Location, business-friendly regulations, and a skilled workforce make Latvia attractive for FDI.
Despite a sluggish economy, Latvia is positioning itself as a prime gateway to the European Union, as foreign capital is flowing into key sectors, and recent reforms underscore its ambitions to become an investment hub in the Baltics.
The IMF projects GDP growth of 2.3% in 2025; 2.5% in 2026; and 2.5% in 2027. The Bank of Latvia, the country’s central bank, is more optimistic for 2026 and 2027, expecting growth of 3.1% and 3.3%, respectively, due to stronger domestic demand, lower inflation, and the inflow of foreign capital into Latvia’s fintech, defense and banking sectors.
The government’s decision in 2022 to simplify rules and regulations covering the operation of foreign and native businesses is bearing fruit. It has positively reshaped Latvia’s ability to offer enhanced support packages to investors in the Baltic state.
| Vital Statistics |
|---|
| Location: Northeastern Europe |
| Neighbors: Estonia, Russia, Belarus, Lithuania |
| Capital city: Riga |
| Population (2024): 1.9 million |
| Official languages: Latvian (56.3%), Russian (33.8%), other 0.6% |
| GDP per capita (2024): $22,200 |
| GDP growth (2024): 1.2% |
| Inflation (2024): 1.4% |
| Currency: euro |
| Investment promotion agency: Latvian Investment and Development Agency (LIAA) |
| Investment incentives available: Grants and financial incentives for domestic and foreign investors; VAT waivers and various tax rebates for companies operating in the country’s five SEZs, including two free ports; loans for new companies and startups; no performance requirements for foreign investors to establish, maintain, or expand investment in Latvia |
| Corruption Perceptions Index rank (2024): 38/180 |
| Political risk: Small open-market economy sensitive to external changes and shocks; society and economy negatively impacted by Russia’s invasion of Ukraine in 2022 and continuing war causing deteriorating relations with Russia; questions over Latvia’s ability to generate sufficient tax revenues to foster economic growth. |
| Security risk: Proximity to Russia; ongoing Ukrainian conflict destabilizing to Latvia’s national security and economic growth; petty crime; credit card, debit card, and ATM fraud; cyberattacks and extortion; harassment of women, LGBTQI+ persons, and racialized groups |
| Pros |
|---|
| Highly digitalized, tax progressive, modernizing, globalizing Baltic state within EU |
| Strong educational ethic, skilled labor force |
| Growing pool of talent with IT skills |
| Low-cost and tax-friendly for new domestic and foreign-owned startups |
| Member of EU and NATO since 2004, Schengen area since 2007 |
| Joined eurozone in 2014 and OECD in 2016 |
| Full spectrum of property rights |
| US Trade and Intellectual Property Rights Agreement, WTO Agreement on Trade-Related Aspects of Intellectual Property Rights, and other international agreements |
| Cons |
|---|
| Stability of small, open economy susceptible to external factors such as supply chain fluctuations in key markets, EU, North America, and Asia |
| Downturns such as sharp rises in commodity prices can seriously impact growth in national economy |
| Proximity to Russia a concern |
Sources: Baltic Times; Bank of Latvia; Bloomberg; CIA World Factbook; Delfi; Diena; European Central Bank; International Monetary Fund; Latvian Ministry of Defense, Ministry of Economics, Ministry of Finance, State Statistics Bureau, Tax Administration; LIAA; Reuters; Trading Economics; Transparency International; TVnet.lv; US State Department; World Bank; World Population Review.
For more information on Latvia, click here to read Global Finance’s country report page.
Specifically, Latvia hopes to build international interest in the country via an ambitious project aimed at developing the capital, Riga, as a low-cost, high-value Baltic center for banking. It’s also looking to AI, fintech, smart consumer electronics, biomedicine and pharmaceuticals.
Latvia anticipates a dividend from its largest-ever trade mission to the US, in September 2024. Led by Latvian President Edgars Rinkēvičs and Minister of Economics Viktors Valainis, the eight-day event included investor briefings in Houston, San Francisco, and Denver. Executives from Meta, Google, NASA, Groq and OpenAI convened. Microsoft signed a memorandum of understanding in December to build an AI hub in Latvia. The trade mission aims to double the value of Latvia’s exports to the US to $2 billion within three to five years.
Last April, Latvia’s government approved amendments to the Regulation of the Coordination Council for Large and Strategically Significant Investment Projects. The amendments introduced a more efficient decision-making process for screening funding applications and providing state support for projects with an investment volume of at least €10 million (about $10.5 million) or an export volume of €5 million.
The country is also generating foreign investor interest in capital-intensive projects. These include Rail Baltica, the Baltic region’s most ambitious investment in regional transport infrastructure. The project involves the construction of two European Transport Corridors (ETC). The ETC1 will connect the modernized rail networks of Estonia, Latvia, Lithuania and Poland to the Continental European rail transport system by 2030.
International interest in Rail Baltica spiked after the Baltic states and the EU confirmed that external investors may participate in funding ETC1 and ETC2.
Rail Baltica secured an additional €1.4 billion from the EU’s Connecting Europe Facility (CEF) in November. Up to 85% of the project’s eligible costs are being funded by the CEF. In total, the project obtained over €4 billion through the CEF.
According to one analysis, published last June, Rail Baltica is projecting regional economic benefits, both direct and indirect, of €48 billion. This projection exceeds the project’s total capital cost estimate of €15.3 billion covering the financing requirement to implement the first project phase, which will establish an operational Rail Baltica line across the three Baltic States to connect to Poland’s rail network by 2030.
The project’s long-term potential value to the security of the Baltic states and Europe will be amplified in ETC2, which aims to expand the integrated Baltic rail network’s reach to link countries in the neighborhood of the Baltic, Black, and Aegean seas, with extended rail line connections to Ukraine and Moldova.
“Geopolitical shifts have fundamentally changed how the project is viewed—Rail Baltica is now critical for NATO’s military mobility, increasing its strategic importance,” says Marko Kivila, the interim chief executive of RB Rail, Rail Baltica’s management company.
A Magnet for FDI
In January, Latvia’s government approved more than €644 million in additional spending to reinforce its Russian border. The country’s €1.6 billion defense budget allocates 42% to weapon systems procurement. The plan is to raise the defense budget to at least 4% of GDP in 2026.
The government also wants Riga to be a leading banking hub. In January, the government introduced a temporary solidarity contribution (TSC) on credit institutions to help cover national security costs. The TSC is being levied at 60% on a credit institution’s surplus net interest income generated during 2025, 2026, and 2027. It’s expected to raise $100 million.
The country’s foreign direct investment (FDI) stock rose by 4.4% to $26 billion in 2024, sustained by a stable monetary policy, modern infrastructure, and an advantageous geographic location between the EU and the Commonwealth of Independent States. That year, investments from other EU states represented over 82% of all accrued FDI. The FDI split by sector reveals that most foreign entities invested in banking, real estate, technical services and manufacturing.
“Latvia’s foreign investment results in 2024 have been impressive—from just under €619 million in 2023, the amount of attracted investments last year grew to over €655 million,” said Economics Minister Valainis during the January meeting of the Latvian Investment and Development Agency Coordination Council. “Latvia’s [2025] target for large investments is €790 million, and given the strong groundwork and growing interest from investors, I am confident we may even exceed this goal.”
The EU’s funding role continues to drive innovation and growth among SMEs operating within sectors such as digitization, energy efficiency and exports.
In this year’s budget, the Ministry of Economics is making €250 million in State and EU funding available to help small-to-medium sized (SMEs) businesses boost competitiveness. Around 61% of the funds are earmarked to support SMEs.
Latvia saw the volume of active investment projects grow from just over €4 billion in 2023 to around €11 billion in 2024 as foreign investment increased.
Five special economic zones (SEZs), including two free ports, offer tax and financial incentives essential for attracting foreign investors. The SEZs offer up to 80% rebates on corporate income tax. The rebates on property assets lower the effective tax rate to 0.3% for foreign and native enterprises. The tax rebates will remain in force until 2035.
The country’s business-friendly policies and EU membership are also generating increased investments from Asia. Last year, Indian IT group Tech Mahindra opened a Baltic business processing services (BPS) hub in Riga, creating 500 jobs.
“We are at an important step in our Baltic growth strategy. Latvia offers a vibrant technology ecosystem, skilled workforce, strong IT infrastructure, and favorable government policies,” says Birendra Sen, head of BPS at Tech Mahindra.
Likewise, Uzinfocom, Uzbekistan’s largest player in biometrics and facial recognition technologies, selected Riga for its European headquarters. The decision “was not difficult,” says Uzinfocom Europe’s chairman Aleksandrs Petrovs. “We also want to look at forming close cooperation partnerships with state and private enterprises in Latvia.”
Meanwhile, the Bank of Latvia is developing a strategy to transform Riga into the largest fintech hub in the Baltics. Touting a pro-innovation approach, the central bank aims to drive investment and growth within the fintech community.
As Bank of Latvia governor Mārtiņš Kazāks told the November 2024 Fintech Latvia Forum in Riga:
“Our value proposition is based on a friendly and supportive ecosystem, prioritizing access to capital, developing world-class talent, and fostering deeper collaboration with stakeholders to build Latvia’s competitive position.”
