Introduction
Since 2011 all EU citizens as well as EEA members and Swiss nationals have gradually been granted the right to acquire real estate in Latvia under the same conditions as Latvian nationals. As of May 1st, 2014, all remaining limitations have been abolished. Now EU citizens, EEA members and Swiss nationals have exactly the same rights as Latvian citizens to acquire real estate in Latvia.
However, general restrictions apply to the acquisition of agricultural or forest land. There is a limit of 2000 hectares per person. Furthermore, it is necessary either to show revenue in this sector during the last three years (amounting to at least a third of a person´s total revenue during that timeframe), to show an education in this sector or to hire an employee with such an education.
Land Registry
All Latvian real estate properties are mapped (https://www.kadastrs.lv/) and registered (https://www.zemesgramata.lv) in the Latvian Land Register. All data, including maps, is publicly available in form of digital documents. The land registration and the cadaster use different identification numbers (but these databases are nonetheless interconnected). From kadastrs.lv you can get all the technical information of the property, such as area, cadastral value, cadastral number and borders. From zemesgramata.lv you can get information about ownership of property, encumbrances, rental rights and other registered rights.
You can – free of charge – get an idea about how much a specific Latvian real estate property is worth by going to https://www.kadastrs.lv/, which is available in English. The cadastral value is an estimate by the State Land Service, which took into account the location of the property, registered data on the quality of the property, type of use, size and other criteria. Some of these estimates are old, but they are still useful as a general guideline. On the website you will also be able to see the real estate´s “cadastre number”, “register unit” and “administrative territory”; more information is accessible for € 2.85 per real estate object.
Municipality´s first refusal rights
In every real estate transaction, the local municipality has the “right of first refusal”, meaning that the municipality has the right to buy the property for the agreed price instead of the original buyer, if it needs the property for certain municipal functions defined by law. The parties therefore have to first submit the signed sale´s agreement to the municipality for a decision on its first refusal rights. If the municipality does not need the property for the municipal functions set out by law, the municipality must issue a statement waiving the right of first refusal within five business days. The buyer will have to present the municipality´s approval to the judge at the Land Register before the new ownership of the real estate can be entered into the Land Registry.
Costs
The buyer will have to pay the “state fee” of 2% calculated on the basis of either the sale price or of the cadastral value (estimated price by the State Land Service) – whichever is the higher of the two. In case of non-residential buildings, the state fee is capped at € 42.686.15. Furthermore, the buyer will have to pay the office fee of € 14.23 before the registration of ownership in the land register.
The seller will have to pay income tax (15% of the profit). However, if the seller owned the property for more than five years and has had his residence there without any interruption for at least one year during these five years, the income tax rate does not apply.
VAT application to real estate sales depends on the status of the real estate. Real estate transactions are VAT exempt, if the status of the real estate is “used”. Real estate transactions are subject to the standard 21% VAT rate, if the status of real estate is “unused or new”.
The acquisition of real estate as such does not cause an obligation for the foreign investor to register for VAT purposes in Latvia.
However, it is possible for the buyer to recover all paid VAT immediately by registering with the Latvian VAT Register and holding on to the real estate during the next ten years, if the acquired real estate is used for VAT taxable transactions during that time (e.g. rented out to legal persons). If the acquired real estate is not used for VAT taxable transactions, VAT cannot be recovered.
Under certain circumstances the foreign investor is obliged to register with the Latvian VAT Register (depending on the types of services performed, the status of the service recipient or the existence of a permanent establishment in Latvia, etc.).
In addition to the costs outlined above, fees for the notary or attorney have to be considered.
Every year, owners of Latvian real estate property must pay the immovable property tax rate set between 0.2% and 3% of the cadastral value. The exact rate is set by the municipality and is usually not higher than 1.5%. Higher rates (1.5-3%) apply to buildings that are in very terrible condition (bad appearance). Before property can be transferred, all accrued taxes must have been paid by the owner – outstanding taxes (such as the immovable property tax) therefore prohibit the sale. It´s advisable to contact the tax authorities before entering into the sale contract and to make sure that all of these taxes were paid.
The entire process from signing the sale contract until registration in the Land Register can be performed within a month.
Assistance
For assistance when planning investments in Latvian real estate or when looking for suitable property or in order to get in contact with Latvian real estate brokerages, go to
- Latvian Investment and Development Agency (http://www.liaa.gov.lv/),
- Latvian Chamber of Commerce (http://www.chamber.lv/lv/),
- German Economic Delegation in Latvia (http://www.ahk-balt.org/) or
- Austrian Economic Chamber in Riga (http://www.advantageaustria.org/lv).
Construction
Possible ways of utilization of real estate or limitations regarding its utilization are governed by the provisions in the spatial plan, local plan and detailed plans issued by the local building authority where the property is located (e.g. “Rigas pilsetas buvvalde – Riga City Building Construction Directorate”).
Construction is governed by the Construction Law (“Buvniecibas likums”). Furthermore, regulations from the Cabinet of Ministers apply: The general building regulations (“Visparigie buvnoteikumi”) and the Building Construction regulations (“Eku buvnoteikumi”).
A construction permit is required for all construction of fixed structures and for all renovations, modifications or demolishment (see Section 1 and 18 of the Construction Law). For different types of buildings it is easier and faster to obtain a permit. If all legal and technical conditions set out in the law are met, the construction authority will issue a construction permit to the applicant.
Other
Risks of latent defects, such as contaminated soil, are carried by the current owner. However, the seller can be held liable for characteristics of the property which he explicitly warranted or which can be ordinarily expected.
Virtually all possible claims of restitution (in connection to Latvia´s history) have been resolved and in practice there are no restitution issues anymore.
By Matthias Strohmayer, Lawyer, Varul
