Liga Merwin and Tomass Brinkmanis (Ellex Circle Law Firms) authored this publication

While there is no general obligation to notify investments in Latvia by foreign investors, rules in several sectors either prohibit foreign direct investment without notification or block foreign investment outright. Such sectors are:

• Companies of significance to national security (pursuant to the National Security Law)
• Critical infrastructure (pursuant to the National Security Law)
• Land and agricultural land acquisition (pursuant to the Law on Land Privatization in Rural Areas and the Law on Land Reform in Cities of the Republic of Latvia)
• Gambling (pursuant to the Law on Gambling and Lotteries)
• Banking and insurance (pursuant to the National Security law)

The National Security Law defines companies of significance to national security as a company registered in the Republic of Latvia that:

• Is an electronic communications merchant with significant market power, where liabilities have been imposed for tariff regulation and cost accounting
• Is an audible electronic mass medium, where, using technical means for terrestrial broadcasting, the coverage zone includes Latvia or at least 60 percent of its territory
• Is an audio-visual electronic mass medium, where, using technical means for terrestrial broadcasting, the coverage zone of the program includes Latvia or at least 95 percent of its territory
• Has received a license in the Republic of Latvia for transmission, distribution, storage of natural gas or has, in its ownership, a liquefied natural gas facility connected to a transmission system
• Is an electricity or thermal energy producer whose installed actual capacity exceeds 50 megawatts
• Is a thermal energy transmission and distribution operator that has heat supply networks in its ownership covering at least 100 kilometers
• Has received a license for electricity transmission in the Republic of Latvia
• Is the owner of a forest land in the Republic of Latvia in the area of at least 10,000 hectares
• Is the owner of agricultural land in the Republic of Latvia with an area of at least 4,000 hectares or
• Has received the special permit (license) for commercial activities with goods of strategic significance or a military manufacturer certificate issued by the Ministry of Defense, and it has a valid strategic partnership contract with the Ministry of Defense

Additionally, irrespective of the type of investor (local or foreign), objects with "critical infrastructure" status (Critical Infrastructure Objects) cannot be transferred without the permission of the Cabinet of Ministers. Critical infrastructure objects are categorized as:

• Category A, which includes especially important state-level critical infrastructure, where the destruction of or reduction of operational capabilities of such infrastructure would significantly endanger administration of the state and national security
• Category B, which includes important state-level critical infrastructure, where the destruction of or reduction of operational capabilities of such infrastructure would endanger administration of the state and national security or
• European critical infrastructure, which has been granted a status of European critical infrastructure because its destruction or disturbance of its operation would significantly impact at least two EU Member States

Critical Infrastructure Objects are identified by various state agencies; however, such identification is not publicly available and is considered a state secret. Persons already in possession of these objects are aware of the status.

Acquisition of land as FDI is subject to the receipt of consent from the local municipality council if such transactions are allowed by law:

• The purchase of agricultural land in urban administrative territories is generally limited only to investors from Latvia and the EU. Other Foreign Urban Land Investors (see definition below) cannot acquire agricultural land, forest land, land in the border areas and in the protection zones of water bodies in urban administrative territories
• The purchase of agricultural land in rural administrative territories is generally limited only to investors from Latvia, the EU, the EEA or the OECD. "Other Foreign Rural Land Investors" (see definition below) cannot acquire agricultural land, forest land, land in the border areas, land in the protection zones of water bodies, land in protected areas of nature reserve zones and lands in mineral deposits of national importance in rural administrative territories
• In relation to land in rural administrative territories, one natural or legal person may acquire up to 2,000 hectares of agricultural land. Related parties may acquire up to 4,000 hectares of agricultural land

Gambling company-related transactions are also restricted, pursuant to the Law on Gambling and Lotteries:

The percentage of foreign members or stockholders in the share capital of a capital company cannot exceed 49 percent. Foreign members do not include investors from the Member States of the European Union, the States of European Economic Area and the Member States of the Organization for Economic Co-operation and Development (residents). Different regulations for foreign investments provided for by international agreements ratified by the Parliament may also provide different cases. Change of investors as allowed by law must further be notified to Lotteries and Gambling Supervision Inspection in accordance with the Law on Gambling and Lotteries, which further specifies licensing requirements.

Recent updates

No significant updates exist regarding the FDI regimes in 2021 for Latvia.

Who files

Companies of significance to national security:

• For the below-mentioned activities in companies of significance to national security, the permission must be obtained by everyone, regardless of foreign investor or resident status
• An absolute ban has been introduced on Russian and Belarussian state companies, legal persons registered in Russia or Belarus, and Russian or Belarussian nationals from performing the actions noted below (see TYPES OF DEALS REVIEWED section as it relates to companies with significance to national security)

As regards acquisitions of land, different rules apply whether the land to be acquired is located in urban administrative territories or rural administrative territories and whether the intended use of the land is agricultural or other:

Agricultural land and land with other designated use located in urban administrative territories may be purchased by:

• Citizens of Latvia and citizens of other Member States of the European Union
• A company registered in the Republic of Latvia or another European Union Member State where:
  • More than half of the equity capital belongs to citizens of Latvia or citizens of other European Union Member States, individually or collectively
  • More than half of the equity capital belongs to natural or legal persons from countries with which the Republic of Latvia has entered into international agreements on the promotion and protection of investments, which have been approved by the Saeima as of December 31, 1996 (pre-1997 countries). For natural or legal persons from countries where international agreements have been entered into after December 31, 1996 (post-1997 countries), if those countries provide for a reciprocal right of natural persons and legal persons registered in the Republic of Latvia to purchase land in that country, then the abovementioned rule shall also apply
  • More than half of the equity capital belongs to several entities referred to in (a) and (b) above
• Other foreign investors not listed above (the Other Foreign Urban Land Investors) may purchase land with other designated use only, which requires approval by the relevant institution

Agricultural land and land with other designated uses located in rural administrative territories may be purchased by:

• Citizens of the Republic of Latvia and citizens of other European Union Member States, and also citizens of the countries of the European Economic Area, the Swiss Confederation, and the Member States of the Organisation for Economic Co-operation and Development
• A company registered in the Republic of Latvia, and also a capital company registered in another European Union Member State or country of the European Economic Area, the Swiss Confederation or Member State of the Organisation for Economic Co-operation and Development that, in accordance with laws and regulations, is a taxpayer in the Republic of Latvia and:
  • All shareholders of said company are the subjects referred to in Clause 1 or 2 above each individually or jointly
  • All shareholders of said company are natural or legal persons from pre-1997 countries. For natural or legal persons from post-1997 countries, if those countries provide for a reciprocal right of natural and legal persons registered in the Republic of Latvia to purchase land in that country, then the abovementioned rule shall also apply
  • All shareholders of which are several subjects referred to in (a) and (b) above together
• Another natural or legal persons registered in another European Union Member State, country of the European Economic Area, the Swiss Confederation, or Member State of the Organisation for Economic Co-operation and Development which is considered equivalent to the persons referred to above.

The purchase of agricultural land in rural administrative territories by investors mentioned above must be approved by the relevant institution. Other foreign investors not listed above (the "Other Foreign Rural Land Investors") may purchase land in rural areas with other designated use only, which requires approval by the relevant institution.

Types of deals reviewed

For companies of significance to national security, the Cabinet of Ministers must be notified and permission must be acquired for the following activities:

In relation to capital companies:

• Obtaining of qualified holding
• Obtaining of decisive influence
• Transition of an undertaking
• Changing of the beneficial owner

In relation to partnerships:

• Joining of a new member
• Changing of the beneficial owner

The requirements for acquisitions of land and agricultural land does not apply to acquirers of agricultural land, if the total area of agricultural land in the acquirer's possession does not exceed ten hectares for natural persons or five hectares for legal persons or if the agricultural land to be acquired is the result of insolvency proceedings.

Scope of the review

Companies of significance to national security and critical infrastructure objects:

In determining the FDI review, the Cabinet of Ministers shall evaluate the restrictions on the rights of the person, its commensurability with the national security interests, and the opinion of a state security institution, as well as the conformity with the principle of legitimate expectations.

The Cabinet of Ministers may decide to refuse the permit if:

• The issuing of the permit threatens the interests of the national security
• The person who has submitted the application has failed to submit additional information or documents necessary for preparation of opinion of the state security institutions within the period of time set by the Ministry of Economics and the state security institutions
• The Ministry of Economics or the state security institutions establish that they have been provided with false information

Acquisition of land:

For the acquisition of land, the municipality council makes a decision based on all received information to evaluate whether the acquirer meets the requirements in the law, restrictions in the law are met, and indicated further use of the land is not in contradiction with the spatial plan or detailed plan of the municipality.

Review process timeline

Companies of significance to national security and critical infrastructure objects:

The Cabinet of Ministers shall make a decision within one month from the moment of receiving the application. The term can be prolonged to four months.

Acquisition of land:

• Application for change in agricultural land ownership will be reviewed within 20 days from the day of receiving an application in urban administrative territories
• Application for change in non-agricultural land ownership will be reviewed within 20 days from the day of receiving an application in rural administrative territories
• Application for change in agricultural land ownership will be reviewed within one month from the day of receiving an application in rural administrative territories

As mentioned above, the requirements and restrictions for FDI are quite imperative and defined broadly. As such, formal compliance to the requirements will not always result in permission and a positive outcome.

The Russian Federation's invasion of Ukraine has precipitated the inclusion of provisions blocking Russian and Belarussian nationals from direct investment in separate sectors.

In the ambit of national security, the trend will be even more rigorous checks and more stringent rules in the coming years.

How foreign investors can protect themselves

Investors should make sure the contracts contain a contract termination clause should the relevant permissions not be granted.

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_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

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