga Barreto Goncalves, the CEO of the Latvian Startup Association, is confident, that startups are all about the people. Therefore, these recent law changes and significant tax reduction schemes will allow startups to focus more on building an excellent team and develop their company, rather than concentrating on expenses. 

FIXAR, a developer and manufacturer of autonomous unmanned aerial systems for industrial applications, was one of the companies that qualified for the Startup law support program in 2021. Vasily Lukashov, CEO & Founder of FIXAR, calls it a tremendous support: “First, the amount of preferential tax with these benefits is reduced from 80% to 18%. We use the funds we've saved for new product development and global expansion. Secondly, the application for the startup law is simplified. Now there is no need to have qualified venture capital investors, which helped us in obtaining the said support."

But how does it work? Startup law offers two support mechanisms for early-stage startups – (1) low flat social tax (340.90 EUR per employee per month) and no individual tax for startup employees, and (2) 45% co-financing offered by the government for the highly qualified specialists. We’ve made two example scenarios to illustrate both scenarios.

An illustrative example of scenario 1 (1 month, without payroll tax booklet, 0 euro non-taxable minimum):

  General tax regime Startup law regime
Employee salary (gross) 2450 2450
Employee costs for the company 3028 2686
The employee receives 1681 2200*

*after additional mandatory contributions to the state pension insurance or private voluntary pension scheme.

An illustrative example of scenario 2 (1 month, without payroll tax booklet, 0 euro non-taxable minimum):

  General tax regime Startup law regime
Employee salary (gross) 2450 2450
Employee costs for the company 3028 1665
The employee receives 1681 1680**

**all taxes are paid according to the general tax regime; 45% repayment is made once a quarter.

Are you excited? Because we are! Don’t miss your chance to apply for game-changing support! Get acquainted with Startup law and its benefits here

and make sure to learn more about both support mechanisms here


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