Hiring Your First Employee in Latvia Without Establishing a Latvian Company

Expanding your team into a new country often sounds more complicated than it needs to be. Imagine your company is based in Germany, Sweden, the UK or elsewhere, and you have found the right person in Latvia. They will live and work in Latvia, but you are not yet ready to establish a Latvian subsidiary.

Do you need to set up a Latvian company before you can hire them? Not necessarily.

A foreign company can, in certain circumstances, employ a person working in Latvia without first establishing a Latvian legal entity. However, this does not mean the employment comes without Latvian tax, payroll and compliance obligations.

Here is what foreign employers should understand before making their first hire in Latvia.

Can a foreign company hire an employee in Latvia directly? Yes.

Latvia provides a mechanism that allows a foreign employer to employ someone in Latvia without establishing a Latvian company.

A foreign employer that is not required to register with the Latvian Register of Enterprises can register with the Latvian State Revenue Service (SRS or VID) for the purposes of mandatory state social insurance contributions. The SRS requires information including the foreign employer's name, registration number in its home country and registered address.

In simple terms, your structure may look like this:

Foreign company → Employee working in Latvia

rather than:

Foreign company → Latvian subsidiary → Employee

This can make direct employment an attractive option for companies hiring their first employee in Latvia or testing the Latvian market before committing to a local entity. However, the employer and employee still need to determine who is responsible for registration, payroll taxes and reporting in Latvia.

Registering the employment in Latvia

When Latvian social insurance legislation applies, the foreign employer may register with the SRS as a payer of mandatory social insurance contributions.

The employee must also be properly registered.

According to the SRS, an employer registering an employee electronically generally has to submit the employee information no later than one hour before the employee starts work. Different registration arrangements can apply where the employee assumes responsibility for certain obligations in relation to a foreign employer.

This is an important distinction.

Not having a Latvian company does not mean having no registration obligations in Latvia.

Before the employee starts working, the specific employment structure should therefore be established and the appropriate SRS registrations completed.

What about payroll and social security?

This is usually where the arrangement becomes more complex.

For 2026, the standard Latvian mandatory social insurance contribution rate applicable to an employee, including a domestic employee working for a foreign employer, is 34.09% in total, consisting of a 10.50% employee share and a 23.59% employer share. Different rates apply to certain categories of employees.

Depending on the structure, either the foreign employer or the employee may handle certain Latvian tax and social insurance obligations.

The SRS specifically provides that personal income tax on employment income may be calculated and paid by the employee or, by agreement, by the foreign employer. The SRS also provides procedures under which an employee working in Latvia for a foreign employer register and makes the required payments themselves.

This means the correct setup should be determined before the first salary payment rather than trying to correct the payroll retrospectively.

For companies hiring across borders, social security coordination rules may also affect where contributions are due, particularly in EU/EEA and Swiss cross-border situations or temporary postings.

Does Latvian employment law apply?

Another common misconception is that employing someone through a foreign company automatically means that only the employer's home-country employment rules apply.

It is not always that simple.

Latvian law allows the parties to agree on the law applicable to their employment relationship, but that choice cannot deprive an employee of mandatory protections that would otherwise apply. Where no choice is made, the country in which the employee habitually performs their work is an important factor in determining the applicable law.

If the employee is going to work permanently from Latvia, the employment agreement should therefore be reviewed from a Latvian employment-law perspective.

Issues such as working time, holidays, termination, remuneration and other mandatory employee protections should not be overlooked simply because the employer is incorporated abroad.

The hidden question: could your employee create a permanent establishment in Latvia?

Being able to hire without incorporating a company does not necessarily mean that operating without a Latvian entity will remain appropriate indefinitely.

One of the most important questions is:

What will your employee actually do in Latvia?

A foreign company can create a permanent establishment (PE) in Latvia depending on the nature and permanence of its activities.

The SRS states that a foreign company's permanent establishment may arise where it uses a specific place of business in Latvia on a permanent basis for its business activities. Latvian rules also contain additional circumstances in which activities performed in Latvia can create a PE.

This means that hiring an employee in Latvia does not automatically create a permanent establishment, but the employee's actual role and activities need to be considered.

For example, there may be a meaningful difference between: “A software developer working remotely from Latvia” and “A country sales manager actively developing the Latvian market and acting on behalf of the foreign company”.

The job title alone does not determine the tax treatment. The employee's responsibilities, authority, working arrangements and the company's broader activities in Latvia matter. For that reason, permanent establishment risk should ideally be assessed before the employee starts carrying out significant commercial activities in Latvia.

Should you use an Employer of Record instead?

Another option frequently considered by international companies is an Employer of Record (EOR).

An EOR employs the individual locally on behalf of the foreign company and manages much of the local employment and payroll administration. That can be convenient, but it is not the only way to employ someone in Latvia.

For a company planning to hire one or a small number of employees, it is worth comparing three structures:

Option 1: Direct employment by the foreign company (Latvian company not needed). May be suitable when you are making your first hires and can manage Latvian registration and payroll compliance

Option 2: Employer of Record (Latvian company not needed). May be suitable if you prefer to outsource most local employment administration

Option 3: Establishing a Latvian company (Latvian company needed). Most suitable if you are building a larger team or establishing longer-term commercial operations in Latvia

There is no single structure that is right for every business. The appropriate option depends on what the employee will do, how many people you expect to hire and what your longer-term plans in Latvia are.

Can you simply hire the person as a contractor instead?

This may seem like the easiest alternative.

Instead of dealing with payroll, why not ask the person to invoice the foreign company as a freelancer or independent contractor?

The important point is that the actual relationship matters, not simply the title of the agreement.

Latvian employment law characterizes an employment relationship by factors including the performance of agreed work for remuneration and the employee's obligation to follow the employer's work arrangements and instructions.

Therefore, a contractor arrangement should reflect a genuinely independent relationship.

Using a service agreement simply to avoid the obligations associated with employment can create tax and employment-law risks if the working relationship in practice resembles employment.

When does establishing a Latvian company make more sense?

Direct employment can be a practical way to make your first hire without immediately establishing a subsidiary.

But as your Latvian operations grow, the calculation may change.

If you start hiring multiple employees, develop a local customer base, establish premises, conduct significant sales activities or build a long-term presence in Latvia, operating through a Latvian company may become more practical.

The question therefore should not simply be:

"Can we hire someone without establishing a company?"

A better question is:

"Which structure makes sense for what we are planning to do in Latvia?"

For one remote employee, direct employment may be sufficient. For a growing Latvian operation, establishing a local company may ultimately provide a clearer and more scalable structure.

Planning your first hire in Latvia?

Hiring your first employee does not necessarily mean you need to establish a Latvian company first.

But before signing the employment agreement, it is important to determine:

• how the foreign employer and employee should be registered;
• where social insurance contributions and personal income tax will be paid;
• how Latvian payroll and reporting obligations will be handled;
• which Latvian employment requirements apply; and
• whether the employee's activities could create a permanent establishment or other tax obligations in Latvia.

Oceans can help foreign companies assess the appropriate setup, handle Latvian employer and employee registration, and manage the accounting and payroll requirements associated with employing staff in Latvia.

If your business is planning its first hire in Latvia, contact us to discuss the most suitable structure before the employee starts working.

Last updated September 16, 2026

‍