Now the Baltic economies are slowly recovering from the economic crisis, and praying that another one doesn't gobble them up, a large number of foreign investors are returning to Latvia in search of suitable investments. Businesspeople based outside the European Union are taking advantage of a law that gives them the chance to get a Latvian residence permit if they invest in a company, real estate or subordinated bank capital.
The numbers of residence-permit applications have risen tenfold in 2011 compared to last year, with 90 of them being made in June, another 90 in July, and 86 in August.
The rules are simple. Under Immigration Law amendments, citizens of third countries can apply for a temporary residence permit for a period of up to five years, provided they have invested significant amounts that contribute to the country’s economic growth.
Applicants can buy property worth at least LVL 100,000 (€142,290) in Riga, Jurmala and much of the coastline, or at least LVL 50,000 (€71,145) elsewhere in the country, although the government is now assessing whether to substantially raise this limit to LVL 500,000.
Residence permits are also granted if LVL 25,000 (€35,575) is invested in the capital of a Latvian-based company and LVL 20,000 (€28,460) is paid in taxes in the first year of operations.
Many of the residence-permit takers are attracted by residential real estate in Jurmala. They tend to be well-educated Russian speakers, active in business and with families. Jurmala is close to home, without a language barrier, with its own special microclimate, and with a lively cultural agenda.
Since the Immigration Law amendments were passed last year, 90 percent of real estate deals in Jurmala have come from foreign buyers. Some Latvian property companies have their own in-house lawyers, but others work with law firms on the sometimes complicated legal aspects of buying residential real estate in another country.
“The necessity of having to pay large amounts in taxes prevents investors interested in residence permits from taking the option of investing in companies. Doing this would also force them to be actively involved in generating business in order to raise revenues to pay the necessary taxes,” Zane Štālberga-Markvarte, Managing Partner at Markvarte / Lexchange, explains.
She has assisted a number of clients based outside the EU with the legal aspects of obtaining a permit to live in Latvia. She says that according to information from the Citizenship and Migration Department, around 130 investors have opted to put their money into a company and another 130 into subordinated bank capital, 550 have decided to simply buy real estate.
Purchasing a suitably exclusive apartment for at least LVL 100,000 was never a problem for such investors, since flashy apartments in Jurmala are regularly sold for double or triple this sum or more. New-build flats in Riga are cheaper.
But, Ms Markvarte thinks, if the threshold is raised to LVL 500,000 it would dissuade many buyers. It may also have the unintentional effect of increasing taxes for Latvians whose family homes have been in Jurmala for many decades.
“All this will achieve is to force real estate prices even more artificially higher – putting them further out of reach of the vast majority of Latvians,” she says. “It would affect both the cadastral value and the property tax for everyone living in Jurmala.”
So far, LVL 103 million has been invested in Latvia in exchange for residence permits. Three-quarters of this sum has gone through the real estate route.
Enquiries are coming to law firms like Markvarte / Lexchange not just from Russia and the former Soviet Union, but also from countries such as Pakistan, India and Egypt. However, it’s possible that the next government of Latvia, which should be in place by November, will decide to annul the residence permit scheme altogether. On the other hand, the dire demographic situation, made worse by the recession, may persuade the new government to try to attract all the investment and workforce it can get its hands on. The preliminary results of a recent national survey indicate that over the last ten years the Latvian population has shrunk from 2.4 million to just 1.9 million.