When UK companies think of expanding into continental Europe, the usual suspects come first: Germany, the Netherlands, Poland. But there is a quieter yet compelling option that deserves a spot on the shortlist: Latvia. Thanks to its digital infrastructure, defence innovation ecosystem, and strategic location between Northern and Eastern Europe, Latvia offers a uniquely advantageous bridge for UK firms in defence, aerospace, drone systems, dual-use technology, and high-end services.
Latvia and the UK are connected with strong trade and investment ties that are growing, but not yet saturated. In the four quarters ending Q1 2025, total trade (goods and services) between the UK and Latvia reached £1.9 billion, up 5.4 per cent year-on-year. UK exports to Latvia were £617 million (a 7.1 per cent increase), while imports from Latvia stood at £1.3 billion (up 4.6 per cent). By end-2023, UK foreign direct investment (FDI) in Latvia stood at £882 million (up 10.1 per cent from the prior year).
But what are Latvia’s strengths – and why should UK companies seek to invest and expand their business there? Here’s where Latvia leads and can give British businesses a competitive edge.
How Latvia stands out for UK defence, aerospace, and dual-use ventures
Latvia has consciously built out its military-tech and dual-use capability over the past decade, and especially since Russia’s full-scale invasion in Ukraine in 2022. Defence budgets have expanded significantly – Latvia’s defence spending is being steered toward 5 per cent of GDP in the coming years.
Latvian firms are already innovating at the frontier. Companies like Origin Robotics deliver drone systems with a cost-per-strike reportedly up to 20 times lower than comparable Western missiles. Eraser military drones feature a modular design adaptable for various functions like reconnaissance, target marking, and payload transport. The Finnish-Latvian joint venture Patria now assembles Patria 6×6 armored vehicles in Latvia for domestic and export markets. These are just a few examples of Latvia’s rapidly expanding drone and defense technology ecosystem.
In a strong signal of confidence, German defence giant Rheinmetall has announced plans to build a new ammunition plant in Latvia. The investment, of around €275 million, will be structured as a joint venture (51 per cent Rheinmetall, 49 per cent Latvian state) and projected to supply tens of thousands of artillery shells annually.
A drone testing and airspace playground
Latvia has a long experience in aviation via its national carrier (AirBaltic) and airport operations. These capabilities mean that UK aerospace firms – particularly those in avionics, maintenance, airspace tech, or airport systems – can plug into an existing knowledge base. In addition, UK businesses providing dual-use aerospace components, sensors, avionics subsystems, or software can anchor operations in Latvia and serve both civil and military customers.
Many UK (and other Western) drone and aerospace firms encounter regulatory, airport congestion, or spectrum challenges when seeking testbeds. Latvia offers an alternative. The country has developed some of Europe’s largest drone test ranges in dedicated military-only spectrum zones. In October 2025, Latvia staged public demonstrations at the Sēlija range – a live showcase of advanced counter-drone capability.
Ivars Žukovskis, Head of LIAA office in the UK, pointed out Latvia’s strengths for UK businesses:
“One of Latvia’s key advantages lies in our long-standing expertise and historical experience in aviation. Another important factor is our growing know-how in drone technologies, together with the political dimension – the Drone Coalition that we established together with our British partners. Such political initiatives should not be underestimated, as they serve as a powerful catalyst, ensuring that our drone capabilities ultimately reach real users and markets.”
Latvia, a founding member of the Drone Coalition alongside the UK, has pledged €20 million per year to support the coalition’s activities in Ukraine. In addition to aerial systems, Latvia is also home to several innovative water and ground drone startups, including VIC TEC, NEWT21, and Natrix. This positions the country at the core of next-generation unmanned systems development – extending well beyond traditional aerial platforms.
Back-office, development, and digital efficiency
Beyond hardware, Latvia is highly competitive as a hub for software, back-office, R&D, and embedded engineering. Latvia’s fully digital business environment means you can register a company online in roughly 10 minutes, use e-signatures, and file taxes entirely digitally.
Latvia ranks #2 among OECD nations for tax competitiveness, making it highly attractive for scaling innovation ventures. Couple that with highly educated, multilingual talent (96 per cent of the population speaks at least two languages) and a lower cost base relative to Western Europe, and you have a compelling equation for UK firms seeking to optimize operations, dev centers, or shared services.
Sounds interesting? Get in touch with the Investment and Development Agency of Latvia (LIAA) to discover what Latvia can offer for your particular business.
The article was financed with the support of the Recovery and Resilience Facility – NextGenerationEU. The views and opinions expressed are solely those of the author(s) and do not necessarily reflect the views of the European Union or the European Commission. Neither the European Union nor the European Commission can be held responsible for them.