This article is an excerpt from report "Promoting Social Considerations into Public Procurement Procedures for Social Economy Enterprises: Mapping the ecosystem in which social economy enterprises operate, including access to public procurement contracts, in Latvia", full version of which can be found in the link below.

You can read & download the whole European Commissions’ report “Promoting Social Considerations into Public Procurement Procedures for Social Economy Enterprises: Mapping the ecosystem in which social economy enterprises operate, including access to public procurement contracts, in Latvia”, which was published in 2019, here.

Authors of the report are Kristīne Gaigule-Šāvējā and the leading policy analyst at the PROVIDUS – Agnese Frīdenberga.

Legal notice: this document has been prepared for the European Commission, however it reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein.

The Social Economy ecosystem

“Main definitions and concepts used: social economy, social enterprise

Social entrepreneurship is a relatively new concept in Latvia. In 2008 the first social enterprises were created to support young mothers, offering job opportunities while they are at home with children – social enterprise “Mammu” and charity shop – local funding instrument for social projects – “Otra Elpa”. Until 1 April 2018, when the Social Enterprise Law10 came into force, social entrepreneurship was implemented in different legal forms – association, foundation, limited liability companies, etc.

From 1 April 2018, social enterprises are limited liability companies with social enterprise status if they fulfil certain criteria. They should be companies which conduct an economic activity that creates a positive social impact (e.g. provision of social services, formation of an inclusive civil society, promotion of education, support for science, protection and preservation of the environment, animal protection, or ensuring of cultural diversity).

Social entrepreneurship is not a widespread and recognisable concept in society, therefore the number of enterprises who have obtained social enterprise status is low. Historically, social enterprises have operated in various legal forms, many of those that follow the criteria describing social enterprises are still operating as associations, foundations or regular business companies. Mostly they are organisations with minor economic activities or startup organisations, therefore the new legal form is not suitable for them.

Some non-registered social enterprises are working in the social care area, where historically organisations have been operating under NGO legal form (mostly associations), which is a more appropriate legal form for them. Many regular business companies that can be considered as social enterprises because they create a positive social impact, for example, by providing work places for vulnerable persons, are not registered as social enterprises due to the reason they are not aware of the social enterprise concept and the benefits social enterprises can get.

Data and figures

According the statistics (for the period to 20 December 2018), in Latvia there are 2712 organisations that have obtained the social enterprise status. There are also about 200 organisations that could be considered as social enterprises, but due to the fact that until 2018 there was no legal definition and official registry of social enterprises, a precise number of other organisations which can be considered as social enterprises is unknown.

Most social enterprises are relatively new, having been established only within the last year to 3 years, and usually do not employ more than 5 people. The majority of social enterprises that have obtained social enterprise status are companies with an NGO background or where the owner of the company is an association or foundation. Only a few social enterprises that have obtained social enterprise status are older than 7 years, some of them have changed the profile of a previous business model from regular business to social business, some of them got the status to be legally recognised.

Social enterprises that are “work integration enterprises” employ people from different vulnerable groups – ex-prisoners, persons with disabilities, long-term unemployed persons and family members with a low income. According to statistics, five social enterprises (from 27) are working with social care issues, three are producing goods, and the rest of them are active in other different fields.

Legal framework and legal forms of social economy enterprises

The Social Enterprise Law, which came into force on 1 April 2018, stipulates that a social enterprise is a limited liability company with a special social enterprise status. In order to gain the social enterprise status, the company must fulfil certain criteria:

1) company has to have positive social aim as the main purpose of the company. The aim must be stipulated in the Statutes of the company;

2) owners have all agreed to obtain the status of social enterprise for their company. The decision is deemed adopted if at least two thirds of the votes represented in the meeting are cast in favour, unless the articles of incorporation require more votes for adopting such a decision;

3) a restriction on profit distribution to company owners – profits must be either reinvested in the company or invested in reaching the social aim;

4) the company employs paid staff – at least one employee with an employment contract; and

5) a representative of the target group is in the executive body or supervisory body of the company; or a representative of the target group, or a representative of associations and foundations representing the target group, or a relevant expert is in the company’s consultative body, if it has one.

To get the social enterprise status, organisations must submit documents to the Ministry of Welfare, which is a government institution responsible to support and promote social entrepreneurship in Latvia. The Register of Social Enterprises is maintained and published on the website of the Ministry of Welfare.

As social enterprise is quite new, social entrepreneurship activities are still implemented in different legal forms – by using association or foundation form or ordinary business form. These are not legally recognised forms to do social entrepreneurship activities in Latvia, but can be used to start or to test business ideas.

National policies supporting social economy enterprises

On 30 October 2014, the Government of Latvia adopted the policy document “Promoting development of social entrepreneurship in Latvia” (“Par sociālās uzņēmējdarbības ieviešanas iespējām Latvijā”), and the social entrepreneurship concept became recognized by the State. The aim of it was to “recognise and appreciate the potential of social enterprise, to launch a full and effective support system and to create a legal framework for the development of social entrepreneurship, to offer definitions and eligibility criteria, as well as the directions of support for social enterprises”. The document recognised social entrepreneurship as a concept to be incorporated in policy-making processes and social enterprises as a specific legal form to solve societal problems. The document cited existing problems of social enterprises and different legal forms used by organisations acting as social enterprises in Latvia.

In 2016 the Ministry of Welfare started to implement the ESF co-funded project “Support for Social Entrepreneurship”. The purpose of the project is to create a supportive eco-system for social enterprises and to provide grants for social enterprises, for both start-ups and companies that are already operating. The grant programme is operated by ALTUM – a stateowned development finance institution. The size of a grant available for social enterprises ranges from EUR 5 000 to 200 000. The funding can be used for capital expenses (except for land, real estate and infrastructure), for wage subsidies for employees of target groups and other employees, for training and consultations and for other working capital expenses. The total grant amount cannot exceed 90% of eligible costs. The grant programme for social enterprises will be available until 2022.

The main fiscal advantages for social enterprises (once obtained the status) are stipulated in the Social Enterprise Law. According to the law, the social enterprise shall not include the following expenses in the taxable base with the enterprise income tax:

1) ensuring recreational and social inclusion measures to employees of the social enterprise belonging to the target group;

2) integration of persons belonging to the target group in the labour market and improvement of the quality of life;

3) purchase of such assets that serve for the purpose of attaining the objectives defined in the articles of association of the social enterprise;

4) ensuring of social integration measures to persons belonging to the target group; and

5) donations to a public benefit organisation for such purposes that conform to the objectives defined in the articles of association of the social enterprise, if by the end of the reporting year the recipient of the donation has submitted information to the donor on the utilisation of the donation.

In order to obtain the objectives defined in the articles, the social enterprise is entitled to involve volunteers. Volunteers cannot be involved in activities that are related to the enterprise management and accounting or in roles to fulfil the core functions of the enterprise. The Social Enterprise Law allows local governments and public organisations to provide support for social enterprises.

Local government can grant a lower immovable property tax rate or launch a specific grant scheme for social enterprises. The public organisations and local municipalities can transfer movable property into ownership of a social enterprise without remuneration or use the reserved public procurement procedures to purchase goods or services provided by social enterprises.

The State Employment Agency provides the financial aid for organisations employing unemployed persons or persons with disabilities. To support organisations to create work opportunities for unemployed persons, the State Employment Agency provides: 1) subsidy of wages for the unemployed person equal to 50% of the monthly wage not exceeding the minimum monthly wages established in Latvia; 2) subsidy for work supervisor’s wage (additional payment or monthly wage if a contract on performing a work supervisor’s duties has been signed) equal to 50% of the minimum wage established in Latvia; and 3) subsidy for compulsory state social insurance payments.

To support organisations integrating persons with disabilities into work life by providing employment opportunities, the Agency provides the following financial support:

1. Subsidy of wages not exceeding 1.5 minimum wages established in Latvia or equal to the minimum wage established in Latvia if the employer plans to employ the unemployed persons in work requiring low qualification (low-skilled professions in accordance with the ninth basic group of the Classification of occupations);

2. Subsidy for work supervisor’s wage to the amount of 50% of the minimum monthly wage established in Latvia;

3. Subsidy for compulsory state social insurance payments if the employer is an association or foundation with the purpose to provide support to persons with disabilities and who employs unemployed people in the following professions – assistant or companion to persons with disabilities, hearing impaired translator, Latvian sign language translator, teacher of an interest group or specialised teacher for persons with disabilities or, if the employer is an association or foundation and support to persons with vision disabilities is laid out in the statute of such employer.

4. One-time subsidy for costs of health examinations in accordance with laws and regulations; and

5. One-time subsidy for costs of purchase of equipment and technical supply as well as purchase and production of technical accessibility aids in order to adjust the workplaces for unemployed persons with disabilities.

Support structures for social enterprises

In 2015 the Social Entrepreneurship Association of Latvia (SEAL) was established. It is a membership organisation aiming to promote the development of social entrepreneurship in Latvia, which brings together companies, organisations and people who believe that social entrepreneurship in Latvia has a potential and are ready to participate in co-creating and strengthening the sector. The Association operates in four main areas.

First of all, the Association advocates interests at local, regional and national levels. Secondly, the Association participates in the development of the Social Enterprise Law, focusing its attention on social entrepreneurship opportunities at the Latvian level, as well as participating in the development of a social entrepreneurship support programme. Thirdly, the Association provides capacity building activities for its members to help achieve their goals by providing joint activities, fast and effective information exchange, up-to-date information on finance and cooperation opportunities, and counselling support. Fourthly, the Association supports informative activities by organising its largest and most ambitious event – the annual Social Entrepreneurship Forum – and maintaining the largest source of information in the Latvian language about social entrepreneurship – www.sua.lv.

In 2013 the accelerator programme “New Door” started its work in Latvia. “New Door” is an International Social Entrepreneurship Accelerator aimed at: 1) helping start-ups to transform their social initiatives into sustainable social business, by providing them with concentrated relevant knowledge, access to best experts in the field and the support of mentors; 2) educating and consulting companies in the field of corporate social responsibility; and 3) organising social entrepreneurship fora and experience exchange programmes.

In 2014 the incubator “Reach for Change” started its work in Latvia. “Reach for Change” is an international social entrepreneurship incubator that aims to improve children’s lives by providing support to like-minded social entrepreneurs and authors of ideas. They offer trainings and consultations on company development, social impact measurement, marketing and team expansion. The new members are admitted once a year in the ‘Goodwill Entrepreneur’ competition and continue to participate in the incubator for up to 3 years.

Since 2016, there are 15 business incubators provided by the Investment and Development Agency of Latvia (LIAA). They are not established to support social enterprises and they do not have any special programme for social enterprises, therefore only some social enterprises have access to the services provided by them. LIAA supports new and innovative enterprises at their initial stages of development, promotes the commercialisation of inventions, and prepares new and existing enterprises for investment attraction as well as entry and expansion into export markets. There is an LIAA Creative Industries Incubator, which can be used by social enterprises, as they often combine the innovative approach to art and business in their activity. LIAA Creative Industries Incubator provides 100% funding for activities and seminars held at the incubator and access to shared creative rooms, 50% co-funding for other services and a grant.

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