In November 1991, a foreign investment act was passed permitting joint ventures in the form of either public or private limited companies. Businesses that are at least 30% foreign-owned receive a two-year tax holiday and a 50% tax abatement for the following two years.
At the end of 1995, foreign direct investment (FDI) in Latvia totaled $521 million, based on registered statutory capital. The largest investors were Denmark (26.1%), Russia (19.4%), the United States (13.5%), Germany (6.4%), the United Kingdom(5.2%), and the Netherlands (4.2%). Finland and Sweden were also significant investors. Industry accounted for only 17% of all foreign investment and there were approximately 5,200 firms with a foreign capital share.
FDI inflow into Latvia reached $521 million in 1997, averaging $400 million a year 1996 to 2000, but fell sharply in the global economic downturn of 2001 to less than $201 million. From 1995 to 2001 Latvia stock of FDI nearly quadrupled, reaching $2.3 billion in 2001. In the period 1988 to 1990, Latvia's share of world FDI inflows was almost five times its share of world GDP, but for the period 1998 to 2000, Latvia's share of FDI inflows was only 60% greater than its share of world GDP.
The leading sources of FDI from 1996 to 2001 were the United States (13%), Germany(11%), and Demark (11%). The primary destinations of foreign investment inflow were trade (22%), finance (16%), and business services, especially real estate (16%). The largest foreign affiliate is the telecommunications company Lattelekom SA of Finland. The largest foreign bank invested is Hansabanka SA of Estonia.