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

The law provides no general obligation to notify foreign direct investments in Latvia. Sectoral rules in specific circumstances will trigger notification obligations or block such investments regarding companies of significance to national security, critical infrastructure and agricultural land acquisition, and gambling.

Summary of major changes in 2023

• The definition of companies of significance to national security has been expanded transposing provisions from EU Regulation 2019/452 to include:
  • Manufacturers, developers and exporters to non-EU Member States (except for the US, Canada, Australia, New Zealand, Norway, Switzerland, Japan, the UK, Iceland and Liechtenstein) of dual-use items as defined by EU Regulation 2021/821
  • Companies with access to the personal data of voters and candidates for members of parliament (the Saeima), which are not to be published in accordance with the law
  • Companies that process data sets regarding state-critical infrastructure systems, apart from financial market participants
• The list of deals reviewed regarding companies of significance to national security has been expanded to include monetary loans exceeding 10 percent of the assets of the company, where the lender is a natural person or a company with an ultimate beneficial ownership (UBO) based in a non-EU Member State, with notable exceptions
• The list of companies of significance to national security is now publicly available
• 2023 has not brought notable changes in FDI regimes regarding land acquisition, gambling companies or the banking and finance sector

Who files?

For companies of significance to national security, the national security regime requires filing regardless of the nationality or domicile of the investor. Even potential investors based in Latvia are subject to review.

The exception to the above is where a company of significance to national security receives a loan exceeding 10 percent of its assets. In such a case, the deal is subject to review when the investor is a natural person or a company with a UBO not based in Latvia, or an EU, EFTA, NATO, or OECD member state.

An absolute ban has been introduced on Russian and Belarusian state companies, legal persons registered in Russia or Belarus, and Russian or Belarusian nationals from investing in such companies.

Irrespective of the type of investor (local or foreign), objects with "critical infrastructure" status cannot be transferred without the permission of the Cabinet of Ministers.

When it comes to acquisition of land, different FDI regimes are applicable to land in urban administrative territories and land in rural administrative territories. Only deals exceeding the volume of land prescribed by law require approval.

Companies and individuals based in Latvia and the EU Member States may purchase land in urban administrative territories without any approval procedures (no filing required). However, acquisition of land by investors based outside of the EU Member States must acquire approval.

Separate, highly detailed rules are provided for acquisition of land with designated agricultural use in urban administrative territories.

Land in rural administrative territories may only be purchased by individuals or companies based in Latvia, Switzerland or a Member State of the EU, EEA or the OECD. Such deals are subject to review.

Types of deals reviewed

Companies of significance to national security are broadly defined by law. However, the list of current companies with this status is publicly available online.

For companies of significance to national security, the Cabinet of Ministers must be notified and permission must be acquired for a number of activities.

In relation to capital companies, these activities are: attainment of qualified holding; attainment of decisive influence; transition of an undertaking; and changing of the beneficial owner.

In relation to partnerships, these activities are: joining of a new member; and changing of the beneficial owner.

Separate rules exist for loans exceeding the assets of the company by 10 percent.

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.

Regarding gambling companies, the share of foreign members or stockholders in the share capital of a capital company cannot exceed 49 percent. This requirement does not apply to investors from the Member States of the EU, the EEA and OECD. As this is an imperative prohibition, no review procedures exist.

Scope of the review

For 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 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; or the Ministry of Economics or the state security institutions establish that they have been provided with false information.

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

The Cabinet of Ministers shall make a decision regarding investments concerning companies of significance to national security and critical infrastructure objects within one month from the moment of receiving the application. The term can be extended to four months.

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

How foreign investors can protect themselves

Rigorous legal due diligence is a must to identify FDI regulatory risks and other possible legal obstructions as early and accurately as possible.

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

Processing times should be taken into account when submitting an application to the Cabinet of Ministers regarding companies of significance to national security or critical infrastructure. In the majority of cases, the Cabinet of Ministers reaches a decision within one month, but occasionally the decision-making process is extended by an additional month and can take up to four months.

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