Banking & Finance 2025

Last Updated October 09, 2025

Latvia

Law and Practice

Authors



BERG is a Latvian law firm with more than 20 professionals, recognised for its strength in banking and finance. Based in Latvia, the firm advises international and local clients on complex financial matters including litigation, arbitration, financial institution licensing, cross-border lending, capital markets, restructuring, and regulatory compliance. BERG’s expertise also spans related areas such as corporate law, M&A and insolvency, enabling it to provide comprehensive, finance-focused solutions. The firm has represented clients in cross-border transactions and high-value disputes before courts and arbitral tribunals. What sets BERG apart is its dual perspective: practical experience combined with academic engagement. Two of the firm’s professionals organise and lecture in banking law at the University of Latvia, keeping it closely aligned with regulatory developments and ensuring clients benefit from innovative, strategic, and reliable advice in a rapidly evolving financial market.

Impact of Recent Economic Cycles

The direction and trends of the Latvian loan market have been significantly influenced by recent economic cycles and the evolving regulatory environment. While the decline in interest rates and favourable income dynamics created enabling conditions for lending, particularly evident in the housing loan segment where lending markups decreased, broader growth remained constrained. Weak external demand, rising labour costs outpacing productivity, and heightened geopolitical uncertainty have dampened both investment activity and banks’ willingness to extend credit, resulting in persistently subdued corporate lending and some of the highest interest rates in the euro area.

Regulatory Environment

While recent legislative amendments and policy initiatives – such as measures aimed at reducing refinancing costs and fostering greater competition within the banking sector – have contributed to a modest improvement in borrowing conditions, persistent structural constraints within the Latvian economy continue to hinder the prospects for sustainable and broad-based credit market expansion. Furthermore, evaluation done by the Bank of Latvia of the government’s recent tax reform concludes that its impact is predominantly temporary, stemming primarily from an increase in private consumption driven by higher net wages, and that it is unlikely to generate meaningful structural progress or strengthen the long-term competitiveness of the Latvian economy.

Global conflicts have had a significant, albeit indirect, influence on the Latvian loan market, shaping its direction, terms, and overall trends. Heightened geopolitical tensions, particularly the Russian invasion of Ukraine and broader global trade frictions, have generated uncertainty, weakened external demand and dampened domestic lending activity. Despite falling inflation and gradual interest rate cuts by the ECB, Latvian banks have maintained a cautious stance, marked by high collateral requirements, subdued credit supply, and some of the highest lending rates in the euro area.

While households have benefited from declining mortgage markups, corporate borrowers – especially export-oriented firms – continue to face structural barriers such as high refinancing costs and limited competition in the lending market. Thus, although monetary easing has created conditions more favourable to lending, the geopolitical environment and structural constraints have prevented a full recovery in credit growth. Overall, conflicts have reinforced caution and risk aversion in Latvia’s financial sector, slowing the transmission of more accommodative monetary policy into broader lending activity, and leaving the loan market constrained despite otherwise enabling macroeconomic conditions.

The traditional capital market segments in Latvia, including the stock and bond markets, remain relatively small compared to other euro area countries.

Recent years have seen an unprecedented increase in the bond market, with corporate bonds emerging as the primary financing instrument due to the high interest rates on bank loans. The popularity of public offerings among investors has been supported by a low entry threshold. In Latvia, high-yield (junk) bonds are not very common. Currently, bonds with relatively high coupons are trading above their issue price (trading levels above 100), which indicates that investors view them as safe and reliable.

Companies are increasingly turning to alternative lenders, not only to complement traditional bank loans but also when they need quick access to capital or short-term financing. The key drivers behind this choice are the faster, more streamlined funding process and the greater flexibility offered in repayment terms.

There has not been a significant growth in non-bank consumer lenders. On the contrary, since 2019 the number of licensed non-bank consumer lenders in Latvia has declined significantly – from 61 to 37 companies – representing a reduction of nearly 39%. The most notable decrease occurred during the first half of 2021. However, since 2023 the number of licensed non-bank consumer lenders has remained stable.

As a result of growing awareness and interest in the finance market, private debt and bond/private bond issuance are growing. For example, in the last year Latvia saw record bond issuance volumes, with increased participation from retail investors and companies using bonds for refinancing and expansion. In order to minimise costs for borrowers, financial and banking institutions are increasingly using credit consolidation and refinancing. Furthermore, in the banking sector, there is rising use of non-bank instruments and support via EU-backed guarantees and concessional finance: the European Investment Fund (EIF) and Noviti Finance entered into a guarantee agreement under InvestEU to provide tailored micro-loans to small businesses in Latvia without collateral in many cases.

Latvia is progressively reinforcing its ESG and sustainable finance framework, guided by both EU regulations and national initiatives. Notable steps include the creation of regional ESG data platforms (such as the ESG Hub and SusTool), enhanced institutional transparency through climate-related disclosure reports from the central bank, which detail significant reductions in portfolio carbon footprints, and the continued use of green financing instruments.

The sectors most influenced are finance and banking – where ESG factors are now embedded in lending and investment practices – as well as green infrastructure fields such as renewable energy, sustainable construction, and transport, which remain the main beneficiaries of sustainability-linked financing.

Latvia is establishing itself as a regional hub for sustainable finance, with ESG considerations becoming a core element of investment strategies, lending decisions, and corporate governance.

Credit Institution

If an institution qualifies as a credit institution it must be granted a licence or permit by the European Central Bank, in accordance with the Credit Institutions Law. Obtaining such a licence is a complex and time-consuming process that unfolds in several stages. It begins with a preparatory phase, during which the Bank of Latvia collects detailed information regarding the sources of funding, the bank’s founders, and its prospective officials. This is followed by the submission and evaluation of the application, resulting in the decision-making stage, which is carried out in consultation with the European Central Bank.

B2C

If a non-bank lender provides credit to both businesses and consumers but does not qualify as a credit institution, it is required to obtain a specialised licence issued by the Consumer Rights Protection Centre for the issuance of loans to consumers. The cost of this licence is EUR250,000 for issuance and EUR55,000 annually for supervision of the credit service provider’s activities.

B2B

Conversely, if a non-bank lender does not meet the criteria of a credit institution and provides financing exclusively to other companies not consumers, no licensing is required to operate in a B2B context.

Foreign lenders are permitted to provide loans in Latvia, but they must comply with Latvian legislation, including regulations on obtaining a licence and opening a representative office in Latvia in accordance with the Credit Institution Law. A credit institution of an EU member state can provide financial services in Latvia via the freedom to provide services or by establishing a branch without the need to obtain a licence in Latvia, if the requirements specified in the Credit Institution Law are met. In such instances, the branch continues to fall under the prudential oversight of the authority in its home member state while simultaneously adhering to the relevant regulatory obligations in Latvia. If borrowers themselves seek out foreign lenders, and these lenders do not market or advertise their activities to Latvian customers, they are not required to obtain a licence.

No legal restrictions apply to the receipt of securities or guarantees by a foreign lender that would differ from those applicable to a Latvian lender.

In Latvia, foreign exchange transactions and the repatriation of capital are not subject to any restrictions. Although, under national sanctions, if financial restrictions are applied to a designated subject, all persons must, without delay, freeze the subject’s assets, deny access to funds or economic resources, and refrain from providing any financial services specified in the national sanctions, including through third parties acting on their behalf or for their benefit.

The borrower’s use of proceeds from loans or debt securities is generally not restricted by law, unless specific contractual or regulatory conditions apply. Certain loan types, such as EU co-financed or state-supported loans, may carry statutory or programme-specific restrictions on the permitted use of funds. Moreover, the borrower must comply with the AML, sanctions and counter-terrorism financing regulation.

Agent Concept

Latvian Civil Law and Commercial Law recognise the concept of agency, under which an agent may act on behalf of a principal. This relationship is regulated by the rules on representation, permitting the agent to carry out legal acts within the limits of their authority. The principal is responsible for the actions of the agent, as long as they are performed within the authorised scope.

In addition, in syndicated financings a collateral agent may be appointed for the purpose of facilitating the satisfaction of claims arising from the syndicated loan. The same applies to collateral agents for debt securities, which may be appointed for the purpose of facilitating the satisfaction of claims arising from debt securities.

Trust Concept

Contrary to the concept of agency, there is no specific legislation recognising trusts. The Latvian legal framework does not provide for the creation or administration of trusts, and such arrangements do not have the status of a legal personality. The sole form of regulation applicable to trusts in Latvia is found in the Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing, which treats trusts as legal entities primarily for the purpose of identifying and monitoring their beneficiaries. Foreign trusts and comparable legal entities may operate in Latvia via branches or representative offices of foreign commercial companies established by them. During registration in Latvia, these entities are required to provide information regarding their ultimate beneficial owner (UBO).

An alternative to trusts in the Latvian legal system is provided by foundations and funds, which are recognised as legal entities functioning similarly to trusts, with property legally separated from their founders and supporters. Latvian investment funds must be officially registered and managed by a licensed or registered management company, ensuring regulatory compliance and professional oversight. In recent years, the use of foundations and funds has grown significantly, becoming a popular and effective instrument for asset management.

In Latvia, loan transfer mechanisms are primarily based on cession (assignment) and, in certain cases, novation.

Cession

The most common mechanism for transferring loans is cession. The lender transfers its rights to another party under an agreement. The borrower’s consent is not required, but the borrower must be notified for the transfer to be enforceable against them.

Novation

Less common, novation extinguishes the original obligation and replaces it with a new one. This requires the borrower’s explicit consent and is typically used when substantial changes to the loan terms are involved.

Transfer of Associated Security Package

In the case of cession, the benefit of security interests follows the loan automatically under Latvian law; however, in the case of novation, the original claim, along with all related rights, shall be regarded as terminated, as if fully performed. A new claim shall then be established in its place, which shall not inherit the ancillary rights of the original claim, unless agreed otherwise. However, in both cases the transfer requires registration with the relevant public registers (eg, the Land Register for mortgages or the Commercial Pledge Register for commercial pledges) to be fully effective against third parties and ensure protection of the security rights.

A borrower or sponsor may generally buy back debt, provided that there is mutual agreement among all parties and that the terms of the original debt agreement are adhered to. This is usually done through assignment or novation. However, debt buybacks are not very common in Latvia.

There are no specific provisions under national law that directly regulate the concept of “certain funds” with respect to public acquisition finance transactions. Under national law, in the case of a request to buy back shares in a company whose shares have been admitted to trading on a regulated market, the offeror shall submit to the competent authority a document certifying that sufficient resources are available to fulfil the obligations provided for in the offer.       

Refinancing Mortgage Loans

Since 2024, amendments to several laws and regulations have come into force to simplify mortgage refinancing for residents between lenders, including reducing the costs of refinancing.

Collateral Agents

Since the summer of 2024, the appointment, replacement, and dismissal of syndication credit collateral agents and collateral agents for debt securities, as well as their rights and obligations and the ownership of financial resources and other property under the jurisdiction of the collateral agent, have been established in the Credit Institutions Law and the Financial Instruments Market Law.

Sanctions

Given the geopolitical situation, there is an increasing focus on sanctions, and financing transactions must be conducted in clear compliance with the resulting rules.

Latvia does not have a specific usury law setting an absolute maximum interest rate, but consumer credit regulations and statutory provisions effectively limit exploitative lending. The Consumer Rights Protection Law considers any consumer credit agreement with a total cost exceeding 0.07% per day of the loan amount as non-compliant. Under the Civil Law, the statutory interest rate for late payments is set at 6% per annum, while contracts for goods or services to consumers carry a rate 8% above the European Central Bank’s refinancing rate, unless otherwise agreed. Additionally, loans that deliberately exploit a borrower’s financial difficulties through excessive terms may trigger criminal liability. Under Latvian law, interest that is unreasonable or not in accordance with fair dealing practices shall be regarded as unlawful; however, this is determined by the courts on a case-by-case basis. Although interest generally may not be charged on interest, it may be calculated if a special promissory note is issued for an outstanding debt, or if a new promissory note replaces an earlier one covering the principal plus any outstanding interest. In such cases, the creditor may calculate new interest on the outstanding interest.

Generally, there are no specific rules in Latvia requiring the public disclosure of financial contracts, as trade secrets and confidential information are protected by law. However, certain transactions may need to be disclosed to competent public authorities or during due diligence processes if legally required.

A company with shares listed in a regulated market shall provide information about any transaction that is significant or may significantly affect its financial position or its ability to carry out certain types of commercial activities. Disclosure is also required if the transaction may materially affect the valuation of its listed shares, thereby ensuring investor protection and the proper functioning of the market. However, in this case, it is not stipulated that the financial contract itself must be disclosed; only the main information about the contract must be provided.

Payments of principal, interest or other payments made to lenders are generally not subject to withholding tax. In Latvia, borrowers are subject to corporate income tax on interest payments to the extent that average debt from non-bank lenders exceeds four times the company’s equity (adjusted for revaluation and non-distributable reserves) as reflected at the start of the reporting year.

Generally, transactions involving loans are exempt from taxation. Nevertheless, corporate income tax may apply in specific instances, particularly where interest payments are deemed to constitute a distribution of profits, such as in the case of dividends, thereby triggering a tax obligation. Also, in certain cases, a loan granted to a related party (company) may be treated as a deemed profit distribution and consequently become subject to corporate income tax. Banks and non-bank consumer lenders, however, must pay corporate income tax every year. The corporate income tax rate is 20% applicable to the taxable base.

From 2025, Latvian-registered credit institutions and branches of foreign credit institutions in Latvia are liable to pay solidarity contributions each quarter for the next three years. The calculation of the contributions is based on an increase in the bank’s or branch’s net interest income exceeding the average net interest income in five financial years (2018–2022) by more than 50%, multiplied by the base coefficient for solidarity contributions and applying a rate of 60%.

Generally, interest payments to non-resident lenders are exempt from withholding tax. However, lenders associated with a tax haven jurisdiction are subject to a 20% withholding tax. Furthermore, payments to foreign affiliates that do not conform to standard commercial terms – ie, terms that would be agreed upon between unrelated parties – may be treated as distributions of profit and, as a result, be liable to the 20% corporate income tax.

It is advisable to avoid routing loans through jurisdictions considered tax havens, as such structures may trigger the reclassification of interest payments as profit distributions subject to corporate income tax. It is also crucial to maintain detailed and well-organised documentation demonstrating that all terms and conditions of the loan – such as interest rates, repayment schedules, and other contractual provisions – are consistent with what independent, unrelated parties would reasonably agree upon, minimising the risk of adverse tax treatment.

Latvian law allows different types of assets to be used as collateral. Lenders typically choose to take security over:

  • real estate by mortgages;
  • movable assets (including different intangible movable assets, such as rights and claims), stocks, bonds and shares by commercial pledges; and
  • different financial instruments, money (except banknotes and coins), credit claims by financial pledges.

A general rule for the pledge to be enforced is the necessity to conclude an agreement where the security is sufficiently described and the claim on the basis of which the security is established, is specified. Even though not all pledges require registration, the establishment of the most common types of pledges – mortgage and commercial pledge – all demand registration in public registers to become effective against third parties as well and therefore will be examined further.

Mortgages on Real Estate

The prerequisite to establishing a mortgage is its registration (corroboration) in the Land Register, based on different documents which must be submitted to the Land Register. Other formalities include the conclusion of a mortgage agreement or a court ruling, as well as payment of state fees. The preparation of the documents and their submission to the Land Register may take from a few days to a few weeks, depending on the complexity of the case. The examination of the request for corroboration itself shall be conducted within ten days; however, the term can be extended up to one month. The cost of corroboration depends on many different factors, for example, the value of the immovable property and the amount of the loan.

Mortgages on Ships

For a ship to be used as security, the ship must firstly be registered in the Latvian Ship Register. The ship or a part of it may therefore be used as security for a claim by drawing up a debt obligation on the ship. The debt obligations on ships may therefore be registered in the same order as they are presented. Since the mortgage registration depends largely on the registration of the ship itself, the payable fees might be steep, and it might take a long time to establish the mortgage. Both factors, however, depend on the ship type, net tonnage of the ship and other criteria.

Commercial Pledges

The establishment of commercial pledges does not require their registration in the Commercial Pledge Register (held by the Enterprise Register); however, for them to become effective against third parties or for the pledgee to exercise his/her rights, registration is required. A commercial pledge can be subject to registration if it has been created on the basis of a contract or court ruling. All the documents (including an application, commercial pledge contract, the document from which the claim to be secure is derived, etc) must be submitted to the Enterprise Register, which takes five working days to review the submission. Note that certain assets, such as vehicles, require additional registration in particular public registers, therefore both the time and costs of the registration may vary from case to case.

Financial Pledges

Unlike mortgages and commercial pledges, financial pledges can only be established on the basis of an agreement. Generally, the establishment of financial pledges requires only the conclusion a financial pledge agreement, as well as the ability to somehow be able to prove that the transfer of the collateral has happened. The amount of time spent on the establishment of the financial pledge, as well as the costs, depend on the specifics of the agreement.

Latvian law permits the establishment of a commercial pledge which can serve a similar purpose by allowing creditors to secure debts with even the entirety of a merchant’s or legal person’s assets. Certain categories, however, are excluded from being pledged in accordance with the commercial pledge rules – such as ships, financial instruments recorded in an account, financial claims under the Financial Collateral Law, monetary funds, and claims arising from cheques or bills of exchange. A commercial pledge becomes effective against third parties only once registered in the Commercial Pledge Register. Until registration, the pledge agreement remains binding between the parties, though unenforceable externally.

Furthermore, a pledge may secure any claim – whether existing or future – as well as ancillary obligations, provided that the agreement specifies a maximum liability amount. Should the secured obligation remain unfulfilled, the pledgee is entitled to take possession of the pledged property and proceed with its sale. Such a sale is generally conducted through auction, unless the pledgor has expressly granted and registered the pledgee’s right to sell the property directly without auction.

Downstream Guarantees

There are not many restrictions provided in the Latvian law for situations when a parent company can guarantee the obligations of its subsidiary and this type of transaction is generally allowed.

Upstream Guarantees

Upstream guarantees are slightly riskier than downstream guarantees since they are subject to more restrictions. As laid out in the Commercial Law, a company (the subsidiary) can only make disbursements to its shareholder (the parent company) in the form of dividends, through a reduction of equity capital, or upon liquidation of the company when assets are distributed among shareholders. Accordingly, other types of distributions may be treated as unlawful. To mitigate legal risks, an upstream guarantee must therefore be supported by evidence demonstrating that it does not constitute an impermissible distribution and that no loss of value arises from providing it. While such guarantees are possible, they must be carefully justified and substantiated.

Cross-Stream Guarantees

Like upstream guarantees, cross-stream guarantees have a risk of being interpreted as unlawful transfers between related companies.

Potential Credit Support Issues

Since upstream and cross-stream guarantees are very vulnerable, the enforceability risk for lenders is reduced. This might result in the lenders insisting on multiple layers of support, such as security over assets. If the lender is a bank, a legal opinion addressing the confirmation that the guarantees are valid might be required.

Latvian law is relatively strict regarding this matter and expressly prohibits the financing of the acquisition of the target’s own shares. This may include not only granting loans, but also providing guarantees, pledging collateral, selling assets at a reduced price, or any other transaction that reduces the company’s assets or increases its liabilities in order to facilitate the purchase of shares. Although under national law this restriction applies only to joint-stock companies (akciju sabiedrība), a few court cases have extended it to limited liability companies (sabiedrība ar ierobežotu atbildību) as well. In contrast to other countries of the European Union, Latvian law does not provide a whitewash or approval mechanism that could legitimise such financial assistance – the prohibition is absolute.

Among the risks already listed, the main risks regarding the grant of security guarantees may be connected to the necessity to receive the approval of the shareholders, as well as the supervisory authorities which may need to approve material guarantees or disposal of assets in some cases if such requirements have been set out in the establishing documents of the company.

Generally, security interests and guarantees come to an end once the underlying obligation has been fully satisfied; however, there are some instances laid out in the Latvian Law when a pledge right is terminated despite the existence of the claim, for example when the secured creditor acquires ownership of the property pledged to it. The method of releasing security largely depends on the type of collateral/security and the register where it was registered.

Mortgages

A mortgage can be released by the secured creditor submitting a notarised statement to the Land Register. Accordingly, the judge examines the request and satisfies or disregards it, afterwards entering the extinguishment of the pledge right in the Land Register.

Commercial Pledges

According to the Commercial Pledge Law, all information about a commercial pledge, including the deletion of the commercial pledge, shall be entered in the Commercial Pledge Register. A commercial pledge may be subject to deletion if a court ruling has been received or the secured creditor has submitted an application for deletion to the Commercial Pledge Register.

Financial Pledges

Since financial pledges are not registered in any public register, there is no necessity to submit anything to any state institution for its deletion. Therefore, the assets secured by a financial pledge are returned to the pledgee automatically upon the discharge of the obligations.

According to Latvian law, the general principle is that priority is granted to mortgages and commercial pledges registered in the Land Register or the Commercial Pledge Register. The public register must specify the amount to which the pledge right applies, and priority is granted only to that extent. In any event, the pledge cannot exceed the value of the secured claim.

As multiple pledge rights may be registered over the same asset, it is important to note that their priority depends on the order of registration in the relevant public register. Pledge rights that are not registered in a public register do not enjoy any priority rights.

Latvian law also permits contractual subordination between secured creditors; however, this action is subject to a few limitations. As set out in the Commercial Pledge Law, the priority right may be changed by a written agreement. This contractual subordination typically is in force during the insolvency of the borrower as well; however, this does not grant the secured creditors the right to alter the waterfall of payments set out in the Insolvency Law – for example, the necessity to firstly cover the costs of the insolvency proceedings (see 7.2. Waterfall of Payments).

Apart from the already mentioned methods of contractual subordination, as well as the registration of the pledges in a public register, there are no additional mechanisms available under Latvian law by which a lender can give priority to its security interest. Nevertheless, under Latvian law, when a pledged immovable property is sold, for example, in the context of enforcement proceedings, the claims of employees regarding payment of salaries, tax payments, as well as other payments related to administration activities, are satisfied first. Additionally, if the borrower is subject to insolvency proceedings, the rules set out in the Insolvency Law must be followed (see 7.2. Waterfall of Payments).

Under the Civil Law and the Commercial Pledge Law, a secured lender (pledgee) is entitled to take all necessary steps to sell the pledged asset if the secured claim has not been satisfied within the agreed timeframe or in the event of other circumstances equivalent to non-performance. The secured lender can enforce its collateral if payments on a claim by a pledgee are divided between several time periods and there is default in regard to any of such time periods, unless agreed otherwise between the parties. Therefore, the primary circumstance necessary for the enforcement of a collateral is the failure of the debtor to properly satisfy the secured lender’s claim. There are, however, specific rules that apply only to certain types of collateral.

Mortgages

Latvian law provides that mortgages can only be enforced by a sale on the open market in cases when the debtor has expressly granted such rights to the secured lender; otherwise, the pledged property can only be sold by way of auction through the courts. Nevertheless, the secured lender can enforce the mortgage by submitting an application for uncontested enforcement of obligations in case of satisfaction of the application or by an application for the voluntary sale of immovable property at auction through the courts.

Commercial Pledges

As provided by Latvian law, commercial pledges can firstly be enforced through court if the commercial pledge right is enforced through the process of uncontested enforcement of obligations or by a court decision if the commercial pledge has been created on the basis of a court decision itself as well. Nevertheless, a commercial pledge can be enforced through an out-of-court procedure as well by acquiring possession over it and selling it afterwards. The type of sale, however, depends on whether the secured lender has been granted the right to sell the asset without an auction. The default is through an auction.

Financial Pledges

According to the provisions of the Financial Collateral Law, once the event of enforcement has occurred, the secured lender can act with the financial pledge freely, without the performance of additional procedures, as long as the actions comply with the provisions and conditions of the financial pledge agreement. The specific way of enforcement depends on what is used as a collateral in the fulfilment of financial obligations.

Choice of a Foreign Law as the Governing Law

Typically, a foreign law can be the governing law of a contract, and this is made possible by the Rome I Regulation that is binding on Latvia as a member of the European Union. Moreover, the Rome I Regulation provides that this choice may be rejected only if the selected law is manifestly incompatible with Latvian public policy. However, certain mandatory provisions of Latvian law will still apply even when the governing law is a foreign one, such as rules designed to protect weaker parties. In addition, aspects such as the required form of the agreement must comply with Latvian law, otherwise the agreement may be deemed invalid in Latvia.

Submission to a Foreign Jurisdiction

Similarly to the choice of a foreign law as the governing law, Latvian law generally allows parties to agree that disputes emerging from the contract can be submitted to a foreign court. This provision, however, shall be considered and evaluated in conjunction with different conventions to which Latvia is a party, such as the provisions laid out in the Hague Convention on Choice of Court Agreements of 30 June 2005, as well as European Union laws.

Waiver of Immunity

Latvian courts will recognise and give effect to waivers of immunity, particularly in commercial transactions, but enforcement will not extend to assets that enjoy absolute immunity (eg, diplomatic or military property, central bank assets, etc).

Judgments given by a Foreign Court

Since Latvia is a member of the European Union, it is bound by the rules laid out in the Brussels I bis Regulation. The Regulation provides for general “free movement of judgments”, meaning that no prior judgment recognition procedure needs to be concluded when enforcing a judgment given by a European Union member state court.

As for judgments given by a non-European Union member state court, the provisions laid out in the bilateral and multilateral treaties, which have been signed and ratified by Latvia, must be considered. For instance, judgments given by foreign courts can be enforced under the Lugano Convention or Hague Convention on Choice of Court Agreements, which Latvia and many non-European Union countries are a party to. If no treaty exists between Latvia and the foreign country, Chapter 77 of the Civil Procedure Law applies, stipulating that the judgment will be recognised if none of the grounds for non-recognition are present.

Arbitral Awards

Similarly, enforcement of arbitral awards issued by a foreign court is made possible because Latvia is a party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). Under this Convention the judgment is enforceable without a retrial on the merits.

It is significant to note that there are some exceptions when the judgment or arbitral award cannot be enforced without reviewing the substance of the case. For instance, the enforcement of a judgment or an arbitral award can be refused if it is manifestly contrary to the public policy of Latvia.

Generally, there are no special restrictions or provisions a foreign lender should follow other than the rules that apply to domestic lenders as well. The success of a foreign lender’s ability to enforce its rights under a loan or security agreement depends, among other things, on compliance with formalities and awareness of public policy constraints.

Under Latvian law, once insolvency is declared by a court, all individual enforcement actions are suspended. Nevertheless, the Insolvency Law allows secured creditors – whose claims are backed by a commercial pledge or mortgage – to enforce their loans, for example by requesting the sale of the debtor’s pledged property two months after the start of insolvency proceedings. Secured creditors also have a stronger position in legal protection proceedings, as they can review and approve or reject the proposed measures included in the plan of measures before they take effect. Whether a lender can enforce its loan ultimately depends on the order in which creditors and other parties are paid (see 7.2. Waterfall of Payments).

The Insolvency Law provides that the waterfall of payments regards settling the claims of creditors of a legal person is the following:

  • the costs of insolvency proceedings, including the fees of insolvency administrators and other expenses (these costs are paid before any of the creditors’ claims are addressed);
  • the claims of the legal person’s employees, for example work remuneration and reimbursement for annual paid leave (despite being unsecured creditors, they are a part of a specific category and therefore receive priority);
  • the tax claims of the tax administration (creditor) which have been submitted within the time limit for submission of claims of creditors listed in the Insolvency Law; and
  • the claims of unsecured creditors, as well as the non-secured part of the claims of secured creditors which were not covered in the claims of secured creditors.

Secured creditors benefit from stronger protection and follow a separate settlement procedure. The insolvency administrator sells the pledged asset at the highest possible price, and secured creditors are paid from its value with priority over all others. The rest of the claim which was not settled by the sale of the pledged asset remains unsecured and therefore joins the pool of other unsecured creditors, subject to the waterfall of payments listed above.

The duration of insolvency proceedings varies depending on their complexity and other factors, but it is not unusual for the process to last two years or longer. Recovery levels for creditors are typically low, with unsecured creditors in particular often receiving minimal returns.

The Insolvency Law provides two restructuring tools to support early intervention and help viable legal persons reach agreements with creditors, as outlined below.

Legal Protection Proceedings

Legal protection proceedings are a procedure that allows a legal person in financial difficulty – or anticipating difficulty – to restore its solvency through remedies such as postponing payments or reorganising the legal person (if included in the plan of measures).

An important part of legal protection proceedings is preparing a plan of measures, which must be drafted by the legal person, agreed with the majority of creditors, and submitted to the court for approval after the legal protection proceedings have been initiated in court.

Extrajudicial Legal Protection Proceedings

Similarly to legal protection proceedings, a plan of measures must also be developed in the case of extrajudicial legal protection proceedings, except in this case the plan of measures must be developed and co-ordinated with the creditors before going to court and should therefore be submitted to the court together with the application for the commencement of proceedings. All things considered, this method is better suited to legal persons likely to reach agreements with most creditors without the risk of individual enforcement actions, and which face financial issues that do not require immediate intervention but allow time for planning and co-ordination.

Lenders should be aware of several risks when dealing with parties close to insolvency.

First, as stated in 7.1. Impact of Insolvency Processes, entering into agreements with a debtor already in insolvency is generally discouraged, since individual enforcement actions are suspended. Therefore, as mentioned in 7.2. Waterfall of Payments, it is advised for lenders to secure their claim by a commercial pledge or mortgage over the debtor’s assets. However, even secured claims may not be fully recoverable, as recoveries depend on collateral value and insolvency costs deducted after sale.

Second, if the legal person enters legal protection proceedings or extrajudicial legal protection proceedings and the court approves the plan of measures (see 7.4. Rescue or Reorganisation Procedures Other Than Insolvency), lenders may find repayment schedules structured unfavourably. Approval requires only a majority of creditors, not unanimity, which may disadvantage certain lenders.

Third, the insolvency administrator may challenge and annul certain agreements made shortly before insolvency, potentially causing unprecedented losses for lenders.

As evidenced by the growing number of sectors using project finance, its role in Latvia has increased significantly in recent years. It is particularly notable in renewable energy, including solar power parks and hybrid solar initiatives, as well as in road and transport infrastructure, where Latvia is increasingly embracing public-private partnerships.

Public-private partnerships (PPP) are still developing in Latvia, so only a few transactions have taken place. A landmark project is the Ķekava Bypass – the first large-scale PPP in Baltic road construction. The European Investment Bank (EIB) and the Nordic Investment Bank (NIB) each lent EUR61.1 million to finance the project, which involved designing, building, financing, and maintaining a bypass for the E67/A7 motorway through Ķekava. The bypass was completed and opened to traffic in 2023.

The core legislative framework explaining the implementation of PPPs in Latvia is the Law on Public-Private Partnership which was adopted in 2009 but has since undergone a few amendments. The Law on Public-Private Partnership must be read together with the Public Procurement Law. Many rules are also listed in the Cabinet Regulation No 1152 of 6 October 2009 “Procedure for the Conduct of Financial and Economic Calculations, Determination of the Type of a Public-Private Partnership Agreement and the Provision of an Opinion Regarding Financial and Economic Calculations” which prescribes the financial/economic calculations to determine the PPP type, as well as determines the criteria for accounting for PPP assets. Overall, the legal and procedural framework for PPPs in Latvia is both detailed and strictly regulated.

Public sector contracts – such as PPPs, concessions, and public procurement agreements – are governed by Latvian law, primarily the Law on Public-Private Partnership and the Public Procurement Law. By contrast, purely private contracts between project participants, such as construction contracts or shareholder agreements, may be governed by foreign law if the parties agree.

Disputes with public entities fall under the jurisdiction of Latvian administrative and civil courts, as Latvian law and public policy prohibit submitting such contracts to international arbitration or foreign courts. However, disputes arising from private project contracts may be resolved through international arbitration or foreign courts if agreed by the parties.

Foreign entities can acquire real property in Latvia, though some restrictions apply. Under Section 28 of the Law on Land Privatisation in Rural Areas, land may be owned by citizens of EU and EEA countries, Switzerland, and states party to the OECD Capital Liberalisation Code. Foreign companies from these jurisdictions must also meet conditions, such as being a taxpayer in Latvia. Other foreign entities may acquire property but face additional restrictions and procedures.

Public waters cannot be privatised with land, but surface waters, forests, and plants can. Both domestic and foreign lenders may hold mortgages or pledges over Latvian property, subject to conditions under laws such as the Land Register Law.

Under the Law on Public-Private Partnership, the project company (private partner) may be either a special purpose entity established by the winning tenderer or the tenderer itself (a natural or legal person, or an association of such persons). In practice, project companies are usually formed as private limited liability companies (sabiedrība ar ierobežotu atbildību) or joint stock companies (akciju sabiedrība), though a branch or representative office may sometimes be used to avoid creating a new entity.

Key considerations when selecting the legal form include tax obligations (eg, corporate income tax) and governance requirements under the Commercial Law, which also regulates formation, minority protections, and transfer restrictions. Risk allocation between the public partner and the project company must follow the Law on Public-Private Partnership and related Cabinet of Ministers Regulations, while EU law and bilateral investment treaties should also be considered.

Foreign investment is generally not subject to notification requirements, but sector-specific rules apply to areas of national security, including critical infrastructure, agricultural land, and gambling.

In Latvia, domestic and regional banks are the primary lenders for project financing. Projects are typically funded through senior debt secured by project assets, working capital, and pledges over company shares, bank accounts, receivables, and real estate. Bank-led senior secured loan packages are often combined with financing from Nordic and Baltic banks and support from the EU. This model is commonly used in sectors such as energy (renewables), real estate development, and transport infrastructure – a similar approach was applied in the Ķekava Bypass PPP. Project bonds and other alternative financing sources remain uncommon in Latvia.

Latvia is rich in natural resources, particularly forests, which cover about 53% of the country. Timber exports are generally restricted and allowed only if they comply with EU phytosanitary standards, sanctions-related restrictions (eg, the prohibition on exporting products to Russia or Belarus), customs requirements, and increasingly mandatory sustainability certifications. Similar rules apply to other resources, such as peat and fish.

Environmental and climate policies, including the EU Green Deal, also affect the management and export of Latvia’s natural resources by promoting sustainable use and forest protection.

The main environmental laws for projects are the Environmental Protection Law, which sets out principles for sustainable development and liability for environmental damage, and the Law on Environmental Impact Assessment, covering public participation and permits. Key legislation also includes the Law on Pollution and Cabinet Regulation No 1082, which governs permits for polluting activities.

The main regulatory body overseeing the implementation of the laws is the Ministry of Smart Administration, whereas the State Environmental Service and municipalities are responsible for issuing permits.

BERG

Blaumana iela 16/18-2
Riga
LV-1011
Latvia

+ 371 672 052 41

info@berg.com.lv www.berg.com.lv
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Law and Practice

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BERG is a Latvian law firm with more than 20 professionals, recognised for its strength in banking and finance. Based in Latvia, the firm advises international and local clients on complex financial matters including litigation, arbitration, financial institution licensing, cross-border lending, capital markets, restructuring, and regulatory compliance. BERG’s expertise also spans related areas such as corporate law, M&A and insolvency, enabling it to provide comprehensive, finance-focused solutions. The firm has represented clients in cross-border transactions and high-value disputes before courts and arbitral tribunals. What sets BERG apart is its dual perspective: practical experience combined with academic engagement. Two of the firm’s professionals organise and lecture in banking law at the University of Latvia, keeping it closely aligned with regulatory developments and ensuring clients benefit from innovative, strategic, and reliable advice in a rapidly evolving financial market.

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