IT Outsourcing Markets Review: Latvia vs. Ukraine

Latvia is one of the smallest countries in Europe; however, it is the one with rapidly growing economy. Since the time the country joined the EU in 2004, the Latvian economy started developing even faster. As to the official statistics, Latvia has the third smallest deficit as well as the fifth lowest public debt in the EU. Also, Latvia has reduced the unemployment ratio to 9,6% which is also amidst the smallest in Europe.

Latvian IT Market Overview

Latvian market has not been viewed as the leading one in the European IT market. The experts claim that there is a lack in the number of local specialists; therefore, there are many foreign specialists from Russia, Belarus, and Ukraine. As of 2017 here have been functioning over 3000 IT companies in Latvia, and over 70 of them have over 50 specialists employed. One of the advantages of the Latvian IT market is that it has been strongly supported by the local government since the market has shown a significant growth within the past 6 years. The number of specialists has grown to over 26K. The annual turnover of the technologies industry amounts to over $3,5 bln, and the IT sector’s profit amounts $383 mln. Further, we are discussing the new amendments to the existing tax legislation for IT sector. Riga is the main IT destination of Latvia.

Education

Initially Computer Sciences have not been on TOP among the university applicant. The situation has started changing in 2004 right after Latvia joined the EU, where information technologies are among the most popular. Currently, there are over 10 institutions of higher education providing courses in ICT as well as several professional schools graduating over 1300 students annually. Along with that, both national and EU institutions and organization give their constant support to future engineers by arranging various events, forum and meetups to popularize the IT industry.

The main institutions in Latvia providing IT education include:

  • Riga Technical University
  • Latvia University of Agriculture
  • Rezekne University of Applied Sciences
  • Information Systems Management Institute in Riga
  • Liepaja University
  • Transport and Telecommunication Institute

Salary

Despite the fact that Latvian IT market is on its developing stage the engineers there have competitive salaries and good opportunities. The average salaries in Latvia are equal to those software engineers in Ukraine, however, still lower than in the Czech Republic or Poland.

The salaries distribution according to the developer’s experience is as follows:

  • Junior Developer - $650
  • Middle Developer - $1600
  • Senior Developer - $2300
  • Lead/PM - $2800

Benefits and Taxes

The Latvian engineers, unlike their colleagues in Ukraine, prefer joining the projects that offer a long-term contract, since they aren’t much into changing jobs. This will be one of winning side of a project that a company searches specialists for. As to the benefits for the employees, many companies offer their employees medical care, assistance in relocating a specialist to not only within the country but from abroad as well. Some companies provide their specialists with opportunities to attend various events and meetups related to the IT industry and its development.

The tax system in Latvia is strict and obliges to paying rather high sums to the state. For instance, Personal Income Tax equals to 23%, Social Tax of 34,09% for employees, and 15% for employers. For instance, in Ukraine these numbers are Personal Income Tax amount to 5% for those employed as private entrepreneurs, and 18% for those employed upon Labor Agreements, whereas Social Tax for employees is not being paid and the same for employers is none for private entrepreneurship, and 22% for staff hired upon Labour Agreements.

Last year Latvian government adopted new law envisaging tax deduction for start-ups. Since the current legislation requires high-income taxes and social payments, small companies could barely make ends meet. Therefore, the initiative has brought numerous benefits and inclines small businesses to be established. Startups should meet the following criteria: it must be innovative, be set up no longer than 5 years ago, with an annual income of not exceeding 200,000 euros in the first two years from the date of registration and attract 30K euros starting investment. The last is a security measure proving that a company has a potential in the long run. In case all the criteria are met, the start-ups' employees pay 252 euros of taxes regardless the salary. The law also envisages that all taxes and social contributions for start-ups’ employees having an academic degree and working experience of 5+ years are compensated by the government. Along with that, specialists themselves receive a full pack of social guarantees.

Hiring, Notice Period and Dismissal Terms

The trial period in Latvian companies is approximately the same as in other European IT companies: up to 3 months, however, again this may be reduced upon the company’s decision.

Regulations regarding the notice period in Latvia are less strict than, say, in the Czech Republic, where it is not less than 2 months starting from the beginning of the following months. In Latvia, it is between 10 days and 1 month. The researches show that an average notice period- is 15 days. Of course, the two parties negotiate on the issue; hence, this may be longer but only upon the mutual consent of the parties. The notice period for an employee going through the 3-month-probation period may be 3 days.

Dismissal terms and conditions in Latvia are also subject to discussion between the parties. Yet, an employee may leave after 10 days to 1 month since the notice was provided or he provided to the employer. The Latvian labor legislation envisages the following reasons for dismissal:

  • misbehavior or malfunctioning of an employee as violation of company’s rules or moral, ethical norms, etc.;
  • measures caused by economical, organizational or technological grounds;

Cost of living, travel expenses, and office rent

Cost of living in Latvia is also high as well as in other European countries. For instance, an average family of four in Latvia may need $1800 and for an adult person this may amount to $645, excluding the apartment rent which in Riga, for instance, varies between $290 for 1 bedroom flat outside the city center and $440 for the same flat in the city center, in Liepaja these prices vary from $116 to $174, respectively. Monthly public transport pass costs is $49, however, if you consider renting a car, the average price for fuel will approximately amount to $1.29/liter. As to the food, average monthly product expenses will reach over $100-190, yet, eating out prices vary from $5.82 to $35 (for the two-people meal) and higher.

Office rent.

Prices on office rent vary between $5 and $20 per square meter depending on the location of the premises as well as the city. Riga offers the most expensive offices in Latvia.

Latvia vs. Ukraine

IT Outsourcing Destinations Comparison table: Latvia vs. Ukraine

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One Response to “IT Outsourcing Markets Review: Latvia vs. Ukraine”

  • Anna

    hi software development companies are really a lot in Ukraine. And I totally agree with all your 9 reasons. Ukraine has a good location to work with both Australia and America. It is very convenient. But I believe that the point of English language and quality education is a real huge plus for Ukrainian Outsourcing.

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