Legal Alert, September 2014

01.09.2014 Legal Alert, September 2014

LEGAL ALERT, SEPTEMBER 2014 Dear readers,

Have you considered investing in Latvia? Then you should know that recently substantial amendments have been introduced to the laws of Latvia in relation to investments in real estate and purpose investments related to obtaining temporary residence permit.

With respect to that, the summary prepared by TGS Baltic is aimed at drawing your attention to the amendments to the Immigration Law that enhance requirements for candidates desiring to obtain temporary residence permits in Latvia, and amendments to the Law on Land Privatisation in Rural Areas, which significantly change the terms and conditions for transactions with rural land, especially agricultural land.

Our office news are available on the webpage of TGS Baltic at www.tarkgruntesutkiene.com, as well as in our Twitter account @TGSLatvia.

Yours sincerely,

Linda Štrause
Partner, Head of Real Estate and Commercial Property in Latvia


CHANGES IN OBTAINING TEMPORARY RESIDENCE PERMITS

As from 1 September 2014 new regulations regarding receipt of temporary residence permits come into force in Latvia. Just like before, a temporary residence permit is granted for a period of 5 years and shall be confirmed each year during that period. Below we have provided a short description of what has changed.

Real property acquisition

As from 1 September 2014, in order to obtain a temporary residence permit, a candidate has to pay at least EUR 250,000 for a real property. The candidate cannot acquire two separate objects for EUR 125,000 each – the real property should be undivided, or may consist of several functionally connected real properties. The real property must be built-up (houses, apartments, commercial premises with or without land underneath, etc.), and should not even partly consist of an agricultural land or a forest. The cadastral value of the acquired property shall not be less than EUR 80,000. Otherwise, a certified evaluator shall confirm the value of the real property. Finally, when requesting the temporary residence permit for the first time, the buyer is obliged to pay a fee in the amount of 5% of the real property value to the state budget. For example, if an apartment costs EUR 250,000, the instalment will comprise EUR 12,500.

Prior to introduction of the amendments, the minimum price of the real property was significantly lower: in the Riga planning region and major cities it was EUR 142,300, and in other parts of the country the acquisition price comprised EUR 71,150. A candidate had a possibility to buy several separate objects at a lower price and reach the required minimum threshold. The minimum cadastral values were considerably lower as well: EUR 42,690 for the Riga planning region and major cities and EUR 14,230 for the rest of Latvia. There was no requirement for payment of 5% instalment to the state either.

Investing in a subordinated capital of a bank

Investment in a subordinated capital of a bank operating in Latvia shall be at least as high as EUR 280,000 to obtain a temporary residence permit. The validity of investment agreement must be at least 5 years, and the investor may not unilaterally early terminate thereof. Moreover, when requesting a temporary residence permit, the investor is obliged to pay EUR 25,000 to the state budget.

The minimum investment amounts and agreement duration remained the same as it was previously, but EUR 25,000 worth instalment to the state made this type of obtaining a temporary residence permit as expensive as at least EUR 305,000.

Buying interest-free state issued loan obligations of Latvia

As from 1 January 2015 there will be one more reason for obtaining a temporary residence permit. An applicant will be granted a possibility to acquire interest-free special purpose state issued loan obligations for the amount of at least EUR 250,000. In addition, the investor will have to pay a lump sum amount of EUR 25,000 to the state.

Such transaction as the basis for obtaining temporary residence permit is convenient due to the fact that the minimum amount of investment is lower in comparison with the investment in the subordinated capital of a bank; moreover, those are state guaranteed loans. The disadvantage is that the investment is interest-free, and the candidate will not get any direct profit from it.

TRANSACTIONS WITH RURAL LAND

The so-called transitional period, during which Latvia, as a European Union member state was able to limit the range of persons, who can buy land, has come to an end. Currently, private individuals and legal entities of the European Union (EU) Member States, European Economic Area States and the Swiss Confederation may acquire land in ownership under the same conditions as Latvian citizens and registered legal entities. However, new restrictions on certain transactions with agricultural land have been introduced with an aim to preserve the sustainability of public land resources by promoting citizens' interest in agricultural production.

Acquisition of agricultural land

As from 1 December 2014, there will be substantial changes in transactions with agricultural land, and purchase thereof has become much more complex. In future, the acquired agricultural land will have to be used for agricultural activities. In addition one private individual or legal entity will be able to acquire ownership of up to 2,000 ha of agricultural land. Local authorities will have the right to determine the maximum area of agricultural land one private individual or legal entity can possess within their administrative areas, but no more than 2,000 ha. Agricultural land, rented by a person or for which it receives single area payments at the moment, when restriction specified by the Law on the maximum area of agricultural land possessed by one person enters into force, will not be counted .

Most of the essential norms will come into force on 1 November 2014. Namely, the conditions will come into force, which will have to be complied with by private individuals and legal entities in order to acquire agricultural land in ownership. In order to facilitate use of the land for the purpose of agricultural production, rather than investment transactions, certain criteria must be met: relevant professional education, prior activities and income from agricultural production, clear information of the true beneficiaries and the absence of tax debts. Moreover, for a person, who meets the criteria, to be able to acquire agricultural land, it shall first submit an application to the local government of the territory, in which the relevant land is located. The purpose for further use of the land must be specified in the application, along with the transaction deed and a document certifying a person's right to own land. After examination of the application, the commission of the local government will decide on giving its consent or refusal to acquisition of land in ownership. In addition, a norm imposing an obligation on the lessee or lessor to inform the local government of the signed agricultural land lease agreements will come into effect. It should be mentioned that such agricultural land lease agreements shall be made in writing for a period of at least five years. Such an agreement registered in the local government will give the lessee a pre-emptive right to the leased land. While, it will be possible to buy up to 10 ha of land for the household plot without restrictions, and that will not require appropriate agricultural education, it will not be necessary to assure that the land will be used for agricultural activities, as well as the other requirements shall not apply to it.

Certain norms related to restrictions will come into force only on 1 July 2015. Namely, criteria to be complied with by a private individual or a legal entity to be able to acquire agricultural land will be supplemented, provided that at least for a period of one year over the past three year period single area payments in accordance with Regulation No. 73/2009 or direct payments in accordance with Regulation Nr.1307 / 2013 have been received, or revenue from agricultural production for at least last period of three consecutive years consists of at least one third of their total operating revenue.

For more information please contact: Linda ŠtrauseAndrejs Gailāns

Newsletter PDF