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  • Service: Tax, Global Indirect Tax
  • Type: Regulatory update
  • Date: 6/1/2013

Latvia: VAT essentials 

Essential information regarding VAT as it applies in Latvia.


Scope and Rates

What supplies are liable to VAT?


Value-added tax (VAT) is due on any supply of goods or services (including private use). Supply includes all forms of goods supplied or services rendered.


Provision of representation goods or services to clients is not deemed to be a supply.


What is the standard rate of VAT?


Since 1 July 2012 the standard rate of VAT is 21 percent.


Are there any reduced rates, zero rates, or exemptions?


Yes. There is a reduced rate of 12 percent for goods and services, including:


  • certain medicines
  • certain medical goods and equipment for the personal use of the disabled
  • certain infant products
  • mass media products and subscriber fees to these products
  • public transport services (excluding taxi)
  • heating of dwellings
  • hotel services
  • original literature and educational literature editions

There is an extensive list of zero rate supplies, including:


  • exports of goods and intra-Community supplies
  • transportation of export, import, and transit goods
  • services that are directly related to goods that are imported from the third countries and are not released for free circulation within European Union (EU) that are rendered within free zone territory or customs warehouse
  • supplies of goods and services connected with international transport (ships and aircrafts)
  • international transport (ships and aircrafts) supplies
  • international passenger traffic
  • harbor services provided to ships that provide international transportation services and rescue ships services
  • supplies of goods and services under diplomatic and consular arrangements.

The list of exemptions includes:

 

  • transactions in shares and other securities
  • banking and financial services excluding hire of safes and encashment
  • insurance transactions
  • services closely linked to welfare and social security work
  • provision of medical care
  • education services
  • sale of real estate excluding the sale of unused real estate and of the building land
  • rental of domestic apartments
  • betting, lotteries, and other forms of gambling
  • certain postal services

Note: it is not possible to recover VAT incurred in making exempt supplies.


What are the other local indirect taxes beside VAT?


There are no other local indirect taxes besides VAT and Excise Tax.

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Registration

Who is required to register for Latvian VAT?


Latvian Entities


If during the last 12 months a business has made taxable supplies in Latvia over the VAT registration threshold (LVL 35,000 or EUR 50,000) it will be required to register and account for Latvian VAT. If it trades below the registration threshold VAT registration is optional. However, if it does not register as a Latvian VAT payer, it is not entitled to recover any input VAT.


If a business provides services to another EU Member State it has to register for VAT before the transaction takes place.


Non-Latvian Entities


If a business makes taxable supplies in Latvia it must register for VAT directly, or via a local representative and account for Latvian VAT.


If a business is not registered for VAT in Latvia but sells and delivers goods from another EU Member State to customers in Latvia who are not VAT registered (distance sales), where the value of those sales exceeds a threshold of (LVL 24,000 or EUR 34,000), it is required to register and account for VAT in Latvia.


Are there penalties for not registering or late registration?


Where a business fails to register on time, it must account for VAT on all taxable transactions during the period it was required to be registered and pay VAT (plus penalties for late payment calculated from date the tax liability arose). In addition, it will be unable to recover any input tax incurred during this period.


Is voluntary VAT registration possible for an overseas company?


An overseas company can be registered in Latvia only if taxable transactions are provided in Latvia.


Are there any simplifications that could avoid the need for an overseas company to register for VAT?


If a business makes supplies of goods or services in Latvia then it is required to register and account for Latvian VAT. However, it is possible to avoid registering and accounting for Latvian VAT when making certain supplies.


In the following examples the obligation to account for the VAT due can be shifted to the customer provided that it is registered for VAT in Latvia.


Triangulation


If a business is an intermediate supplier to a Latvian buyer of goods which are purchased from a business in a EU Member State other than its own and are delivered from there to Latvia, VAT due can be accounted for by the Latvian customer (see section Invoices).


Call-Off Stock


Where a company stores stock at a customer's premises under their control the customer accounts for VAT on the supply as an acquisition.


Supply and Install


If a business supplies goods and installs or assembles them in Latvia, its customer can account for any VAT due, in effect, as acquisition. It must be registered for VAT in another EU Member State, and not otherwise required to be registered in Latvia.


Reverse Charge Services


These services are covered in more detail in the International Supplies of Goods and Services section.


Bear in mind that these provisions are subject to particular requirements.


Does an overseas company need to appoint a fiscal representative?


An overseas company does not need obligatory to appoint a fiscal representative, however it may appoint one. However, starting from 1 January 2013 an overseas non EU company has to appoint a fiscal representative in Latvia. The latter must be an authorized person – a locally registered legal person or an individual.

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VAT grouping

Is VAT grouping possible?


VAT grouping is possible in Latvia.


Can an overseas company be included in a VAT group?


Overseas company cannot be included in a VAT group, however, the branch of the overseas company registered in Latvia can be included in the VAT group.

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Returns

How frequently are VAT returns submitted?


Most businesses are required to submit VAT returns on a monthly basis.


However, if the total value of taxable transactions in the preceding year is less than LVL 10,000 (EUR 14,000), a company has to submit tax returns once within six month period. If its annual taxable turnover exceeds LVL 10,000 but does not reach LVL 35,000 (EUR 50,000) it has to submit quarterly returns.


If a business has supplied goods or services to another EU Member State, it has to submit VAT returns monthly.


During the first calendar year after VAT registration quarterly returns have to be submitted until the company reaches the threshold of taxable turnover LVL 35,000 or commence supplies of goods/services to other EU countries.


Annual returns have been submitted only by the taxpayers which provide non-taxable transactions and have to amend amount of deducted input tax.


Are there any other returns that need to be submitted?


European Sales List (Recapitulative Statements)


If a business supplies goods which are shipped from Latvia to VAT registered businesses in other EU Member States and wishes to zero rate the supply (see section International Supplies of Goods and Services), it is required to complete Recapitulative Statements.


If it performs services to VAT registered businesses in other EU Member states and does not apply VAT in Latvia, it has to include these services into the sales lists.


Recapitulative Statements are completed on a monthly basis.


Intrastat Supplementary Declarations


VAT registered businesses with a value of dispatches or arrivals to or from other EU Member States, which exceed a threshold (for year 2013 Acquisitions thresholds - EUR 142,287 (assimilation threshold) and EUR 2,561,169 (specific threshold); Dispatches thresholds - EUR 142,287 (assimilation threshold) EUR 3,414,892 (specific threshold) must complete supplementary declarations each month.


Penalties for non-compliance are not yet determined.


Preparation of Intrastat can be delegated; however the owner of the company is responsible for ensuring that all the information disclosed in the Intrastat return is complete and accurate.


Summary of Input VAT Disclosed in VAT Return


Information on all goods and services acquired for business purposes during taxation period must be included in the Summary of Input VAT. This summary has to be submitted to the State Revenue Service together with VAT return.


Summary of output VAT Disclosed in VAT return


Information on goods and services supplied within Latvia must be included in the Summary of output VAT. This report also must be submitted to the State Revenue Service together with VAT return.


If a business receives a purchase invoice in foreign currency, which exchange rate should be used for VAT reporting purposes? (e.g. central bank’s exchange rate applicable on the date of the invoice)


Latvian National Bank’s exchange rate applicable on the date when goods are received.

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VAT recovery

Can a business recover VAT if it is not registered?


Yes. If a company is established in another EU Member State then it should make a claim under Directive 2008/9/EEC refund. A non-EU business should recover the VAT under the 13th Directive.


Under both of these provisions there are strict time limits for making claims.


Access the 13th Directive claim forms on the web site: http://likumi.lv/doc.php?id=254278.


Does your country apply reciprocity rules for reclaims submitted by non-established businesses?


Yes. If companies are established in a third country that does not grant refund to Latvian businesses they are not able to recover VAT paid in Latvia.


Are there any items that businesses cannot recover VAT on?


Yes. There are certain items that businesses cannot recover VAT on. For example:


  • Exempt supplies: where VAT relates to both taxable and exempt supplies, an apportionment is needed.
  • Non-business (including private) activities: where VAT relates to business and non-business activities, an apportionment is required.
  • Business entertainment: VAT is not generally recoverable on business entertainment costs. Sixty percent of the VAT incurred in respect of representation expenses is irrecoverable.
  • Purchases falling within the Tour Operators' Margin Scheme. The VAT on goods and services which fall under this scheme cannot be reclaimed by the tour operators.
  • Goods sold under one of the margin schemes for second hand goods. There are a number of schemes which provide for VAT to be accounted for on the goods' sales margin, but do not allow VAT recovery on the purchase of those goods.
  • 20 percent of VAT incurred in respect of passenger cars and related expenses is irrecoverable.

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International Supplies of Goods and Services

How are exports of goods and services treated?


Goods


If a company sells goods to a customer who is registered for VAT in another EU Member State and the sale involves the removal of those goods from Latvia (either by the supplier or its customer) to that Member State, then it may apply 0 percent VAT as an intra-EU dispatch. It must obtain the customer's VAT number and quote it on your invoice. It should also obtain evidence of the goods' removal from Latvia.


If a company sells goods to a customer who is not registered for VAT in another EU Member State, it will have to charge Latvian VAT. If its sales exceed a certain threshold for that Member State it may have to register in the Member State under what is known as the Distance Selling Scheme.


If a company exports goods to a customer outside of the EU then it may apply 0 percent VAT but, it should make sure that in all cases it keeps proof of dispatch/delivery to support your zero rating.


Services


If a company supplies services to a business customer in another EU Member State or outside of the EU generally it may not apply Latvian VAT.


A company has to apply Latvian VAT if it provides services to a non-business customer.


How are goods dealt with on importation?


When goods are imported into Latvia from outside the EU, import VAT and customs duty may be due. This has to be paid or secured before the goods will be released from customs' control.


The importing company may not pay import VAT before the goods are imported, but include calculated import VAT and deductible input tax in its VAT return if it has received special permit from the State Revenue Service.


How are services which are brought in from abroad treated for VAT purposes?


If a company buys in certain services from outside Latvia, it will be required to apply the reverse charge. This is intended to take away any VAT advantage of buying those services from outside Latvia.


Under the reverse charge the recipient is required to account for a national amount of VAT as output tax on its VAT return covering the period in which it received service or made the advance payment and it recovers this VAT as input tax on the same return.


If it is able to recover all of your VAT the reverse charge has no cost effect and is a VAT compliance matter only. However, if the company is partly exempt there is likely to be a VAT cost depending on the level of recovery allowed under the partial exemption method.

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Invoices

Is a business required to issue tax invoices?


Yes.


What do businesses have to show on a tax invoice?


A tax invoice should contain the following data:


  • the date of issue of the document
  • the number of the invoice
  • the VAT identification number of the supplier of the goods or provider of services
  • the VAT identification number of the recipient of the goods or services
  • the full name and legal address of the supplier of the goods or provider of services (the name, surname, and the identification number and the place of permanent residence of the natural person)
  • the full name and legal address of the recipient of the goods or services (for a natural person: given name, surname, the identification number, and the place of permanent residence)
  • the date of supply of the goods or the provision of the services
  • the designation and the amount of the goods, or the type and the volume of the services
  • the price of the goods or the remuneration for the services provided (the unit price exclusively of tax)
  • any discounts or rebates, if they are not included in the unit price
  • the VAT rate and the calculated tax
  • where zero percent VAT is applied, or where the customer is liable to pay the tax, the reference according to Article 125 of the VAT Law or reference according to the Council Directive 2010/45/EU of 13 July 2010 amending Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax should be included on the invoice.
  • simplified invoices exist where the transaction in question is less than LVL 100.

Can businesses issue invoices electronically?


Yes. Invoices can be issued electronically if the parties agree in advance the terms of exchanging and approving electronic invoices. Electronically issued invoices may be stored electronically if the storage systems are sufficient to prevent possible information loss or the risk that the information may become inaccessible.


Is it possible to operate self-billing?


Yes, the purchaser of goods or services may issue an invoice himself/herself in the name and on behalf of the supplier –the VAT payer registered in Latvia or in another EU country.


Can a business issue VAT invoices denominated in a foreign currency?


Yes, a foreign currency can be used, only amount of VAT should be shown also in Latvian LVL.

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Transfers of Business

Is there a relief from VAT for the sale of a business as a going concern?


Yes there is a relief from VAT for the sale of a business as a going concern.

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Options to Tax

Are there any options to tax transactions?


Yes. A registered VAT payer may opt to apply VAT to the supply of used real estate if the purchaser also is a registered VAT payer. Such supply should be reported to the State Revenue Service.

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Head Office and Branch transactions

How are transactions between head office and branch treated?


If the head office and branch are both located in Latvia and have the same VAT registration number then transactions between them are not treated as a supply for Latvian VAT purposes.


If the head office and branch are VAT payers in different countries, transactions between them are treated as intra-Community supplies. In order to avoid application of VAT advance ruling from the State Revenue Service would be advisable.

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Bad Debt

Are businesses able to claim relief for bad debts?


Businesses are able to relief for bad debts which have arisen after 1 January 2009.

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Anti-Avoidance

Is there a general anti-avoidance provision under VAT law?


There is no general anti-avoidance provision under Latvian law.

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Penalty Regime

What is the penalty and interest regime like?


Where an error is discovered by the tax authorities they can impose a penalty of 20 percent or 30 percent of the unpaid tax, together with late payment. If however, the company voluntarily discloses the error to the tax authorities the penalty may be mitigated or waived altogether. Late payment cannot exceed the unpaid (primary) tax.


If taxable person has not applied VAT (reverse charge) on acquisition of goods or received services from other EU Member States or import of goods (if VAT is not paid before the goods are imported), a penalty of 10 percent of the undeclared tax can be imposed.


For late payment, a penalty of 0.05 percent per day is calculated.

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Tax authorities

Tax audits


How often do tax audits take place?


It depends on the State Revenue Service.


Are there audits done electronically in your country (e-audit)? If so, what system is in use?


No.


Advance rulings and decisions from the tax authority


Is it possible to apply for formal or informal advance rulings from the (indirect) tax authority?


Yes, a written request should be submitted to the tax authority in order to receive an advance ruling.


Are rulings and decisions issued by the tax authorities publicly available in your country?


No, the rulings and decisions are addressed only to the applicant. Information regarding rulings issued in 2013 is available on the Tax authority’s web site: http://www.vid.gov.lv/default.aspx?tabid=8&id=177&hl=1&oid=86196&otype=15

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Miscellaneous

In your country, are there unique specific indirect tax rules (regimes) that differ from standard indirect tax rules in other jurisdictions?


No, generally the Latvian VAT law is in accordance with EU VAT Directive.


Are there indirect tax incentives available in your country (e.g. reduced rates, tax holidays)?


No, there are no specific indirect tax incentives available in Latvia. Application of reduced rates are described in section “Scope and Rates”

 

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