SEZ benefits and business support possibilities for investors in Latvia — Rezekne Special Economic Zone

There are 105 Special Economic Zones (SEZ) in Europe. Since the creation of the first establishment, SEZs have become a big part of the business landscape, and it is very likely to find some of the largest investment projects today located in them. The tax exemption for the businesses in a simple and effective tool resulting in the popularity of SEZs. However, deciding on a location for a new project can be difficult for investors. To specify the optimal location requires throughout evaluation and research. Consideration of multiple aspects should be present during the choosing process of the site for investment, and investors should highly constitute the criteria of location, state aid, available grants and exemptions from corporate income tax.

In a survey conducted by Statista during 2018–2019, Europe as a whole was ranked third after Developing Asia and North America as the most optimal target for the expansion of foreign direct investment, mainly because of the high quality of human capital. Investors themselves suggest that Europe should reduce its taxes and labour costs to compete in the future for the largest investments. Considering that, some countries in Europe still carry relatively competitive labour costs, one example being The Republic of Latvia with Rezekne multiplicity maintaining labour costs that are attractive for the investors. Additionally, the Rezekne Special Economic Zone (Rezekne SEZ) has high-quality human resources, meaning a well-educated and highly skilled workforce is available in the region. The number of young and trained professionals annually graduate from the regional higher education institution — Rezekne Academy of Technologies, and vocational training institution — Rezekne Technical School in disciplines including STEM, economics, services etc. Furthermore, the local community is multilingual, thus, apart from the Latvian language, more than 85% of people speak Russian, and around 70% of people of the age up to 40 have good English language communication skills.

Geographical location is one of the main aspects that highly determine investors’ decision in choosing a new site for their business. Rezekne SEZ provides access to strategically advantageous territory with well-organized and advanced technical infrastructure and access roads. The location is in the international transport corridors (motorways and railway lines passing through Rezekne city). Rezekne SEZ also facilitates logistics to the ports and provides access to 500 million potential consumers in the European Union and 275 million potential consumers in Russia and the Commonwealth of Independent States. The geographical location of Latvia on the coast of the Baltic Sea provides a possibility for the use of the seaport. Even though Rezekne SEZ does not have direct access to the port, developed motorway and railway infrastructure make it relatively easy to take advantage of this geographical position. Besides, the largest airport in the Baltic States located close to Rīga, the capital of Latvia, ensures a strategic location for companies with target markets in the European Union and Eastern countries.

Another key point, which can not be missed and is highly valuable for investors considering business in Special Economic Zones, is of course, tax exemptions and grants available. Rezekne SEZ offers competitive operating costs and a pool of resources, the possibility to acquire land on the territory of Rezekne SEZ, favourable tax incentives, and other state aid measures that enhance return on investment. Up to 80% discount is available on the corporate income tax. It applies to the profits of the company as well as dividends. Furthermore, 0% corporate income tax rate applies to the profits reinvested. Companies located in Rezekne SEZ can request immovable property tax discount ranging from 80% up to 100%. Entrepreneurs can set up free customs zones to ease the logistics of services/products and customs procedures within the EU. Particularly 0% value-added tax rate and exemptions from the excise and customs duties are applicable for the supplies of goods within the free zone for further export. There is also up to 55% return of investment costs in tax incentives available, with 55% for small enterprises that employ less than 50 people, and the annual turnover does not exceed 10 million euros. 45 % — for medium-sized enterprises, that recruit less than 250 people, and the annual turnover of which does not exceed 50 million euros and 35 % — for large enterprises, that employ more than 250 people, and the annual turnover exceeding 50 million euros.

Rezekne SEZ is involved in an innovative communication tool — POLARIS, that enables efficient cooperation and execution of tasks for investment attraction and rapid launch of investment projects. Internal information system of Rezekne SEZ aims to ensure simplified and shortened investment project management procedures. These systems are updated and improved recently to provide the most efficient tracking of performance and monitoring of reaching the target. Rezekne SEZ Authority can use these systems to identify the requirements and assist the companies in exceeding results. Furthermore, Rezekne SEZ Authority organizes Rezekne SEZ Business Support Fund Project Competition for Rezekne SEZ enterprises. The winners are provided with co-financing to implement their projects (3 projects awarded per year).

A positive impact of the growth and development in economies can be influenced by Foreign Direct Investments (FDI), as FDI creates direct benefit from the injection of new capital into the economy. Furthermore, it can be a source of innovation. FDI also boosts the competitiveness of local firms by supporting their integration into global value chains. By choosing to create a company in Rezekne SEZ, investors not only help to grow a local economy but also enjoy the most optimal conditions for business and capital growth. Based on 20 years of experience in the state aid management, Rezekne SEZ Authority provides support and personalized services — advice on national and regional business incentives, site selection and visits, connection with regional service providers to over 100 companies a year and counting.