LATVIA Law and Practice Contributed by: Jānis Kārkliņš, Annija Kārkliņa, Ēriks Krēsliņš and Rihards Strads, BERG
5. Investment Vehicles 5.1 Types of Entities Available to Investors to Hold Real Estate Assets Investors can hold real estate assests through the fol - lowing main types of entities: • a limited liability company ( sabiedrība ar ierobežotu atbildību ); • a joint-stock company ( akciju sabiedrība ); • a sole proprietorship/individual merchant; • a limited partnership; • a co-operative society; and • a capital company registered in another EU mem - ber state or country of the EEA, the Swiss Con - federation, or state party of the OECD’s Code of Liberalisation of Capital Movements. In practice, however, not all of these forms are com - monly used for real estate holding. The predominant market standard is a limited liability company, while in larger or more institutional structures a joint-stock company may also be utilised. 5.2 Main Features and Tax Implications of the Constitution of Each Type of Entity The private and public limited liability companies in Latvia are considered capital companies and legal persons. The liability of their shareholders is separated from the liabilities of the company, since the company itself is liable with all of its assets, while a shareholder generally is not liable for the company’s obligations. The main difference is that a limited liability company is a closed company whose shares are not objects of public circulation, whereas a joint-stock company is an open company whose shares may be objects of public circulation. The activities of these companies are governed mainly by the Commercial Law. There are no material tax advantages in choosing one of these entities over another, since corporate income tax is, in essence, applied in the same way in both cases. 5.3 REITs Latvia does not have a specific statutory framework under which a vehicle qualifies as a “real estate invest - ment trust” (REIT) in the classic sense used in some other jurisdictions. Instead, real estate investment is
Sustainable Development Strategy of Latvia and the National Development Plan, while regional planning is implemented by planning regions together with municipalities. At the local level, municipalities adopt and administer binding planning documents, includ - ing development strategies and territorial plans, all of which must comply with higher-level plans. Construction is primarily regulated by the Construc - tion Law, which defines the legal framework for con - struction activities and the division of competences between the State and municipalities. Local govern - ments are required to establish building authorities responsible for supervising construction and ensuring compliance with applicable requirements. 4.2 Development Process, Challenges and Enforcement To obtain development rights, a person must submit an application and the required documentation to the building authority. A building permit is issued if: • the construction proposal conforms to the spatial plan, local plan and detailed plan; • the construction proposal has been co-ordinated with the owner of the land plot; and • a building design has been developed in accord - ance with the requirements of construction laws and regulations. Depending on the nature of the project, additional pro - cedures may apply, including public consultation and, where required, an environmental impact assessment. Any failure to take into account opinions expressed during public consultation must be specifically justi - fied. In environmental matters, any person may, by way of an actio popularis, challenge an administrative act for non-compliance with environmental require - ments. A refusal to issue a building permit may be contested by the developer in administrative proceed - ings. Planning and zoning restrictions are enforced primarily through the building permit process.
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