KEY TAKEAWAYS FOR BUSINESS OWNERS
- Economic fundamentals continue to give Latvia a solid, predictable base for business planning. The country's policy discipline, EU and eurozone integration and manageable debt levels remain the backbone of Fitch's A- rating - a rating that continues to anchor macro stability. On top of this, Latvia stands out internationally for its tax competitiveness: it ranks 2nd overall among all OECD countries in the 2025 International Tax Competitiveness Index, reflecting a clean, investment-friendly tax structure.
- Debt is rising gradually, but still sits slightly below the A-rated median. Public debt is moving toward the mid-50% of GDP range and is expected to stabilise around 55% from 2027 - a level Fitch views as consistent with long-term sustainability.
- GDP growth stays moderate but reliable through 2027. Fitch expects the economy to move from 1.1% in 2025 to 1.8% in 2026 and 2.1% in 2027, driven by stronger household spending and steady investment inflows.
- Inflation remains above the eurozone average, close to 4%, but continues easing in a controlled, predictable pattern that businesses can plan around.
- The fiscal position loosens, but rules are still respected. Deficits widen yet remain within EU and domestic frameworks, signalling fiscal expansion occurring within established guardrails.
Why this rating matters:
Lenders price credit using sovereign benchmarks. While an A- rating won't magically cut borrowing rates, it keeps Latvia's risk premium low and predictable - a key stabiliser even if global rates stay high. For businesses that means steadier costs for corporate loans, expansion financing and property and equipment purchases.
Foreign investors treat investment-grade eurozone countries as predictable environments. Latvia remains firmly in that category, which tends to support stronger interest in long-term projects, partnerships and foreign capital appetite.
Latvia's OECD-recognised tax structure reinforces this predictability: it taxes only distributed profits (allowing reinvestment tax-free), applies 0% withholding on outbound dividends, interest and royalties and offers one of the broadest and cleanest VAT systems in the OECD.
DEFICIT AND DEBT: WHAT'S THE BUSINESS IMPACT?
Fitch expects the deficit to widen from 1.8% of GDP in 2024 to 2.6% in 2025, 3.3% in 2026, and 3.9% in 2027, largely due to increased public investment, including defence.
Potential tax adjustments. None of this suggests imminent tax pressure on businesses, but it does indicate continued fine-tuning as the government manages medium-term demands. Recent changes include:
- Temporary solidarity tax on banks for 2025-2027;
- Adjustments to personal income tax;
- A shift of 1 percentage point of pension contributions from the second pillar to the first;
- Increases in excise duties.
More public procurement opportunities. Higher public spending typically means more tenders, more subcontracting and more demand for construction, logistics, manufacturing and specialised services. For many companies this becomes a steady pipeline of publicly backed projects.
A stable - not static - risk environment. Latvia stays within EU fiscal rules, and Fitch notes a weakening fiscal position, but nothing that requires sudden tightening. That gives businesses room to plan with a clear horizon.
Importantly, Latvia's tax environment reinforces this stability. It is one of only two OECD countries that allow unlimited loss carrybacks, which helps firms smooth taxable profits over business cycles, a valuable feature in volatile sectors.
ECONOMIC GROWTH: STEADY, RELIABLE, PREDICTABLE
Real GDP growth is expected to rise from 1.1% in 2025 to 1.8% in 2026 and 2.1% in 2027, supported by stronger real wages, solid credit growth, EU-funded investment and ongoing defence-related projects. Inflation is forecast at 3.9% in 2025, easing to 2.5% in 2026 and then stabilising near 3% in 2027. It remains a factor, but not a disruptive one. Companies should expect continued wage competition and periodic price adjustments - manageable realities in a growing economy.
From a structural perspective, Latvia's tax system supports this growth outlook: its broad VAT base, territorial tax rules and reinvestment-friendly corporate tax regime all lower friction for capital-intensive and export-oriented businesses.
HOW MUCH DO GEOPOLITICS MATTER FOR BUSINESS OWNERS?
Businesses feel geopolitical risk mainly through financing conditions, not daily operations. Fitch treats Latvia's regional exposure as a structural consideration, but the country's EU, eurozone and NATO memberships provide significant insulation, keeping risk premiums contained and supporting a stable rating despite uncertainty.
The OECD profile reinforces this: despite regional security challenges, Latvia's neutral and predictable tax framework offers stability for multinational groups, holding structures and firms planning long-horizon investment.
Author: Ieva Melngaile, AML Specialist
