In the past decade, the Baltic region has enjoyed a boom in startups and technology investments. So far, Estonia has been the frontrunner in the region, driven by the successes of Skype and TransferWise, among others.
But now its southern neighbor, Latvia, birthplace of Ask.fm and Infogr.am, is taking big steps to reduce the gap.
Eastern Europe is building up a head of steam as a software outsourcing powerhouse, as companies focus more on cost-effectiveness and proximity, rather than just low cost.
At the end of last year, Latvia’s parliament passed a new law and tax regime, aimed at turning the country into a more attractive base for startups and at luring investors to the country.
The law introduces two tax plans for startups: first, there’s a special flat tax regime with limited social benefits currently of €252 ($268) per month, regardless of salary paid, up to a monthly salary of €4,050 ($4,302). Exceeding that sum incurs additional tax.
Secondly, for more highly qualified employees with a PhD or Master’s degree, or more than five years’ experience, there’s a new tax regime where all social and personal taxes are covered by the state, and these employees receive full social benefits.
Obviously, there are a few rules that startups have to follow to qualify for the tax support: the company has to be less than five years old, and its revenue can’t exceed €200,000 ($212,430) during its first two years, and €1m ($1.06m) in the first five years since its incorporation.
It can’t be paying dividends and must have secured at least €30,000 ($31,865) of third-party venture-capital funding. And, of course, it must have produced an innovative product or service. The venture-capital funds must also pass a one-time qualification procedure.
The goal of the new legislation is to have at least 20 new startups each year in Latvia and 120 new jobs annually.
Local startup entrepreneur Janis Krums believes that the new law will indeed increase the number of new startups in the country significantly.
“[It will help] the very early-stage startups first. It’ll help them attract money and then extend their runway once they do. Gradually the program should be expanded,” he tells ZDNet.
Krums himself is an example of a new generation of entrepreneurs who are at the center of developing the emerging Latvian startup scene. After his business studies in the US, he co-founded a few companies there and over…