Analysis of Financial Support Instruments for Social Enterprises in Latvia

Abstract

Social enterprises have positive effect on sustainable development, and they have become an important instrument for solving social problems (especially in rural areas), as the national and local governments alone cannot solve all such problems. To foster the development of social entrepreneurship, Latvia has introduced several support instruments for social enterprises, which include tax relief, privileged procurement contracts, grants, as well as non-monetary kinds of support. However, social entrepreneurs often point out that support from the national and local governments is insufficient, while the support instruments stipulated in the Social Enterprise Law are not widely used. Therefore, the aim of the research is to analyse national and local government support instruments for social enterprises in Latvia. The research found that the most important financial instrument fostering the development of social entrepreneurship in Latvia is a grant scheme administered by the Ministry of Welfare and the JSC Development Finance Institution Altum, which is available in the range of EUR 5000 to 200000 for investment and working capital. In the period 2017-2020, 94 social entrepreneurship projects with a total budget of EUR 6 million were supported, which could be viewed as significant financial support. In contrast, immovable property tax relief, exemption from enterprise income tax (on profits) and relief from this tax for several categories of non-business expenses are considered by social entrepreneurs to be an insignificant kind of support. There is also lack of experience and practice regarding the inclusion of social criteria in public procurement in Latvia.

Legal Context and Support Incentives of Social Enterprises in Baltic Countries

“…According to the Social Enterprise Law, SEs in Latvia may use specific support mechanisms for SEs: volunteer involvement, specific tax reductions, and access to EU funds (SAFEGE Baltija, 2020). In 2018, the support measures of the Ministry of Welfare and ALTUM became the most important and only measure of its kind, as it aimed explicitly to offer financial grants in the range of 5000 EUR to 200000 EUR and develop SEs in Latvia (Licite-Kurbe, Gintere, 2021). Furthermore, 'the Social Enterprise Law enables municipalities to create and implement local support instruments: reduced real estate tax, permission for SEs to use municipality property for free, special financial support schemes, and privileged public procurement for SEs' (Licite, 2018).…”