VAT, GST and Sales Tax in Latvia

Summary

Name of the tax Value-added tax (VAT)
Local name Pievienotās vertības nodoklis (PVN)
Date introduced 1-May-95
Trading bloc membership European Union (EU) Member State
Administered by State Revenue Service (http://www.vid.gov.lv)
VAT rates
Standard 21%
Reduced 12%
Other Zero-rated and exempt
VAT number format LV12345678901
VAT return periods Monthly, quarterly and semiannually
Thresholds Registration
Businesses established in Latvia EUR50,000
Businesses established elsewhere First taxable supply (specific exemptions apply)
Distance selling EUR35,000
Intra-Community acquisitions EUR10,000 (for nontaxable legal and private persons who perform business activities and are registered in Latvia)
Recovery of VAT by non-established businesses Yes

Scope of the tax

VAT applies to the following transactions:

  • The supply of goods, including the supply of goods within the EU and exports of goods
  • The supply of services
  • The intra-Community acquisition of goods in Latvia from another EU Member State
  • The importation of goods into Latvia, regardless of the status of the importer
  • The acquisition of new vehicles within the EU by a non-regis­tered or nontaxable person
  • The supply of new vehicles from Latvia to any other EU Member State
  • Self-consumption of goods and services
  • Reverse-charge services received by a Latvian taxable person
  • Distance sales of goods in Latvia made to nontaxable persons

Who is liable

A taxable person is any natural or legal person or group of such persons bound by agreement, or the representative acting for a group of persons, who performs economic activities and who is registered with the State Revenue Service Register of VAT Taxable Persons. VAT groups and fiscal representatives are also considered to be taxable persons.

The VAT registration threshold for local businesses is turnover subject to VAT in excess of EUR50,000 in the preceding 12 months. If a business exceeds the VAT registration threshold, it must register for VAT by the 15th day of the month following the period in which the threshold is exceeded. However, voluntary VAT registration is possible before reaching the VAT registration threshold.

Mandatory VAT registration is also required prior to supplying services to taxable persons in another EU Member State, if the services are deemed to be supplied in that other Member State and the recipients of the services must account for VAT under the reverse-charge mechanism.

For intra-Community acquisitions, nontaxable legal persons and private individuals must register for VAT if the value of their intra­Community acquisitions (excluding VAT) in a calendar year is equal to or exceeds EUR10,000.

A state or municipal authority or a municipality that is not regis­tered for VAT with the State Revenue Service and that has entered into a contract with a supplier of construction services for the supply of construction services according to the procurement pro­cedure prescribed by the Public Procurement Law, or is involved in a public-private partnership project as a public partner accord­ing to the Public-Private Partnership Law shall be registered as a VAT taxable person with the State Revenue Service before these services are received.

Registration procedures. Taxable persons must register with the VAT authorities that are competent for the area where their place of business is located. Nonresident taxable persons with a fixed establishment in Latvia must register with the competent VAT authorities according to the place where the fixed establishment is located.

Taxable persons are given a VAT identification number (13 digits), beginning with a two-digit country code (LV). VAT identification numbers are important in controlling the correct remittance of VAT to the tax authorities within the European Union.

Applicants submit the registration application form, which con­tains information on company/person, its authorized persons and business activities along with supplementary documentation (e.g., register of companies extract, passport/ID card copy(s) of signa­tory person(s), applicable power of attorneys). The decision on registration is taken by tax authorities within five business days from receipt of required information and documents.

Generally, there is an option to submit any documents (including VAT registration and deregistration documents) to tax authorities via e-mail, however such documents shall be verified by sender using the “secure electronic signature,” a form of advanced elec­tronic signature that may be acquired from respective authorities in Latvia. However, this option is not commonly used, and gener­ally the VAT registration documents are submitted as hard copies.

Additionally, taxpayers registered in Latvia are obliged to use the Electronic Declaration System (EDS) of the tax authorities, which is subject to an additional registration procedure.

Special rules apply to non-established businesses (see below).

Group registration. Effective from 1 December 2009, VAT groups are allowed in Latvia.

The following are the rules for the registration of VAT groups:

  • The value of VAT taxable transactions of at least one member of the VAT group in the preceding 12 months was EUR355,700).
  • Each member of the VAT group must be registered for VAT.
  • A member of a VAT group cannot be a member of another VAT group.
  • VAT group members can be capital companies belonging to the same group of companies as well as Latvian branches of for­eign legal entities, provided that, under the Law on Groups of Companies, the foreign legal entity belongs to the group of companies comprising other members of the VAT group.
  • The members establishing the VAT group must enter into a valid contract.
  • The members of the VAT group must be reachable at their legal addresses.
  • The group members are jointly and severally liable for VAT group tax liabilities.

Effective 1 January 2014, the VAT cost-sharing exemption has been implemented. This provides an option to exempt support services that the cost-sharing group supplies to its members, providing certain conditions are met (in accordance with VAT Directive 2006/112/EEC Article 132(1)f and specific require­ments laid out in Latvian VAT Law).

Non-established businesses. A “non-established business” is a business that does not have a permanent establishment in Latvia. A non-established business must register for VAT if it makes sup­plies of goods or services for which it is liable to pay VAT in Latvia. If a non-established business performs intra-Community acquisitions of goods in Latvia or supplies of services and if it fails to register as a VAT-taxable person, in certain cases, the liability to account for reverse-charge VAT transfers to the recipient of the goods or services in Latvia (provided the recipi­ent is a VAT-registered person). An entity registered for VAT in another EU Member State is not required to register for supplies made to Latvian taxable persons if the reverse charge applies (that is, the recipient of the service must account for the VAT on behalf of the supplier). The reverse charge does not apply to supplies made to private persons.

To register for VAT, a non-established business must submit the following documents to the State Revenue Service:

  • A completed application form provided for in the Cabinet Regulations
  • A copy of the registration certificate
  • Confirmation of the address of the business in Latvia, if such an address exists

The person who submits the application must be either a person who has signature rights in the company or the applicant’s autho­rized person. The person who submits the application must also present a passport or ID card as proof of identity.

Tax representatives. VAT fiscal representatives (called tax repre­sentatives in some other countries) are taxable persons who, based on a written contract, remit to the tax authorities the VAT due by a nonresident taxable person whom they represent, and fulfill on their behalf the administrative obligations relating to the following transactions:

  • The importation of goods and the subsequent intra-Community supply of the imported goods
  • The importation of goods and the subsequent domestic supply of the imported goods
  • The receipt of goods in Latvia that are to be exported and that are stored under warehousing arrangements, and the subse­quent exportation of those goods
  • The intra-Community acquisition of goods that are to be exported and are stored under warehousing arrangements, and the subsequent exportation of those goods

VAT fiscal representatives must present a power of attorney, and they are responsible for payment of the VAT liabilities of the nonresident taxable person whom they represent. They must file monthly VAT returns in electronic format.

Effective 1 January 2014, persons established outside the EU are no longer required to appoint a fiscal representative to register for VAT purposes, and they can register in their own names. However, they may still opt to appoint a fiscal representative.

Late-registration penalties. No specific penalty applies to late registration. However, the following penalties may be assessed if VAT is not paid or if VAT returns are not filed as a result of late registration or non-registration:

  • An administrative penalty in the amount of EUR210 to EUR350 may be imposed for non-registration in the VAT tax­able person’s register.
  • A penalty may be imposed for undeclared VAT. In such circum­stances, undeclared VAT must be paid, together with a penalty of up to 30% of the unpaid VAT and late payment fines of 0.05% per day.
  • A penalty in the amount of 0.05% per day may be imposed for late VAT payments.

Domestic reverse charge. Domestic supply of timber products and related services are subject to the reverse-charge mechanism if the supplier and customer are taxable persons.

Domestic supplies of specified scrap materials and related ser­vices are subject to the reverse-charge mechanism if the supplier and customer are taxable persons and the customer is licensed to purchase scrap materials in Latvia or, lacking such a license, has obtained a permit for performing A- or B-category polluting activities or for collecting, handling, sorting or storing waste. Scrap materials include certain ferrous and nonferrous scrap, car wrecks, electrical and electronic waste, and batteries.

Effective from 1 January 2012, the domestic supply of construc­tion services (such as construction of new buildings or recon­struction of a part or the whole of existing buildings) and construction-related services is subject to the reverse-charge mechanism if the supplier and customer are taxable persons and if the construction services are performed based on agreements concluded on or after 1 January 2012. With respect to construc­tion services provided based on agreements concluded on or before 31 December 2011, the reverse-charge mechanism is applicable from 1 January 2013.

Effective from 1 April 2016, the domestic supply of mobile phones, computer hardware and integrated circuits is subject to the reverse-charge mechanism if the supplier and customer are taxable persons.

Effective from 1 July 2016, the domestic supply of cereals and industrial crops is subject to the reverse-charge mechanism if the supplier and customer are taxable persons.

Digital economy. In case of digital services, telecom services or broadcasting services supplied in a B2B context, the place of supply is the place where the recipient is established. No Latvian VAT should be charged, and reverse charge applies unless sup­plier and customer are established in Latvia.

In case of digital services, telecom services or broadcasting ser­vices supplied in a B2C context, until the end of 2014 only Latvian businesses and foreign businesses that are not estab­lished in the EU were liable to charge Latvian VAT to the recipi­ents that are established in Latvia. Effective 1 January 2015, Latvian VAT is always due in case of supply to customers estab­lished in Latvia, disregarding whether the supplier is established inside or outside the EU. We refer to the section on MOSS below for more information.

Mini One-Stop Shop. On 1 January 2015, a new optional simplifi­cation measure called “Mini One-Stop Shop” (MOSS) entered into force with respect to telecommunications services, broad­casting services and electronically (TBE) supplied services.

The MOSS scheme allows all taxable persons supplying TBE services to nontaxable persons in EU Member States in which they do not have an establishment to account for the VAT due on those supplies via a web portal in the Member State in which they are identified.

This scheme was introduced in connection with the change to the place of supply rules with respect to electronically supplied TBE services rendered cross-border within the EU. Effective from 1 January 2015, the supply of these services is generally consid­ered as taking place in the Member State of the customer, not the Member State of the supplier. The MOSS allows qualifying tax­able persons to avoid registering in each Member State of con­sumption and it is available both for taxable persons established and not established in the EU.

The MOSS generally mirrors the scheme that is in place now for non-EU established suppliers of electronically supplied TBE services to customers. Persons already registered under the pre­existing scheme for electronically supplied TBE services, should retain their existing individual VAT identification numbers for the purposes of the MOSS.

Deregistration. The State Revenue Service has the right to exclude a person from the register of taxable persons if:

  • The taxable person submits an application for removal from the VAT register.
  • The taxable person has been liquidated or reorganized.
  • The economic activity of the taxable person is suspended.
  • The taxable person does not submit a VAT return within one month of the submission deadline, or he or she provides false information in a VAT return and does not correct this, following a written request to do so from the tax administration.
  • The taxable person cannot be reached at his or her legal address or the declared place of residence (or if the address does not exist).
  • A VAT group no longer complies with the registration condi­tions.

Effective from 1 June 2016, the State Revenue Service has the right to suspend a taxable person’s registration number if possible fraudulent activities are identified.

In addition, effective from 1 July 2016, the State Revenue Service has the right to exclude a person from the register of tax­able persons if either of the following conditions exists:

  • The taxpayer is considered to be a risk person.
  • The taxpayer has not had economic activity for three months.

Effective from 1 July 2016, a person is excluded from the taxable persons register by the State Revenue Service if any of the fol­lowing conditions exist:

  • Material, technical or financial transactions of the taxable per­son do not match the field of its economic activity.
  • The taxable person’s registration number has been suspended and they do not apply for renewal of the registration code.
  • The taxable person doesn’t provide the State Revenue Service with requested information regarding its material, technical and financial activities.

VAT rates

The term “taxable supplies” refers to supplies of goods and ser­vices that are subject to VAT.

In Latvia, the following rates of VAT apply:

  • Standard rate: 21%
  • Reduced rate: 12%
  • Zero rate (0%)

The standard rate of VAT applies to all supplies of goods or ser­vices, unless a specific measure provides for the reduced rate, the zero rate or an exemption. When an exemption is granted, there may be an option to tax.

Examples of supplies of goods and services taxable at 0%

  • Exports of goods and related services
  • Intra-Community supply of goods
  • International transport
  • Tourism services provided outside Latvia

Examples of goods and services taxable at 12%

  • Mass media and subscriptions thereto, except erotic material and pornography
  • Specialized products for infants
  • Medicines and medical devices (those authorized by state phar­maceutical authorities)
  • Literature printed especially for schools and univer sities, as well as original literature (specified by Latvian National Library)
  • Firewood and fuel wood supplied to natural persons
  • Supply of thermal energy to natural persons
  • Public transport services provided in Latvia
  • Accommodation services provided in Latvia

Exempt supplies. The term “exempt supplies” refers to supplies of goods and services that are not subject to VAT and that do not give rise to a right of input VAT deduction. When an exemption is granted, there may be an option to tax.

Examples of exempt supplies of goods and services

  • Financial services
  • Insurance and reinsurance services
  • Health and welfare services
  • Education and cultural services
  • Postal services provided by Latvijas Pasts
  • Betting and gambling

Options to tax. Real estate transactions are generally exempt except for the sale of unused real estate or part of it and the sale of building land. In general, a plot of land is considered to be building land if building permission was issued after 31 December 2009. Effective 1 January 2013, an option to tax has been intro­duced for supplies of “used” real estate made to taxable persons.

Time of supply

In general, VAT is due when the following events occur:

  • For local supplies and intra-Community supply of goods, the time when goods are delivered or service is performed, and the VAT invoice is issued.
  • A prepayment is received in accordance with the prepayment invoice issued, except in the case of an intra-Community supply of goods.

However, for a supply of services subject to the new place of supply rules under EU Directive 2008/8/EC, VAT is due when the service is performed or the prepayment is received.

A VAT invoice must generally be issued within 15 days after services are rendered or goods are supplied. If the transaction is performed continuously over a long period of time, the VAT invoice may be issued for a period not exceeding 1, 6 or 12 months, depending on the type of transaction.

Intra-Community acquisitions. VAT related to the intra-Commu­nity acquisition of goods must be paid when the goods are received and the VAT invoice is issued.

If a tax invoice has not been issued within the allowed number of months, the VAT due must be included in the VAT declaration for the tax period following the period in which the intra-Communi­ty acquisition is made.

Imports. Import VAT becomes due when goods are released for free circulation.

VAT on imports that is paid to the state budget may be deducted as input VAT on VAT returns filed for the period in which the goods are released for free circulation, that is, when the import VAT has been paid into the state budget.

Under the Latvian VAT Law, the principle of postponed account­ing rules (declaration of VAT by way of reverse-charge mecha­nism) can be applied to the importation of fixed assets if the following conditions are satisfied:

  • The importer of goods is a VAT taxable person, it performs the import of goods within the framework of its business activities and it has obtained the special authorization/permit from the tax authorities.
  • The importer of goods is a fiscal representative representing VAT taxable person of another EU or non-EU country and it has obtained the special authorization/permit from the tax authori­ties.

To receive the respective special authorization/permit, the fol­lowing conditions must be satisfied:

Postponed VAT accounting corresponds to the principle that instead of physical payment of import VAT into the State budget, the taxpayer may declare it by way of reverse-charge VAT. Until 1 December 2009 such principle (under specific conditions) applied with respect to fixed assets (see above). However, under amendments to the Latvian VAT Law, effective from 1 December 2009, the postponed VAT accounting mechanism can also be applied to the importation of goods that are to be released in free circulation in the EU. However, a taxable person is entitled to apply the postponed accounting mechanism only if the person has received in advance a special permit from the Latvian State Revenue Service. To receive this permit, the following conditions must be satisfied:

  • The taxable person must have registered its economic activities in Latvia.
  • The taxable person is a registered client of the State Revenue Service electronic reporting system.
  • On the date of submission of the application to receive the permit, the taxable person does not have a tax debt relating to previous tax periods, or such tax debt is paid within five work­ing days after the submission date of the application.
  • The employee who has authority to sign the application has not been punished for criminal offenses of an economic nature.
  • By a date specified by the State Revenue Service, the taxable person provides informative reports or additional information that is necessary to determine the amount of tax payable to the State budget or the amount of an overpayment.

Nevertheless, the taxable person is still authorized to apply the postponed accounting rules with respect to import of goods even without the special authorization/permit if the following condi­tions are met:

  • The taxable person imports fixed assets, which are intended fully or partially for use in its taxable transactions within a period of at least 12 months from the time of importation of the fixed assets.
  • The value of the fixed assets (excluding VAT) is at least EUR710.
  • The taxable person does not have a tax debt for previous tax periods.

A passenger car would qualify as such a fixed asset if imported by a taxable person engaged in the basic activity of leasing or hire-purchase transactions with passenger cars or the provision of taxi services and vehicle driver training.

Cash accounting. Latvia operates a voluntary cash accounting scheme. To use cash accounting, a taxpayer’s transactions (threshold) are generally not more than an annual turnover of EUR100,000. A threshold of up to EUR500,000 is applicable to taxable persons in specified industries, e.g., some types of farm­ers.

Additionally, effective from 1 July 2016, supply of residential house maintenance and management services is subject to the voluntary cash accounting scheme if the total value of transac­tions for a taxpayer in the previous taxation period is between EUR100,000 and EUR2 million.

Reverse-charge services. Generally, the reverse-charge VAT is also applicable to the purchase of services from other EU and non-EU VAT taxable persons, as well as on intra-Community acquisitions of goods. Additionally, the local reverse-charge mechanism applies to the transactions mentioned under Domestic reverse charge above.

Continuous supplies of services. If a local supply of services is performed without interruption over a long period of time, the tax shall become payable/declarable at the time payment for the service is received or the relevant filing period ends, but not less frequently than once in every six-month period.

Where an intra-Community supply of services is performed without interruption over a period of time that exceeds one year, and during this period no tax invoices are issued and no payments made, the tax becomes payable/declarable at the end of each year until the moment when the supply of services is fully completed.

Where an intra-Community acquisition of services is performed without interruption over a period of time that exceeds one year, and during this period no tax invoices are received and no pay­ments made, the transaction becomes declarable at the end of each year until the moment when the purchase of services is fully completed.

Prepayments. VAT paid on goods supplied or services provided is to be paid into the State Budget during the filing period in which the goods were dispatched or the services provided and the tax invoice issued (except for intra-Community supply of ser­vices) or an advance payment made (except for intra-Community supply of goods) in accordance with the tax invoice. This means that if an advance payment or a pre-payment is received before the supply is performed, VAT is due at the end of the filing period in which the advanced consideration is received.

Intra-Community acquisitions. According to VAT Law, intra­Community acquisition of goods is defined as acquisition of rights to dispose with goods as an owner, if respective goods are sent from one Member State to another Member State by the sup­plier, recipient or by third party on behalf of supplies or recipient.

The place where an intra-Community acquisition of goods takes place is the place where the goods are located at the end of the transportation to the person acquiring the goods, i.e., the place of an intra-Community acquisition of goods shall be Latvia if the goods are transported from another Member State to Latvia (inland). In addition, if the buyer is a Latvian taxable person and uses its Latvian VAT identification number in respect of the intra­Community acquisition, that intra-Community acquisition is also taxable in Latvia. However, this provision shall not be applicable if the buyer proves that the intra-Community acquisition was taxed in the state of arrival of the goods, namely, in case of trian­gular transactions.

The transfer of goods owned by a taxable person between Member States is treated as a deemed intra-Community acquisi­tion of goods if the taxable person uses the goods for his or her own business purposes.

Intra-Community supplies of goods. An intra-Community supply of goods is one whereby the goods are dispatched or transported from Latvia to another Member State by or on behalf of the sup­plier or the person to whom the supply is made. To be able to apply the zero rate to such supplies, the supplier must have a valid VAT identification number from the customer issued by a Member State other than Latvia and evidence that the goods have actually left the territory of Latvia.

The transfer of goods owned by a taxable person between Member States is treated as a deemed intra-Community supply of goods if the taxable person uses the goods for their own business purposes.

Leased assets. The leasing or hiring of movable goods, including means of transport, is a supply of services in so far as the lease qualifies as an operational lease. According to the VAT Law, a financial lease (lease of movable goods where at the end of the lease period the ownership of the movable goods is transferred to the lessee) is considered as a supply of goods.

Recovery of VAT by taxable persons

A taxable person may deduct input VAT, which is the VAT charged on goods and services supplied to it for business pur­poses. A taxable person generally recovers input VAT by deduct­ing it from output VAT, which is VAT charged on supplies made.

Input VAT includes VAT charged on goods and services supplied in Latvia, VAT paid on imports of goods, and VAT self-assessed for intra-Community acquisitions of goods, for reverse-charge services received from foreign persons, as well as for domestic reverse-charge services, namely, supplies of specified scrap materials, supply of timber products and related services, supply of electronics (e.g., mobile phones, computer hardware, inte­grated circuits), provision of construction services and supply of cereals and industrial crops.

The amount of the VAT reclaimed must be supported by a valid VAT invoice.

Nondeductible input VAT. Input VAT may not be recovered on purchases of goods and services that are not used for business purposes (for example, goods acquired for the private use of an entrepreneur). In addition, input VAT may not be recovered for some items of business expenditure.

The following lists provide some examples of items of expendi­ture for which input VAT is not deductible and examples of items for which input VAT is deductible if the expenditure is related to a taxable business use.

Examples of items for which input VAT is nondeductible

  • Hotel accommodation (if nonbusiness expenditure)
  • Business gifts (except representation gifts with the company logo for which 40% of the input VAT is deductible)
  • Taxi services (if nonbusiness expenditure)
  • Business and employee entertainment

Examples of items for which input VAT is deductible
(if related to a taxable business use)

  • Purchase, lease and hire of vans and trucks
  • Fuel for vans and trucks
  • Purchase, lease and hire of cars, including maintenance costs such as fuel and repair costs
    • 100% deductible if the car has fewer than eight passenger seats and the car’s exclusive use in taxable transactions of the business is documented in accordance with the law’s requirements
    • 50% deductible if the car has fewer than eight passenger seats and car’s value is less than EUR50,000 (VAT exclud­ed), i.e., not a luxury car
  • Purchase, lease and hire of luxury cars, including maintenance costs such as fuel and repair costs (effective 1 January 2014):
    • 100% deductible, if it can be proved that the luxury car is fully used in making taxable transactions of the business
    • 0% deductible, if the taxpayer is not able to prove that the luxury car is fully used in taxable transactions of business
  • Parking
  • Mobile phones
  • Advertising
  • Books
  • Taxi services

Partial exemption. Input VAT directly related to performing VAT-exempt supplies is not recoverable. If a Latvian taxable person makes both VAT-exempt supplies and taxable supplies, it may not deduct input VAT in full. This situation is referred to as “partial exemption.”

The amount of input VAT that may be deducted by a partially exempt business is calculated based on the percentage of taxable supplies to total supplies made each month. The monthly calcula­tion is adjusted annually.

Effective 1 January 2014, the percentage of deductible input VAT is to be rounded up to the next whole number (e.g., 19.2% is rounded up to 20%).

If a taxable person makes both taxable and VAT-exempt supplies and if the value of its taxable supplies is greater than 95% of the total value of its supplies in the period, the taxable person may deduct input VAT in full (without applying the partial-exemption calculation) on a monthly basis. A taxable person that is in this position must adjust its input VAT deduction on an annual basis.

Effective 1 January 2013, partially exempt taxable persons must apply separate VAT accounting to allocate input tax to taxable and exempt supplies. The use of a pro rata calculation is allowed only in cases where separate accounting cannot be used.

Capital goods. Capital goods are items of capital expenditure that are used in a business over several years.

In Latvia, the capital goods adjustment applies to the following assets for the number of years indicated:

  • Immovable property: 10 years
  • Fixed assets that have a purchase or producing value (expendi­ture incurred to produce a fixed asset) exceeding EUR71,144 excluding VAT: five years

The amount of input tax recovered depends on the taxable per­son’s partial exemption recovery position in the VAT year of construction, production or acquisition. However, the amount of input tax recovered for capital goods must be adjusted over time if the taxable person’s partial exemption recovery percentage changes during the adjustment period.

During the construction, production or purchase phase for real estate or a fixed asset, the input VAT is deducted according to the normal rules. The adjustment is applied each year following the year of construction, production or acquisition, to a fraction of the total input tax (1/10 for immovable property and 1/5 for the fixed assets). The adjustment may result in either an increase or decrease of deductible input tax, depending on whether the ratio of taxable supplies made by the business has increased or decreased since the year in which the capital goods were acquired.

An adjustment is not made if the proportion does not change dur­ing the tax year.

If immovable property or a part of it is sold as VAT-exempt sup­ply within a period of 10 years after its acquisition or acceptance for service, the taxable person must repay to the state budget an amount of input tax equal to an amount calculated by multiplying 1/10 of the deducted input tax by the number of years that remain in the 10-year adjustment period. This repayment is included in the value of the immovable property, and the purchaser may not deduct it as an input tax.

Refunds. Under amendments to the Law on Value-Added Tax, effective from 1 July 2010, the State Revenue Service may carry forward overpaid VAT incurred on or after 1 July 2010 to the next tax period within 30 days after it receives the VAT return for the respective tax period.

The transfer of the overpaid VAT to the next tax period may occur after any other tax liabilities of the taxpayer are fulfilled.

If, after the fulfillment of other tax liabilities, an amount of over­paid VAT amount remains, the respective VAT amount may be forwarded to the following tax period.

If, at the end of the tax year, an amount of overpaid VAT for the taxpayer remains, the overpaid VAT is repaid to the taxpayer’s bank account within 10 days after the State Revenue Service receives the VAT return for the final month of the respective tax year and approves the overpaid VAT amount.

The State Revenue Service refunds overpaid VAT incurred during the tax period if at least one of the following conditions is met:

  • The total amount of the taxpayer’s zero-rated transactions and the transactions that have a place of supply not in Latvia account for at least 90% of the total value of taxable transactions.
  • The overpaid VAT amount exceeds EUR1,500, and the total amount of zero-rated transactions, reduced-rate transactions and transactions that have a place of supply not in Latvia account for at least 20% of the total value of taxable transac­tions.
  • The overpaid VAT amount incurred for fixed assets exceeds EUR143, and the taxable person requests a refund of the VAT overpayment.
  • The overpaid VAT amount exceeds EUR1,500 and it is incurred for goods and services purchased for transactions involving timber, scrap metal, electronics (e.g., mobile phones, computer hardware, integrated circuits), cereals and industrial crops or provision of construction services.
  • The overpaid VAT amount exceeds EUR1,383.

The State Revenue Service may delay the refund of an overpaid tax amount by notifying the taxpayer in writing if any of the fol­lowing circumstances exist:

  • A decision has been made to conduct examinations and audits regarding the transactions and to seek necessary information for such examinations and audits. The period of the delay extends to the date on which the tax administration completes its evaluation of the transactions and reaches a decision regard­ing the justification for the application.
  • The taxpayer cannot provide documentary evidence justifying the application of the 0% tax rate. The period of the delay extends until the date on which the documents are submitted verifying the exports or otherwise confirming the application of the 0% tax rate.
  • The overpaid tax must be reduced by the amount of tax paid with respect to bad debts. The period of the delay extends to the date on which the reduction takes place.

Bad debts. Effective from 1 December 2009, a new rule regarding the recovery of bad debts applies. Under the new rule, taxable persons who supply goods or provide services may recover VAT related to their bad debts if specific conditions are met. VAT recovery can be performed on an annual basis.

Preregistration costs. Input VAT may be subject to VAT recovery if the goods or services were acquired up to 15 months before an entity was registered as VAT payer. Administrative services such as rent of premises and fuel costs are excluded, and additional rules apply.

Noneconomic activities. The following activities are considered to be noneconomic activities:

  • Employment (under employment contract)
  • Activities of state and local government authorities (with cer­tain exceptions)

Recovery of VAT by non-established businesses

Latvia refunds VAT incurred by businesses that are not estab­lished in Latvia nor are required to be registered for VAT there. Non-established businesses may claim Latvian VAT refunds to the same extent as VAT-registered businesses.

Refund application. For businesses established in the EU, refund is made under the terms of EU Directive 2008/9/EC; for busi­nesses established outside the EU, refund is made under the terms of the EU 13th Directive.

The application form may be completed in Latvian or in English.

Refund claims may be made for the following periods:

  • One calendar year or a period of less than three months if the claim is made for the last three months of the calendar year (that is, the period from 1 October to 31 December)
  • A period of at least three calendar months and less than one calendar year

For non-EU taxable persons, a claim for a complete calendar year must exceed EUR50, and a claim for a period of less than a cal­endar year, but longer than three months, must exceed EUR400.

For EU taxable persons, the amount of the claim in an application for a complete calendar year must exceed EUR50, and the amount of claim in an application for a period shorter than a calendar year, but longer than three months, must exceed EUR400 or the equivalent in other currency.

For non-EU taxable persons, the documents must be submitted to the State Revenue Service within the following time limits:

  • For a claim for one calendar year or a period of less than three months (limited to the last three calendar months of the year): by 30 September of the following year
  • For a claim for a period of at least three calendar months but not longer than one calendar year: within three months after the end of the period indicated on the application form

The documents must be submitted to the State Revenue Service by 30 September of the period following the requested refund period if the request is for period of one year, or within three months from the end of request period if the request is for period less than one year. In practice, the VAT could be refunded within a four-month period from the date of submission of the docu­ments. This period may be prolonged if the tax authorities ask for additional information. In such case, the State Revenue Service will make a decision on a tax refund within a period of four months from the date of receipt of all relevant documents and information additionally required and submitted by the respective taxable person.

For EU taxable persons, the VAT refund request must be submit­ted via the local tax authorities according to the principles pro­vided by EU Directive 2008/9/EC.

The decision on the VAT refund for persons from other EU Member States is made within four to eight months, depending on whether additional information is required by the State Revenue Service or the tax authorities of the other EU Member States.

Invoicing

VAT invoices and credit notes. A Latvian taxable person must generally provide a VAT invoice for all taxable supplies made and for exports within 15 days after the supply has been made or advance payment has been received.

A VAT credit note may be used to reduce the VAT charged and claimed on a supply. The document must be clearly marked “credit note,” and it should refer to the original invoice. It is recom­mended that a credit note also indicate the reason for the correc­tion and any new items arising from it.

Electronic invoicing. Effective 1 January 2013, the Latvian VAT Law has been amended to permit electronic invoicing in line with EU Directive 2010/45/EU.

Proof of exports. The zero VAT rate applies to exports of goods and intra-Community supplies of goods. Export supplies and intra-Community supplies of goods must be accompanied by evidence confirming that the goods have left the territory of Latvia. Suitable evidence includes the stamped customs exporta­tion documentation or international transportation documents such as the CMR or bill of lading.

Invoices issued in a foreign currency. Effective 1 January 2014, if an invoice is issued in a currency other than the euro, the amount of the VAT must be converted to euros. The conversion must be done using the official exchange rate quoted by the European Central Bank on the date of the supply or on the date when the advanced payment has been received.

B2C invoices. B2C invoices may be issued upon request of the customer. However, if no invoice is issued, a supplementary inter­nal document shall be issued for accounting and reporting pur­poses.

Effective 1 January 2015, new rules applied to the place of sup­ply for supplies of telecommunications, broadcasting and elec­tronic services to non-VAT taxable customers. For further details of the VAT rules on electronic services in the EU, please refer to the European Union chapter.

VAT returns and payment

VAT returns. In general, VAT returns may be filed monthly, quar­terly or semiannually, depending on the amount of taxable sup­plies made by the taxable person and the transaction types. A VAT return must be filed by the 20th day of the month following the end of the tax period via the Electronic Declaration System.

VAT returns must be filed every six months if, during the year before the tax year, the amount of taxable transactions of the tax­able person did not exceed EUR14,229, and if the taxable person did not perform intra-Community supplies of goods or supply services that had a place of supply in other EU Member States.

VAT returns must be filed on a quarterly basis if, during the year before the tax year, the amount of taxable transactions exceeded EUR14,229 but did not exceed EUR50,000, and if the taxable person did not perform intra-Community supplies of goods or supply services that had a place of supply in another EU Member State.

VAT returns must be filed on a monthly basis if the amount of taxable transactions performed by a taxable person during the year before the tax year or during the tax year exceeds EUR50,000 or if the taxable person supplies goods or services within the EU.

Special schemes. There are special schemes for small businesses; farmers; travel agents; dealers in secondhand goods, works of art, collectors’ items and antiques; auctions, investment gold and electronically provided services.

Small businesses. The voluntary special regime for small busi­nesses is applicable to a taxable person who complies with at least one of the following criteria:

  • Taxable transactions in the previous tax year have not exceeded EUR100,000.
  • At the time of VAT registration, there is no expectation that tax­able transactions in excess of EUR100,000 will be performed in the tax year.

The special regime provides that small enterprises, as well as persons who produce agricultural products specified in the VAT Law, can remit VAT to the State Budget in the tax period in which the payment for supplies of goods or services is received. However, input VAT can only be deducted in the period in which invoices from other taxable persons are paid.

Additionally, effective from 1 July 2016, suppliers of residential house maintenance and management services that exceed the transaction threshold of EUR100,000 may also apply for this scheme if the total value of transactions does not exceed EUR2 million.

Farmers. The VAT Law provides a special flat-rate scheme for legal and private persons that produce agricultural products and are not registered as taxable persons.

Farmers subject to the flat-rate scheme cannot deduct input VAT. They are also not allowed to charge VAT on their agricultural outputs. Input VAT is, therefore, a cost for this type of farmer. The flat-rate scheme is based on the economic assumption that the farmers will and can transfer the burden of VAT, i.e., the price of goods supplied by such farmers includes the nondeductible input VAT.

Farmers subject to the flat-rate scheme are indirectly compen­sated by their customers for their input VAT. To avoid the accu­mulation of VAT, the customer is entitled to deduct the average input VAT burden on supplies made to him by the flat-rate farmer. The average VAT burden is set at a percentage of the sup­ply price. The current flat rate is 14% of the farmer’s supply price.

The scheme can only be applied to supplies of agricultural goods and services made by farmers in the course or furtherance of their agricultural business. If a farmer has voluntarily registered as a taxable person, the general rules regarding liability to VAT, issuing invoices and deducting input VAT apply.

If a flat-rate farmer also runs a non-agricultural business, the farmer’s supplies of goods and services from the latter are taxed (unless exempt) according to the normal rules if the farmer is required to register as a taxable person.

If a flat-rate farmer supplies agricultural goods to a taxable per­son in another Member State, the acquisition is taxed in that other Member State.

If a flat-rate farmer is the recipient of an intra-Community supply of goods and the total of the farmer’s purchases is less than EUR10,000, the supply is taxed in the Member State of supply. The flat-rate farmer must register as a taxable person and is liable for VAT in Latvia on acquisitions of goods over this threshold. According to VAT Law, a flat-rate farmer can choose to be taxed in Latvia even if the value of the farmer’s intra-Community acquisitions is less than EUR10,000.

A taxable person who has been registered as a taxable person for VAT purposes before exceeding the EUR10,000 threshold may submit to the State Revenue Service an application for exclusion from the VAT registry not earlier than two years after registering.

Travel agents. VAT Law provides for a special arrangement with regard to the taxation of margins of tour operators. The tax shall be applied to the services provided by tour operators if the tour operator acts in its own name and in favor of a traveler, and uses supplies of goods and services provided by other persons for ensuring tourism services provided to the traveler.

All activities performed by inland tour operators related to travel shall be deemed to be a single service that the tour operator pro­vides to the traveler. Such a service is taxable.

The taxable amount regarding services provided by tour opera­tors shall be the difference between the total amount (without tax) paid by the recipient of the service (a traveler) and the actual costs of the supply of goods and services that are provided to the tour operator by other persons.

The tax calculated by a tour operator for the services that it pro­vides (including compiling a travel package, publication of advertising brochures, etc.) shall be included in the total value of the travel package and collected from the recipient of the service. In calculating the amount of the tax payable into the budget, the tax paid for ensuring the tour operator’s own services (including lease of premises, telephone calls, electricity, etc.) shall be deductible as input tax.

A tour operator must calculate the value of services provided and include it in the tax declaration for the taxable period in which the service was provided to the traveler and invoices were received from other persons in relation to the supply, but not later than in the next taxable period after the service has been provided to the traveler.

The tax for other tourism-related (travel-related) services (includ­ing services of hotels, transport, catering services, etc.), which are actually provided in Latvia by other taxable persons, shall be included in the total value of the charge for the travel services and is collectible from the recipient of the service. The amount of tax collected for these services is transferred, in full, by the tour operator to the actual providers of the services. A tour operator may not deduct this amount as input VAT.

The value of the services provided by a tour operator himself is taxable at the standard rate. If the services provided by tour operators are provided both within the territory of the European Union and outside it, the 0% tax rate shall be applied only to that part of the services that is provided outside the territory of the European Union.

Secondhand goods, works of art, collectors’ items and antiques. Taxable dealers are taxable persons who have, as their regular business, trade in secondhand goods, works of art, antiques and collectors’ items. A taxable dealer who purchases goods falling within one of these categories from a person who did not or was not entitled to deduct the input VAT can use the difference between the selling price and the purchase price (the profit mar­gin) as the taxable amount.

A taxable dealer who makes use of the margin scheme cannot show VAT on the invoice. As no VAT is shown on the invoice, the purchaser cannot deduct input VAT. The secondhand goods VAT scheme is optional; dealers may choose to apply the general VAT regime.

The margin scheme may be applied where a taxable dealer imports works of art, antiques and collectors’ items, or when works of art are supplied to the dealer by the artist, by the succes­sor in title or by a taxable person other than a taxable dealer.

The special margin scheme is not applicable to the supply of new means of transport.

The taxable dealer must issue a “purchase declaration” (iepirku­ma akts) to the seller on the purchase of goods. The purchase declaration should contain the following data:

  • The name and the VAT identification number of the taxable dealer
  • The legal address of the taxable dealer
  • The number and date of the purchase declaration
  • The registration number in the accounting register of the pur­chaser
  • The name, the registration number (if available VAT registration number) and the legal address of the seller
  • A clear description of the goods (for cars and motorcycles: the make, the year of production, the chassis number, the unladen mass, the engine capacity and the color)
  • The identification number of the goods; for cars and motorcy­cles, the state registration number assigned by the Road Traffic Safety Directorate (Ceļu satiksmes drošības direkcija)
  • The purchase price of the goods
  • The purchase price of the goods excluding VAT
  • The VAT (if applicable)
  • The purchase price including VAT
  • The signatures of the taxable dealer and the seller

Supplies through auctions. If a bailiff enforcing an adjudication of a court sells the property of a taxable person, VAT is imposed on the market value (price) or the auction price of the property.

The tax on the sale of the property in the auction must be paid into the State Budget by the bailiff within 20 days of when the amount calculated is applied and cannot be appealed.

Investment gold. Articles 344-356 of the VAT Directive (Council Directive 2006/112) have been implemented into the Latvian VAT Law so as to provide for a special arrangement for the sup­ply of investment gold. Investment gold is defined as:

  • Gold, in the form of bars and plates, with a purity of at least 995/1,000, whether or not in the form of securities
  • Gold coins that:
    • Have a purity of at least 900/1,000
    • Were minted after 1800
    • Are or have been accepted as legal tender in the country of origin
    • Are usually sold at a price which does not exceed by more than 80% the open market value of the gold contained therein

According to the primary rule, the local and intra-Community supply of gold in the above forms is exempt from VAT. Imports and intra-Community acquisitions of investment gold are also exempt from VAT. In addition, the exemption applies to interme­diary services supplied by agents.

The following suppliers of investment gold may opt for taxation according to the general VAT rules:

  • A manufacturer of investment gold or a person modifying gold into investment gold
  • A taxable person who supplies investment gold for industrial purposes in the course of his or her normal business
  • An intermediary in the supply of investment gold, provided that the supplier has also opted to tax his or her supply

An option to tax must be made by notifying the tax authorities in advance in writing.

A supplier who does not opt for taxation but, rather, uses the exemption for the supply of investment gold can still deduct input VAT on the following:

  • The acquisition of investment gold that was supplied by a tax­able supplier (in Latvia and other Member States) who exer­cised an option to tax
  • The acquisition of gold other than investment gold from taxable suppliers (in Latvia and in other Member States), on the assumption that the supplier changes the gold into investment gold
  • Services received for changing the shape, weight or content of investment or other gold

A taxable person who produces investment gold or changes gold into investment gold can deduct VAT in connection with the local acquisition, the import or the intra-Community acquisition of goods or services that have a connection with the production or the modification of that gold.

The reverse-charge mechanism is applicable if the option for taxation is applied.

With regard to a taxable person who performs transactions with investment gold, the documents that are associated with such transactions must be retained for five years after the end of the calendar year in which the transaction occurred.

A nonresident taxable person should submit, by electronic means, a VAT return in respect of each calendar quarter, whether or not electronic services have been supplied. The VAT return should be submitted within 20 days of the end of the calendar quarter that is covered by the return.

Third-country suppliers that supply electronic services and have chosen Latvia as the Member State of VAT identification can obtain a refund of the Latvian VAT related to their Latvian tax­able activities based on the Thirteenth VAT Directive (Council Directive 86/560).

In addition, as of 1 January 2015 it will enter into force a new optional simplification measure called “Mini One-Stop Shop” (MOSS) with respect to telecommunications services, broadcast­ing services and electronically (TBE) supplied services. The MOSS scheme will allow all taxable persons supplying TBE services to nontaxable persons in EU Member States in which they do not have an establishment to account for the VAT due on those supplies via a web portal in the Member State in which they are identified.

This scheme is introduced in connection with the change to the place of supply rules with respect to TBE services rendered cross-border within the EU, effective from 1 January 2015, according to which the supply of these services shall generally take place in the Member State of the customer, and not the Member State of the supplier. The MOSS allows qualifying tax­able persons to avoid registering in each Member State of con­sumption and it will be available both for taxable persons established and not established in the EU.

The MOSS generally mirrors the scheme that is in place now for non-EU established suppliers of TBE services to customers. Persons already registered under the pre-existing scheme for TBE services, should retain their existing individual VAT identifica­tion numbers for the purposes of the MOSS.

Taxable persons supplying TBE services may register for the new MOSS as of 1 October 2014 with the State Revenue Service. If a supplier registers for the MOSS from 1 October 2014 to 31 December 2014, the registration will come into effect from 1 January 2015.

Electronic filing and archiving. An entrepreneur must store dupli­cates of the invoices issued and invoices received for a period of five years, except with respect to invoices relating to immovable property. Regarding the latter, invoices shall be stored for a period of 10 years. The duplicates should be stored in Latvia, except when they are stored by electronic means and full on-line access to the data concerned is guaranteed to State Revenue Service representatives.

Annual returns. The taxable person must submit an annual VAT return in the following circumstances:

  • The proportion of taxable and nontaxable transactions for the taxation year has changed and it is not provided otherwise by the VAT Law.
  • Any tax due or input tax deducted is adjusted according to the requirements listed in the VAT Law.
  • Financial services are performed/supplied.
  • A deposit system is applied to reusable packaging according to the packaging regulation.

This must be submitted prior to 1 May of the following year. In addition, the respective tax amount also has to be paid prior to 1 May of the following year.

Penalties

An administrative penalty for the non-submission of a VAT return is payable to the state budget in an amount ranging from EUR70 to EUR700. In addition, the tax authorities can exclude the tax­payer from the registry of VAT-taxable persons.

Also, penalties may be imposed for undeclared VAT. In such case, the undeclared VAT must be paid, together with a penalty of up to 30% of the unpaid VAT amount and a late penalty fine in the amount of 0.05% per day.

A penalty for late VAT payment is imposed in the amount of 0.05% per day.

EU filings

Intrastat. A taxable person that trades with other EU countries must complete statistical reports, known as Intrastat, if the value of either its sales or purchases of goods exceeds certain thresh­olds. The applicable form, which must be submitted to the Central Statistical Bureau of the Republic of Latvia, depends on the threshold prescribed for acquisitions and supplies, respec­tively. The following are the Intrastat thresholds, effective from 1 January 2016:

  • EUR180,000 for intra-Community acquisitions (if this thresh­old is met, Intrastat 1A must be submitted)
  • 5 million for intra-Community acquisitions (if this thresh­old is met, Intrastat 1B must be submitted)
  • EUR130,000 for intra-Community supplies (if this threshold is met, Intrastat 2A must be submitted)
  • EUR4 million for intra-Community supplies (if this threshold is met, Intrastat 2B must be submitted)

The Intrastat return must generally be submitted on a monthly basis. The submission deadline is the 10th day of the month fol­lowing the return period.

Penalties may be imposed for late, missing or inaccurate declara­tions.

EU Sales Lists and EU Purchase Lists. If a taxable person makes intra-Community supplies of goods and services in a return period, it must submit an EU Sales List (ESL) to the State Revenue Service. An ESL must be submitted as an appendix to the VAT return.

ESLs must be submitted electronically on a calendar monthly basis by the 20th day following the end of the month.

If a taxable person makes intra-Community acquisitions of goods and services in a return period, it must submit an EU Purchase List (EPL) listing intra-Community acquisitions of goods and servic­es to the State Revenue Service. The EPL must be submitted as an appendix to the VAT return.

EPLs must be submitted electronically on a calendar monthly basis by the 20th day following the end of the month.

Penalties may be imposed for late, missing or inaccurate ESLs and EPLs.