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Are the Baltic States Right for Your Startup?Modestas Mankus
An exciting startup ecosystem, enthusiastic talent and untapped markets make the Baltic countries attractive to many startups.
Located in Eastern Europe, the Baltic states of Lithuania, Latvia and Estonia are small but beautiful countries full of majestic natural wonders — with the potential for growing the next unicorn in the world of business. The countries contain promising business hubs with ripening startup ecosystems and auspicious talent, undervalued by their size.
While the population of the Baltic countries is just over 6 million — making it smaller than the population of London — it’s possible to establish a business that hasn’t been tested yet in Eastern Europe or Europe as a whole. For example, Taxify, a rival of Uber that began in Estonia, has managed to grow globally to over 10 million customers by testing out its services in Europe first. Other than Uber, Taxify did not have much competition, which meant it could expand easier with its app — which won the best Estonian mobile app award in 2014. Taxify now is available in countries such as Australia, Canada and Nigeria, to name a few. Hence, while the Baltic states are small in population, the potential for future business is tremendous and is up for grabs for those with well-developed ideas and strategies.
Here is more about the conditions in each Baltic country and why it perhaps could be a great fit for your business.
Lithuania, the southern-most of the Baltic countries, has a population of under 3 million. The country has a friendly business hub, and according to Payment sense has had a growth of 4.26 percent in the number of wholesale and retail startups founded in the past five years.
Investment-wise, Lithuania has many venture capitalist and private equity investors such as BaltCap, Open Circle Capital and others. These investors are keen to help new startups swing into action by funding their mission while also ultimately benefiting Lithuania by creating jobs and growing the economy.
Regarding corporation tax, Lithuania has an attractive rate of 15 percent. Additionally, personal income tax in Lithuania is at 15 percent.
Latvia, located between Lithuania and Estonia, has a population of around 1.9 million. Similarly, like Lithuania, it has a friendly business hub and great infrastructure throughout its capital Riga, which enables new entrepreneurs to engage in the world of business with ease.
Additionally, according to the World Economic Forum, Latvia is ranked third regarding early entrepreneurial activity just behind Sweden and Estonia, making it an exciting hub for future investors and entrepreneurs.
Latvia’s corporation tax is slightly higher than Lithuania’s, as it currently stands at 20 percent, whereas income tax is at a moderate fixed rate of 23 percent — making it appealing to future employees. Latvia ranks fourth on the OECD Tax Competitiveness Index, behind Switzerland, New Zealand and Estonia.
Estonia, the least populated of the Baltic countries, is another exciting hub for future businesses, and it’s known for establishing numerous successful companies including Skype and TransferWise.
While Estonia is a small country, the government in Estonia is keen to grow the digital business hub and help foreign entrepreneurs settle in the capital Tallinn, where they can perhaps develop the next digital giant. Furthermore, alongside the great infrastructure for digital business, Estonia was the first country to nationally adopt blockchain — a technology that has numerous professionals debating and talking. Also, according to the World Bank, Estonia ranks twelfth on the ease of doing business ranking.
Regarding taxes, Estonia has a system that only taxes the profits that become distributed to the shareholders. Thus, if the business decides to reinvest or retain the profits, they will not be taxed. The tax rate for distributed profits ranges from 14 percent to 20 percent. Additionally, income tax in Estonia is 20 percent, and according to the OECD Tax Competitiveness Index, Estonia ranks No. 1 — making it highly appealing to potential investors and entrepreneurs.