WORLD TRADE  
ORGANIZATION  G/SCM/N/123/EEC/Add.14 
26 August 2005 
 
 (05-3599) 
Committee on Subsidies  
and Countervailing Measures Original:   English 
 
 
 
SUBSIDIES  
 
New and Full Notification Pursuant to Article XVI:1 of the GATT 1994  
and Article 25 of the Agreement on Subsidies and  
Countervailing Measures  
 
EUROPEAN COMMUNITIES 
 
Addendum  
 
  The following addendum to the notification of  the European Community relates to subsidy 
programmes of Latvia
. 
 
_______________ 
 
  
Notification on Subsidies and Countervailing Measures in Latvia: 
Years 2003 and 2004 
 
 
Introduction
 
 
 Due to financial constraints and liberal appro ach to economic policies (the policy of minimum 
intervention in business activities), the Republic of La tvia provides very limited financial support to 
its business sector even for internationally accepte d goals of regional deve lopment, environmental 
protection, research and development.  Therefore the possibility of distortion of competition as a 
result of State aid is minimum.   Public expenditures, credit programs or tax measures are included in this survey without 
prejudging whether the subsidy measure is specific or whether it can be qualified as a general policy 
measure.  This survey covers all subsidies granted in years 2003 and 2004.    G/SCM/N/123/EEC/Add.14 
Page 2  
 
 LATVIA 
 
TABLE OF CONTENTS 
 
Page  
I. TAX  - RELATED FORMS OF AID ......................................................................................3  
1. Enterprise income tax relief................................................................................................... ..3 
2. Aid to companies with foreign capital participation..............................................................3  
II. POLICY OBJECTIVE: AID FOR REGIONAL DEVELOPMENT...................................4  
1. On Application of Taxes in Free Po rts and Special Economic Zones ..................................4  
2. JSC “Latvijas Finieris” - Investment ai d for ensuring more economical use of 
Latvian wood recourses a nd for contribution in reduction of unemployment 
level in some regions of Latvia................................................................................................ .5 
3. Diversification of Rural Economic Activities Providing Alternative Income......................6  
4. Support to specially assisted territories ..................................................................................6  
III. POLICY OBJECTIVE: AID FOR SMALL AND MEDIUM-SIZED 
ENTERPRISES.................................................................................................................... .....8 
1. The law "On Enterprise Income Tax"....................................................................................8  
2. Aid Scheme of Loan Guarantees of Latvian Guarantee Agency..........................................8  
3. Crediting of SMEs development..............................................................................................9  
4. Crediting of SMEs deve lopment (second stage)...................................................................10  
5. The reorganization and development of rural areas ...........................................................11  
6. Aid scheme of Latvian export marketing (LEMAP) ...........................................................12  
7. Aid scheme of consultations for the start-up of eneterpreneurial activity.........................12  
8. Aid scheme of projects' preparing for the European Regional Development 
Fund ........................................................................................................................... ..............13  
9. The Development of Non-Agricultur al Entrepreneurial Activities....................................14  
10. Regulation on granting state aid to Latvian enterprises for participation in 
international fairs and exhibitions ........................................................................................14  
  G/SCM/N/123/EEC/Add.14 
 Page 3 
 
 
 STATE AID TO MANUFACTURING/ SERVICES 
 
I. TAX  - RELATED FORMS OF AID 
1. Enterprise income tax relief 
Legal basis 
 
 Law On Enterprise Income Tax, Section 18.1 
 
Purpose of the subsidy  
 
 To promote the producing of high technology  products and software  products in Latvia. 
 
Form of the subsidy 
 
 Enterprise income tax relief  
Authority for the subsidy  
  Ministry of Finance 
 
To whom the subsidy is provided/ mechanism  
 
 Tax relief for the enterprises, that produce hi gh-technology products a nd software products, is 
30% from calculated enterprise income tax, if th e enterprises comply with the following criteria: 
 
• “supported“ products, the list of whic h is determined by the Cabine t of Ministers, constitute at 
least 75% of the net turnover of the ente rprises in the respective taxation period; 
• the enterprises have received an ISO 90 000, ISO 90001 or ISO 90002 certificate. 
 
The annual amount of the subsidy  
  In 2003 the total amount of enterprise in come tax relief granted for enterprises was 
LVL 0,179 million.    As this scheme was in force till the end of 2003, there are no figures for 2004.  
 
Duration of the subsidy   
 1999–2003   
2. Aid to companies with foreign capital participation 
Legal basis 
 
 Companies with foreign investment can recei ve tax relief on the enterprise income tax of 
between 50% and 100%, in accordance with the pro cedure that was once set out in the law “On 
foreign investments in the Republic of Latvia”.    G/SCM/N/123/EEC/Add.14 
Page 4  
 
 Form of the subsidy 
 
 Tax relief 
Authority for the subsidy   
  Ministry of Finance 
 
To whom the subsidy is provided mechanism   
 
 The enterprise income tax relief was intended to cover a period of four to eight years, starting 
with the first year that a company earned a profit.   The tax relief conditions  are differentiated on the 
basis of whether the company was registered be fore 12 March 1993 or between 12 March 1993, and 
1 April 1995, as well as on the basis of the share of  foreign capital in the equity capital of the 
company.    The annual amount of the subsidy  
 
 In 2003 enterprises with participation of forei gn capital received tax relief worth of LVL 2,74 
million.     In 2004 there was no aid awarded under auspices of this programme because all  enterprises 
with participation of foreign capita l that had enjoyed enterprise income tax relief saw the period of tax 
relief expire (1 since April 1995 no new enterprise in come tax relief has been awarded to companies 
with foreign investment).  
Duration of the subsidy   
 
 1991-2004   
II. POLICY OBJECTIVE: AID FOR REGIONAL DEVELOPMENT  
1. On Application of Taxes in Free Ports and Special Economic Zones 
Legal basis   
 
 Law "On Application of Taxes in Free Ports and Special Economic Zones“  
Authority for the subsidy   
 
 State Revenue Service and the relevant municipalities  
Form of the subsidy   
 
 Tax relief 
 
Mechanism   
 
 Enterprises in special economic zones (Liep āja and Rēzekne) and Riga and Ventspils free 
ports enjoy favourable tax treatment – a discount of 80% from the enterprise income tax and the 
immovable property tax.   
  G/SCM/N/123/EEC/Add.14 
 Page 5 
 
 
 To whom the subsidy is provided   
 
 According to the national legislation only the en terprises, that have been signed the agreement 
with The Board of special economic zones and free ports about the realization of business activities and initial investments in the territory of both sp ecial economic zones and free ports, may apply the 
tax rebates.  
 
The annual amount of the subsidy   
 
 In 2003 the total amount of the subsidy cons tituted LVL 1,615 million under this scheme.  
 In 2004 the forecasted amount of the subsidy is LVL 1,615 million
1.  
 Duration of the subsid y  
  2002–2017 
 
2. JSC “Latvijas Finieris” - Investment aid fo r ensuring more economi cal use of Latvian 
wood recourses and for contribution in reduction of unemployment level in some regions of Latvia 
Legal basis   
  Law On Enterprise Income Tax, Section 17.1. 
 
Form of the subsidy   
 
 Tax relief 
 
Authority for the subsidy   
 
 Ministry of Economics  To whom the subsidy is provided /mechanism   
 
 Ad hoc aid. Tax relief in respect of inv estments made within the scope of supported 
investment projects is applicable in the amount of 40 % of the total invested amount if enterprises 
conform to the certain conditions, for example, total amount of investments made should exceed 
10 million LVL and the period of investment should no t exceed 3 years.  Tax relief is applied in the 
taxation period in which the supporte d investment project is completed.   
 
The annual amount of the subsidy   
 
 In 2003 the total amount of the aid granted constituted LVL 0,397 million.  
 In 2004 the forecasted amount of the subsidy is LVL 0,397 million
2.  
 
                                                      
1 Provisional figures as final figures of 2004 are not yet available in cases of tax - related forms of aid 
because due to the national legislation the ac tual annual figures are obtained in autum 
2 Provisional figures as final figures of 2004 are not yet available in cases of tax - related forms of aid 
because due to the national legislation the ac tual annual figures are obtained in autum 
 G/SCM/N/123/EEC/Add.14 
Page 6  
 
 Duration of the subsidy   
 
 2004–2006  
3. Diversification of Rural Economic Acti vities Providing Alternative Income  
Policy objective   
 
 To increase the level of employment and economic development in rural areas of Latvia, where the standard of living is very low   Legal basis   
 
 The scheme is realized as one of th e measures under the SAPARD Programme for 
Agriculture and Rural Development for Latvia (2000-2006), which is financial assistance for 
structural reforms in agriculture and rural devel opment in the candidate countries of the European 
Union  
 
Authority for the subsidy   
 
 Ministry of Agriculture  Form of the subsidy   
 
 Grant  To whom the subsidy is provided /mechanism 
 
 Aid is foreseen for the investments of the enterprises with a design to develop non-
agricultural entrepreneurial activities thus ensuring alte rnative income in rural areas of Latvia.  Under 
the scheme the following sub-measures will be rea lized: rural tourism; development of technical 
assistance; production of alternative heating material and crafts.  The annual amount budgeted of the subsidy   
 
 In 2003 the total amount of public financing granted under the scheme amounted to LVL 2,81 
million which consisted of LVL 0,7 million financ ing from the national budget and LVL 2,11 million 
co-financing  from the European Union resources. 
 
 Accordingly in 2004 the total amount of public financing granted under the scheme amounted 
to LVL 6,36 million which cons isted of LVL 1,59 million financ ing from the national budget and 
LVL 4,77 million co-financing  from the European Union resources.  
Duration of the subsidy   
 
 2000–2006   
4. Support to specially assisted territories    
Policy objectivity   
 
 To promote development of less–favoured regions.  G/SCM/N/123/EEC/Add.14 
 Page 7 
 
 
 Legal basis   
 
 Law "On regional development”, Rules No.637 of the Cabinet or Ministers „Order of 
allowing and cancelling of the status for specially assisted territories” from 11 November  2003  Authority for the subsidy   
 
 The Ministry of Regional Development and Municipalities  
Form of the subsidy   
 
 Grant  
Mechanism   
  Law „On Regional Development” is in force from 23 April 2002.  This law replaced the 
previous Law ”On specially assisted regions” which was in force from 14 May 1999.   Status of a region requiring special support is granted to regions on the basis of specific criteria (economic and social development, infrast ructure indicators, index of the development of 
local municipally, etc.), as well as on the basis of  development plans which are prepared by the 
regions and which are evaluated by an inter-minist erial commission which consists of representatives 
from the Ministry of Regional Development and Municipalities as well as from agencies of development of regions.  According to the Rules of the Cabinet of Ministers, the maximum number of 
population, which is taken into account when the stat us of specially assisted region is applied to the 
populated territories, can not be higher than 25% of the total population of the country.  The status of 
special assisted territory is awarded for the period of 3 years. 
  In order to provide real financial support to  the regions that receive special support, a 
Regional Fund was set up in April 1998 which was governed by the Ltd. „Regional Development”.  
This organization was reorganized in April 2004 and the functions were expanded. Now  State 
Agency of Regional Development exists.  
 
 From the moment of the accession of Latvia into the European Union this programme is 
replaced by the aid scheme „Development of commerc ial activity in specially assisted regions” which 
is foreseen for the development of SMEs in specia lly assisted regions and is one of the measures of 
Latvia's Development Plan (SPD) 2004-2006.  There h as not been granted any aid within the frame of 
the new aid scheme till the moment. 
 
To whom the subsidy is provide:  
 
 The enterprises, that got the assistance w ithin this program, are qualified as small and 
medium sized enterprises, mostly of them are situated  in rural areas.  Major part of state aid from the 
Regional Fund went in order to cover part of credit in terest rates.  Another part went toward financing 
of municipal infrastructure development.  
The annual amount budgeted of the subsidy   
  In total LVL 0,665 million from the Regional F und’s money was spent in 2003 in order to 
assist regional development.    As this programme existed till the moment of the accession of Latvia in to the European Union 
there are no figures of aid in 2004. G/SCM/N/123/EEC/Add.14 
Page 8  
 
  
Duration of the subsidy    
 
 1999-01.05.2004.  
 
III. POLICY OBJECTIVE: AID FOR SMALL AND MEDIUM-SIZED ENTERPRISES  
1. The law "On Enterprise Income Tax"  
Policy objective   
  Alleviation of tax burden for SMEs 
 
Legal basis   
 
 Law on Enterprise Income Tax Section 17 
 
Form of the subsidy   
 
 Tax relief  
Authority for the subsidy  
 
 Ministry of Finance 
 
To whom the subsidy is provided /mechanism   
 
 The tax relief is in the form of a 20% discount on the calculated tax as set out in the law “On 
the enterprise income tax”.  It is important to note here that according to that law, only microenterprises – those in which the average numb er of employees does not exceed 25 people, with a 
balance value of not more than LVL 0,070 million and net turnover does not exceed LVL 0,2 million– 
can receive the relief.    The annual amount of the subsidy   
 
 In 2003 the total amount of enterprise income ta x relief for SMEs was LVL 3,852 million.  As 
this scheme was in force till the end of 2003, there are no figures for 2004.   Duration of the subsidy  
 
 1995-2003 
 
 2. Aid Scheme of Loan Guarantees of Latvian Guarantee Agency 
Legal basis   
 Protocol No.21 of the Board of the Latvian Guarantee Agency dated by 29/05/2003; Latvia's 
Development Plan approved by the Cabinet of Ministers on 18/03/2003; Concept of 2002 for the development of Latvian SMEs 
  G/SCM/N/123/EEC/Add.14 
 Page 9 
 
 
 Authority for the subsidy   
 
 The Guarantee Agency of Latvia  
Form of the subsidy   
 
 Guarantee  
To whom the subsidy is provided   
  LGA provides the support to SMEs. The aid is prohibited to activities linked to the 
production, processing or marketing of products lis ted in Annex I to the Treaty, purely trade 
operations as well as to export-related activities, name ly aid directly linked to the quantities exported, 
to the establishment and operation of a distribution ne twork or to the other current expenditure linked 
to the export activity.  Also aid contingent upon  the use of domestic over imported goods is 
prohibited. 
 
Mechanism   
 
 If commercial banks refuse to provide loans to SMEs aimed to the realization of initial 
investment projects because of too high risk invol ved then the LGA would provide the possibility for 
SMEs to sign guarantee agreements.  The scheme foresees the granting of guarantees for long and 
medium term loans issued to SMEs for investment in tangible and intangible assets 
 
The annual amount of the subsidy   
  In 2003 the aid element of the guarantees issued by the LGA constituted LVL 0,002 million 
and in 2004 this forecasted element is 0
3.  
 
Duration of the subsidy   
 
 18.06.2003-31.12.2006. 
 
 
3. Crediting of SMEs development 
Legal basis   
  The Concept of project on “Crediting of SME’ s development “, accepted by the Cabinet of 
Ministers, 15 November, 1999  
Authority for the subsidy   
 
 The  Mortgage and Land Bank of Latvia 
 
Purpose of the subsidy   
 
 As the successful operations of SMEs ensure social stability and promote long-term economic 
growth, an important condition for SME developmen t is the availability of loans.  However, 
commercial banks and other financia l institutions are often uninterested in issuing loans to SMEs 
because many SMEs do not have sufficient collateral or  an adequate credit history to receive loans as 
                                                     
 
3 Provisional figure as the fina l figures are not yet available G/SCM/N/123/EEC/Add.14 
Page 10  
 
 well as  the cost of servicing SME loans is also comparatively high.  The main purpose of this 
programme is to improve the ability of SMEs to r eceive loans so as to promote the modernisation and 
diversification of the Latvian economy and to en sure the development and improvement of SMEs 
operations.  Form of the subsidy   
 
 Soft loan  
To whom the subsidy is provided   
 
 Under this support programme the aid is gi ven to SMEs, which do not have sufficient 
collateral or an adequate credit history to receive lo ans, which are owned by women or located in less 
developed regions of the country.  These SMEs  have a good chance for rapid development as the 
result of business ideas, contacts, knowledge, etc., but with respect to which commercial banks or 
other financial institutions are not interested in providing financing. 
 
Mechanism  
 
 In 2001 the government in collaboration with the Latvian Mortgage and Land bank initiated 
to establish the support programme “Crediting of SME’s development”.  Aid under the auspices of 
this programme will be granted mainly for initial investments.  
 
The annual amount of the subsidy    
 
 In 2003 the aid equivalent for the soft loans serviced by the  Latvian Mortgage and Land bank 
was LVL 0,02 million and in 2004 it amounted to LVL 0,092 million.  
 
Duration of the subsidy   
 
 20.07.2001-31.12.2010. 
 
 
4. Crediting of SMEs development (second stage) 
Legal basis   
 
 Order No.649  of the Cabinet of Ministers from 7 November 2002  "On Crediting of SMEs 
development (second stage) 
 
Authority for the subsidy   
 
 The  Mortgage and Land Bank of Latvia  Purpose of the subsidy   
 
 As the successful operations of SMEs ensure social stability and promote long-term economic 
growth, an important condition for SME developmen t is the availability of loans.  However, 
commercial banks and other financia l institutions are often uninterested in issuing loans to SMEs 
because many SMEs do not have sufficient collateral or  an adequate credit history to receive loans as 
well as  the cost of servicing SME loans is also comparatively high.  The successful experience with 
the scheme’s first stage initiated to continue assistan ce of SMEs thus helping them to develop their 
operations.  G/SCM/N/123/EEC/Add.14 
 Page 11 
 
 
  
Form of the subsidy   
 
 Soft loan  To whom the subsidy is provide/ mechanism   
 
 Under this support programme the aid is given to SMEs   It is the aid scheme managed by the Latvia n Mortgage and Land bank which was initiated in 
collaboration with the government.  Aid under the ausp ices of this programme will be granted only for 
initial investments.  
The annual amount of the subsidy    
  In 2004 the aid equivalent for the soft loans serviced by the  Latvian Mortgage and Land bank 
was LVL 0,165 million.    
Duration of the subsidy   
 
 2003-2013 
 
 
5. The reorganization and development of rural areas 
Policy objective   
  To promote development of rural area of the country  
 
Legal basis   
 
 Latvia's Development Plan (SPD) 2004-2006    Authority for the subsidy   
 
 Rural Support Service  
Form of the subsidy  
  Grant 
 
To whom the subsidy is provided / mechanism   
  In accordance with Commission Regulation (EC) No 70/2001 of 12 January 2001 on the 
application of Articles 87 and 88 of the EC Treaty to  State aid to small and medium-sized enterprises 
aid in a form of grants will be provided for initial investment.  The sectors supported include the development of tourism and craft activities, the de velopment agricultural activities with a design to 
provide alternative income sources and other diffe rent services for rural economics and population.   
 G/SCM/N/123/EEC/Add.14 
Page 12  
 
 The annual amount budgeted for the subsidy   
 
 In 2004 the total amount of public financi ng granted under the scheme amounted to LVL 
0,185 million which consisted of  LVL 0,056 million financing from the national budget and LVL 
0,129 million co-financing  from the European Union resources. 
 
Duration of the subsidy   
 
 30.04.2004-31.12.2008.  
 
6. Aid scheme of Latvian export marketing (LEMAP) 
Legal basis   
 
 National Development Plan of Latvia (Dece mber 2001);  National Programme of Latvia's 
External Trade (December 1999); Market Control National Programme (27.02.2002.) 
 
Authority for the subsidy   
 
 The Development and Investment Agency of Latvia    Form of the subsidy   
 G rant 
 
To whom the subsidy is provided / mechanism   
 
 Within the frame of the scheme some trade ope rations of small and medium-sized enterprises 
could be supported in a form of grant by co-fina ncing of marketing expendi tures, participation in 
exhibitions and trade missions, training of staff, etc.   
The total amount of the subsidy   
 
 In 2003 the aid granted under the scheme amounted to LVL 0,19 million.   
Duration of the subsidy   
  Until 31.12.2003. 
  
7. Aid scheme of consultations for the start-up of eneterpreneurial activity 
Legal basis   
  Latvian SMEs Development Programme 2003–2006 
 
Authority for the subsidy   
 
 Ministry of Economics 
  G/SCM/N/123/EEC/Add.14 
 Page 13 
 
 
 Form of the subsidy  
 
 Grant 
 
To whom the subsidy is provided /mechanism    
 
 Under the scheme the newly established small and medium-sized enterprises would receive consultation on  different subjects, for example, taxes, accounting, market research, preparation of business plan, etc.  The total amount of the subsidy   
 
 In 2003 the aid granted under the scheme amounted to LVL 0,04 million.   
Duration of the subsidy   
 
 Until 31.12.2003.  
 
8. Aid scheme of projects' preparing for the European Regional Development Fund 
Legal basis   
 
 National Programme of Innovation 2003–2006  
Authority for the subsidy   
  Ministry of Economics 
 
Form of the subsidy 
 
 Grant 
 
To whom the subsidy is provided /mechanism   
  Within the frame of the scheme innovative business ideas are identified and SMEs are 
supported by consultation in working out qualitativ e projects for submitting them to the European 
Regional Development Fund thus ensuring the possib ility for SMEs to receive co-financing for the 
realization of their creative business ideas. 
 
The total amount of the subsidy   
 
 In 2003 the aid granted under the scheme amounted to LVL 0,08 million.   Duration of the subsidy   
 
 Until 31.12.2003.  
 G/SCM/N/123/EEC/Add.14 
Page 14  
 
 9. The Development of Non-Agricultural Entrepreneurial Activities 
Policy objective   
 
 To promote development of rural area of the country   Legal basis   
 
 Law on Regional Development, Conception on development of rural areas accepted by the 
Cabinet of Ministers on 23.04.2002.  Authority for the subsidy   
 
 Ministry of Agriculture   
Form of the subsidy  
  Grant, soft loan and guarantee 
 
To whom the subsidy is provided /mechanism    
  Aid is granted for development of SMEs in rural areas of Latvia which qualify for regional 
aid.  Thus the aid scheme was crea ted in order to diversify the sphe res of entrepreneurial activities in 
countryside and to facilitate setting-up of SMEs, wh ich are related with the production of goods and 
providing of services in the sectors other than agricu lture.  Development of assisted regions was taken 
into account in defining scope of the aid benefi ciaries.  Aid is granted through different aid 
instruments: grants, soft loans and guarantees. 
 
The annual amount budgeted for the subsidy   
 
 In 2003 and 2004 the aid granted under the scheme in the form of grants amounted to LVL 1,301 and 0,64 million respectively and in the form of soft loans – to LVL 0,005 and 0,004 million respectively.  In 2003 there was no aid granted in the form of guarantees wi thin the frame of the 
scheme but in 2004 this aid was LVL 0,001 million.  
 
Duration of the subsidy   
 
 Until 01.05.2004. 
 
 
10. Regulation on granting state aid to Latvian enterprises for participation in international 
fairs and exhibitions  
Policy objective  
  To provide a support of Latvia n small and medium sized enterprises for the participation in 
international exhibitions and fairs and taking part in trade missions.  
 
Legal basis   
  Planned amount of grants are included in the annual Law on State Budget 
  G/SCM/N/123/EEC/Add.14 
 Page 15 
 
 
 Authority for the subsidy   
 
 Ministry of Economics  
Form of the subsidy  
  Grant 
 
To whom the subsidy is provided/ mechanism  
  The financing was awarded from the national budge t.  This aid was managed by the Ministry 
of Economics and business support orga nisations.  The money was spent for ensuring participation of 
Latvian SMEs in international e xhibitions and fairs, and  marketing activities of the enterprises in 
relation with these affairs under this programme.  The annual amount budgeted for the subsidy   
 
 In 2003 the programme of support amounted to LVL 0,1 million.   In 2004 there was no such aid granted.  Duration of the subsidy   
 
 01.11.2001-01.01.2008.   
Table 1 
State aid to the manufacturing/ services – 2003 and 2004 
Breakdown of aid according to objective 
 
Year Horizontal objectives 
 
 SME Other objectives  
 Regional aid  TOTAL 
in Million 
LVL4 
 
Million LVL 
2003 5,590 7,519 
 5,487 18,596 
2004 1,087 4,790 8,372 14,249 
As a % of total aid to manufacturing/ services 
2003 30,06 
 40,43 
 29,51 100 
2004 7,63 
 33,62 58,75 100 
 
__________ 
 
 
                                                      
4 1 LVL = 0,7028 EUR