Cyprus decline and Latvia's rise in world of business
Cyprus is currently experiencing economic challenges. Cyprus has taken an international loan of 10 billion euros, mainly to recapitalise its banks, which have been crippled by exposure to crisis-stricken Greece.
Cyprus government has adopted a law that provides taxation of the banks existing deposits over 100 000 euros with one-off tax. Such a move for Cyprus threatens with cash outflow from the state.
From an expert point of view, this situation is beneficial for Latvian credit institutions, especially for those who work with clients from Russia and the CIS. Latvian banks are currently characterized by an influx of depositors.
Depositors and investors choose Latvia because of its taxation policy, favourable tax system, a high level of confidentiality and flexible attitude to financial resources transit. Latvian banks are safe alternative to offshore to store money.
The advantages of Latvian business environment are open markets, resources that are not available elsewhere (land, timber, low labour costs) business culture and mentality, which is close to the European dimension.
Foreign investors also evaluate the experience, noting a number of advantages as business projects, which before attracting investments had made good progress. They point out that Latvia have long traditions of production.
Latvia or Cyprus?
The main differences, important for any entrepreneur, who has not decided yet – Latvia or Cyprus.
- Latvia is located in Europe, Cyprus is located in Asia. Latvia has an advantageous geographic location close to the former Soviet markets, such as Russia and Ukraine, at the same time- it is part of the European market.
- Cyprus is a member of Eurozone, Latvia will join Eurozone in 2014.
- Latvian financial sector does not constitute a basic profit of GDP, as opposed to Cyprus. It points that Latvia is economically more stable.
- Latvia has a high level of Russian language. The Latvian banking sector has experience working with clients from the former Soviet Union, and the banks are willing to work using Russian language.
- Starting of 1st January 2013, the dividends are not taxable income in Latvia, if the company – Latvian resident pay out dividends to the non-resident unless it is located, established or founded in low tax or no-tax states or territories. Also, dividends received from the non-resident are not taxable unless it is located, established or founded in low tax or no-tax states or territories.
- Latvia has concluded a convention with Russia of double non-taxation. This convention significantly reduces the tax burden for entrepreneurs based on Latvia or Russia.
- Latvia increased its attractiveness for foreign depositors by passing a law in 2009 allowing anyone who invests 100,000 lats (€144,150, or in other specific cases €70,000) to get a residency permit. Residency permit allows them to move more freely around the EU.
- While Cyprus has professional bankers as well as Latvia has, in Latvia bank services are more cheaply and also companies can be purchased cheaply.
- Latvia is ranked as 25 in Doingbusiness. Cyprus is ranked as 36 in Doingbusiness. This survey points out that in Latvia is more easy deal with issues such as- Registering Property, Getting Electricity, Getting Credit, Enforcing Contracts and Resolving Insolvency, also Trading Across Borders.
- Latvia is in upper middle income category. Cyprus is in high income category. That points out lower labour costs in Latvia.
Entrepreneurs, which already have chosen Latvia underlines that it is fair, transparent and with a proper legal system.
According to official figures, around half of the EUR 17 billion worth of deposits in Latvian banks come from non-residents, and they grew by more than 20% in 2012. According to the International Monetary Fund (IMF), up to 90% of that comes from Russia and other CIS states.
In the same way, there is no truth in statements that Latvia could become
Cyprus number two and will experience such economic challenges because of banking sector as the size of both countries financial sectors and their significance to the economy are very different.