Individuals and businesses have more and more resources and willingness to tackle the most pressing social and environmental challenges. Companies are starting to operate in a responsible and sustainable manner, motivated by increasingly conscious employees, investors, and consumers. As many as 28% of Latvians are already willing to pay more for products and services offered by socially responsible brands. Understanding what stands in the way to a greater social engagement of business and individuals, what barriers do they face, including tax and legal aspects, and what are the potential incentives that could positively impact their engagement and overcoming these barriers is in the best interest of us all.
It is our hope that the barriers and recommendations, prepared in collaboration with organizations that are shaping the Latvian social impact ecosystem, will be helpful in establishing priorities and directing further action.
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Consultations’ Participants
American Chamber of Commerce in Latvia
Baltic Family Firm Institute (BFFI)
InCSR – Institute for Corporate Sustainability and Responsibility
Latvian Business Angel Network
Latvian Chamber of Commerce and Industry (LCCI)
Latvian Private Equity and Venture Capital Association (LVCA)
RISEBA University of Applied Sciences
Social Entrepreneurship Association of Latvia
Social Innovation Centre of Latvia
Society Integration Foundation Republic of Latvia
COUNTRY PROFILE
Latvia, like other countries in the region, has been building its identity since the early 1990s. Since then, it has achieved dynamic economic and social development, resulting in the emergence of a civil society. Currently, there are over 20,000 social organizations in Latvia. Thanks to the high awareness of the need to take socially responsible actions, there is a great interest in this subject within various groups. However, there are still few systematized practices and strategic actions that would effectively address the challenges. However, Latvia has a very dynamically developing private sector, which is often cited as the birthplace of numerous valuable impact initiatives. The new generation of entrepreneurs and business owners will bring a “new normal”
To read more, download the reportLEGAL & TAX
Barriers & Recommendations
Recommendation: To provide more supportive preconditions for donors and to increase their motivation to donate, the said tax relief conditions could be modified, specifically in such a way as to significantly increase the threshold for the donated amount excluded from the taxable amount. In addition, it would be advisable to change the donation system so that the country’s social priorities are updated from time to time in order to attract additional funds to specific social fields. The tax reliefs for donations to such social fields could be specifically prioritized.
To read more, download the reportRecommendation: Since the ceiling of the donation (600 euro per year) is low and does little to motivate donors, the said tax relief conditions could be modified in such a way as to significantly increase the threshold for the donated amount excluded from the taxable amount. This would provide more supportive preconditions for donors and increase their motivation to donate.
To read more, download the reportRecommendation: More favorable conditions for access to financing (e.g. to a state owned development finance institution – ALTUM administrated funds) could be granted to impact investors. Also state support programs not directly related to financial support could be implemented, e.g. favorable provisions in public procurements for investors who deal with impact investments . Tax benefits, such as reduced capital gain tax for individuals and provisions reducing corporate income tax base for corporates, could be implemented specifically for individual and corporate impact investors.
To read more, download the reportRecommendation: Both educational and legal changes are needed to encourage management boards to get socially engaged. From the legal perspective, it would be beneficial to limit the liability of management boards, as executive institutions in companies, for reasonably engaging in social activities. Another idea would be to provide additional benefits to the members of management boards (e.g. personal income tax breaks) for initiating a dialog with investors (shareholders), motivating them to invest more in social activities. Information campaigns would be helpful in educating board members and investors, especially since the data on the short- and long-term business benefits for companies, direct and indirect, is already available.
To read more, download the reportRecommendation: Allow organizations that have the public benefit status to engage in profit-making activities also in cases where it accounts for more than 50% of their total revenue. Increase the permissible percentage for administrative expenses. Establish an exception for social enterprises (limited liability companies) to be able to pay at least partial dividends to investors (e.g. include certain criteria and/or exemptions in local regulations, allowing a certain percentage of their profits to be paid out as dividends).
To read more, download the reportRecommendation: Conduct educational activities on reporting at all levels. Deploy an information campaign. Introduce unified reporting standards, clear framework, and explicit guidelines. Provide assistance and support (especially from public institutions). Minimalize reporting duty and the amount of required information. Ensure proper order of activities: strategy – implementation – reporting (big educational role of consulting companies).
To read more, download the report“SOFT” ACTIONS
Barriers & Recommendations
Recommendation: The public administration could consider creating a single cross-ministerial body coordinating the area of social impact, developing the engagement of various sectors, and gathering knowledge on the subject. At the same time, a national strategy could be developed to identify priority courses of action. An easily accessible physical or online space could serve as a source of knowledge – where all the necessary information on topics such as taxonomy, policies, terminology, and guidelines could be gathered – and a platform to exchange experiences.
To read more, download the reportRecommendation: In public administration, it is worth to be more problem-oriented, work in cross-ministry groups, and have more trainings. In companies there is a need for a greater emphasis on cross-departmental work, involving middle management from the stage of project planning, delegating responsibility, and measuring results.
To read more, download the reportRecommendation: There is a need for targeted, tailor-made, and purposefully channeled information flow and educational activities. Banks, which increasingly expect non-financial reporting from businesses, can be responsible for additional education of companies in his area. Universities can build and integrate knowledge, instruments, and tools. They can also offer courses and trainings dedicated to related issues. A glossary to describe and unify the key terms may also prove useful.
To read more, download the reportRecommendation: Integrate social engagement into everyday business operations: responsible marketing, HR, procurement. Combine your social goals with your business goals – if they support each other, the engagement tends to be more long-lasting. Develop a strategy, plan activities, secure a budget and other resources, implement and report. Set internal goals and KPIs. Evaluate.
To read more, download the reportRecommendation: It is important to promote social activity and point out good examples that can be used as inspiration by other potential donors. Demonstrating such examples also has educational value, especially for smaller companies or novice donors, who may learn about practices which are particularly noteworthy.
To read more, download the reportRecommendation: It is worth introducing additional benefits (preferential conditions) in public and private tenders for companies that act responsibly. One alternative is to make funding available only to companies that address social challenges and are able to prove it.
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