VAT in Latvia
VALUE ADDED TAX – VAT (PVN)
VAT is a tax chargeable on taxable supplies made in Latvia by taxable persons. Credit is given for tax paid to other businesses and the net balance is payable or reclaimable – normally on a monthly basis.
Residents of Latvia
- VAT registered persons in Latvia
- VAT non-registered persons in Latvia
Persons of another Member State of the EU
- VAT registered persons in another Member State of the EU
- VAT non-registered persons in another Member State of the EU
Persons of Third Countries
- VAT registered persons in third countries
- VAT non-registered persons in third countries
Taxable persons can be either registered or not registered in the State Revenue Service of Latvia.
VAT taxable transactions
- Supply of goods for consideration within the territory of a Member State.
- Supply of services for consideration within the territory of a Member State.
- Importation of goods.
- Purchases of goods or services within economic activity in the area of the EU and outside EU.
Registration of VAT Taxable Persons
Legal entities or individuals, partnerships, or groups of persons engaged in economic activity could register in VAT taxable persons register.
A person must be registered in the register of VAT taxable persons if:
- the value of taxable transactions has exceeded EUR 50,000 during a previous 12 month period;
- the value of EU distance selling transactions has exceeded EUR 35,000 during a previous 12 month period;
- purchases of goods made by a person in the territory of the EU and outside EU reaches EUR 10,000.
A person of another Member State of the EU has to get registered in the register of VAT taxable persons in the Republic of Latvia, if:
- goods subject to excise duty in Latvia are delivered to a non-taxable person;
- goods are delivered to a non-taxable person and they are installed or mounted inland;
- transport services, transport related and goods related (assessment, repairs, maintenance) services are provided to a non-taxable person;
- services related to real estate to any person in Latvia.
The following information has to be provided for the registration:
- a registration form;
- if an individual is registering, a copy of their passport or some other acceptable identification;
- if registration is occurring through a power of attorney, a copy of this document.
Group VAT registration
VAT grouping occurs where two or more corporate bodies, usually companies or limited liability partnerships are treated as a single taxable ‘person’ for VAT purposes.
A VAT group may be established if the total value of the taxable supplies of goods and
services provided by at least 1 participant of the VAT group during the previous 12 calendar months up to the month when a submission for the registration of the VAT group is submitted is at least EUR 360,000.
VAT group is treated in the same way as a single company registered for VAT on its own.
In general, the members of the group each have to have an establishment in Latvia.
Advantages of group registration are:
- The representative member accounts for any tax due on supplies made by the group to third parties outside the group. This can be helpful where accounting is centralised.
- The group is treated as a single taxable person and therefore it is not normally necessary to account for VAT on goods or services supplied between group members.
- There is one single VAT return for the whole group.
Latvia has introduced the concept of fiscal representation as of 2011. As of 2013 the Third country (non-EU) persons can be registered in Latvia only through a fiscal representative. A fiscal representative is a taxable person who, based on a written agreement, is liable for paying VAT to the tax authorities and represents a taxable person from another Member State or a non-EU country.
Deregistering for VAT
Deregistration is usually a fairly straightforward process. However, there are some important aspects to bear in mind which, if misunderstood, could prove costly.
A business must deregister if:
- it stops making taxable supplies
- the legal entity changes, e.g. from a sole trader to a company (although the new entity could retain the existing VAT number)
- it is sold (although the owner could retain the VATnumber)
- it registered because it intended to make taxable supplies but the intention no longer exists.
A business may deregister if the value of taxable transactions has not exceeded EUR 50,000 during a previous 12 month period.
- Standard rate of VAT is 21%.
- Reduced rate of VAT is 12%. Rate is applicable to certain medications and medical device supplies in accordance with the list approved by the Cabinet, educational literature, as well original literature editions, thermal energy, electrical power supplies, natural gas supplies to inhabitants, save natural gas for motor vehicles, inland public transport, products for infants in accordance with the list approved by the Cabinet, as well as in other cases prescribed by law.
- 0% rate is applicable to export of goods, services related to export, import and transit carriage, services provided outside of Latvia or passenger transport and tourist agency intermediation services, as well as carriage of international passengers and in other cases prescribed by law.
Specific rules are laid down as to the form and content of VAT invoices. These are to ensure that all the necessary information is recorded for the determination of the rate of tax to be applied, the liability of the supplier to account for the output tax due on the supply, and the entitlement of the recipient to reclaim all or any of it as input tax.
The registered VAT payer have to use sequential numbering to identify the numbers you use. You can use both numbers and letters for invoice numbers, and use more than one sequence of numbers, but each must form part of a unique and consecutive series. If you cancel an invoice, you must keep a copy of it to show that you have not broken the numbering sequence.
Copies of all tax invoices issued and received must be retained for at least five years unless a shorter period (normally at least three years) is agreed with Latvian State revenue Service.
Tax invoices must contain the following information:
- the date of issuance of the invoice;
- the invoice number;
- the name of the goods supplier or services provider (for a natural person – first name, surname, personal ID number) and the legal address (for a physical entity – the place of permanent residence);
- the registration number of the goods supplier or services provider in the register of persons subject to VAT in the State Revenue Service of Latvia;
- the name of the recipient of goods or services (for a natural person – first name, surname, personal ID number) and the legal address (for a natural person – the place of permanent residence);
- the VAT registration number of the recipient of goods or services;
- the date of goods supply or services provision;
- the title, quantity (amount) and unit of measurement of the goods supplied or services provided;
- the price (the value per one unit exclusive of the VAT) of the goods supplied or services provided;
- the discount applied, in case the discount is not deducted from the value of a single unit;
- the VAT rate applied;
- the calculated amount of VAT;
- the total amount of the transaction exclusive of the VAT.
Invoices could be issued in electronically and have to contain the same information required of a paper invoice. Both parties to the transaction must agree in writing as to the form of acceptable electronic signature that will be used to authenticate the invoice.
- One calendar month, if the value of taxable transactions during the pre-taxation year has exceeded EUR 50,000.00, or if the goods are supplied within the territory of the European Union.
- One calendar quarter if the value of taxable transactions during the pre-taxation year has been between EUR 14,000.00 and EUR 50,000.00.
- Half of a calendar year, if the value of taxable transactions during the pre-taxation year has not exceeded EUR 14,000.00, and if the goods are not supplied within the territory of the European Union.
- 20 days of the end of the taxable period using the Electronic Declaration System of the State Revenue Service.
- Certain taxpayers may, subject to approval of the SRS, extend the term for filing to 25 days.
- Tax returns have to be filed in the 20 days of the end of the taxable period also if no transactions have been carried out.
Deadline for Tax Payment
Tax has to be transferred to the budget of the State within 20 days of the end of the taxable period.
Certain taxpayers may, subject to approval of the SRS, extend the term for payment to 25 days.
Cash VAT accounting scheme
Cash accounting enables the enterprise to account for VAT on the basis of payments received and made instead of on tax invoices issued and received.
The VAT payable or repayable for each accounting period will be the difference between the total amount of VAT included in payments received from your customers and the total amount of VAT included in payments made to your suppliers.
Cash accounting is open to the enterprise if the transactions during the pre-taxation year has not exceeded EUR 100,000.
One major advantage of the scheme is that it simplifies your bookkeeping requirements, and many businesses can be controlled simply by using an appropriately analysed cash book.
Another important advantage is that the problem of VAT on bad debts disappears – under conventional VAT accounting you have to pay VAT whether you have been paid by your customer or not, and VAT bad debt relief is not available until the debt is at least six months old.
You must account for VAT each time you make or receive a payment, even if it is a part payment, and even if it is a payment in kind.
Special VAT rules
a) VAT for the timber supply in the domestic context, in the state budget pays the recipient timber if the timber supplier and recipient are registered tax payers.
b) VAT for the construction services, in the domestic context in the state budget pays the recipient if the construction and building service supplier and recipient are registered tax payers.
c) The tax for the scrap supply, in the state budget pays the recipient of scrap if the supplier and recipient are registered tax payers.
d) If the real estate is used real property, the right to VAT for the supply is only a registered tax payer.
e) In Latvia is a special tax regime for importation of goods introduced in Latvia. In order to apply a special tax regime for imported goods, a taxable person for VAT purposes must submit an application to the tax authorities. A permit to apply a special VAT regime for imported goods will be issued to a taxable person:
- who is registered for business activities in Latvia;
- who is a registered for EDS;
- who has no tax arrears for previous tax periods on the date on which the application is submitted or who pays any such tax arrears within 5 business days from the date on which the application is submitted;
- whose responsible persons have no convictions for economic crimes;
- who within specified time limits submits the information returns or additional information necessary for determining the amounts of VAT payable to the state budget or the amounts of overpaid VAT.
Refund of Overpaid VAT
The difference between the amount calculated for the payment to the state budget and the deductible input tax is the overpaid tax amount.
During tax administration, within 30 days as from receipt of the tax return for the taxation period the SRS carries forward the approved overpaid tax amount to the next taxation period until the end of the taxation year. That amount covers the amount of taxes payable to the state budget during the next taxation periods. In the event such channelled amount is still the overpaid tax amount, it shall be carried forward to the subsequent taxation periods. The overpaid tax amount approved at the end of the taxation period shall be refunded to the bank account specified by the tax payer within 10 days.
The State Revenue Service may prolong the refunding period from 10 days to 30 days, if any of the following conditions has set in:
- the amount of transactions subject to the 0% rate and the amount of transactions the place of performance whereof is not inland is at least 90% of the value of taxable transactions;
- the overpaid amount exceeds EUR 1,400, and the amount of transactions subject to the 0% rate, reduced rate and the amount of transactions the place of performance whereof is not inland is at least 20% of the value of taxable transactions;
- the overpaid amount exceeds EUR 140 for the acquired fixed assets and refund thereof has been requested;
- the overpaid amount exceeds EUR 1,400 for the goods and services in timber transactions;
- the overpaid tax amount exceeds EUR 11,400.
VAT Refund to Taxable Persons Incorporated in Other States
Taxable persons from EU Member States and other states in respect of value-added tax paid for goods acquired, services received and for import of goods, receive VAT refund if the relevant person is registered for economic activity in its country of origin and does not perform such economic activities in Latvia that should be registered in accordance with laws and regulations in Latvia, and if purchases of goods and services are made to ensure its own economic activity.
Refund is made in respect of the preceding year and its amount may not be under EUR 50 and may not cover a period exceeding one year. A person may apply for VAT% refund no later than by 30 September of the calendar year following the year of refund. However, if necessary, the regulations prescribe other conditions as well.
Information to be included in the VAT refund application:
- Data of the applicant (name, address, e-mail).
- If application is submitted by authorised person: data of the authorised person (name, address, e-mail).
- Description of business activities of the applicant in the form offered by Electronical Declaration System as demanded by the refunding Member State (NACE codes).
- Refunding period indicated in the refund application (1 month, 1 quarter, 0,5 calendar year).
- Bank account (indicating the owner of the account, BIC code, IBAN account number and currency of the account).
- A certification that the applicant in the refunding period has not done business in the Member State of refund.
- Information about invoices and supporting documents of importation:
- the name of the goods supplier or service provider, address, VAT registration number;
- number and date of invoice or importation supporting document;
- taxable amount and VAT amount in the currency of refunding Member State;
- part of tax amount claimed for refund expressed in percentage (if proportion has been calculated to define the deductible part of the tax amount);
- part of tax amount claimed for refund expressed in the currency of the refunding Member State;
- type of goods/services in accordance with the NACE codes;
- A copy of electronic invoice or importation document if demanded by the refunding Member State in case if:
- taxable value of transaction indicated in tax invoice or importation document is equal to or exceeds EUR 1,000;
- if tax invoice refers to fuel and the taxable value of the transaction is equal to or exceeds EUR 250.
Deduction of Input Tax in Real property Transactions
- The taxable person is entitled to deduct input tax for the unused real property acquired, as well as for construction, reconstruction, renovation or restoration of real property.
- The taxable person commencing with the assessment year in which the real property is acquired or commissioned and for the next 10 years informs the State Revenue Service in writing regarding the utilisation of real property in taxable and non-taxable transactions in the relevant assessment year.
- The taxable person performs deductible input value added tax corrections for each assessment year, calculating the difference between one tenth of the deducted input value added tax and the deductible input value added tax in the relevant assessment year, taking into account the taxable and non-taxable transaction real property utilisation proportion. This difference has to be paid by the taxable person into the budget or be received back from the budget.
- If real property (or any part of it) is sold within a period of 10 years after its acquisition or commissioning, the taxable person has to refund to the budget an amount of input tax which is calculated by multiplying one tenth of the deducted input tax with the number of years which are left to the 10 years. This refundable amount of input tax is included in the value of real estate, and the purchaser has no right to deduct it as input tax.
- If the leasing agreement has been made on supply of used real property, but the terms of the agreement are not complied with and therefore the leasing object remains in the possession of the lessor, the tax shall be applicable as to the lease transaction and attributable to all the previously made leasing payments (save the loan interest). It is to applicable to the residential premises leasing transactions, if such residential premises have not been used for operational activity.
Tax is not imposed on the following supplies of goods and services:
- social care, professional and social rehabilitation, social assistance and social work services, provided to the inhabitants by the institutions funded by the state and local governments
- fees for children attending pre-school institutions
- services of educational courses provided by State-accredited educational institutions
- certain cultural events
- medical services and medicine related services
- insurance services provided by insurers and insurance agents;
- payments by persons for the rent and maintenance of residential premises
- scientific research
- certain financial transactions and services related to investments into capital
- sale of real estate, except the first sale of unused real estate and sale of construction land
- phonogram producer consideration and author remuneration for works of art created by authors, as well as consideration received by performers
- dentistry services
- foreign financial aid and VAT exempt import of goods, as well as certain other transactions