Mandatory VAT registration

General

Latvian Value Added Tax Act (Likums “Par pievienotās vērtības nodokli”) is in accordance with EU Sixth VAT Directive.

The sales of most of the goods and services are subject to VAT. The standard VAT rate is 21%; lower rate of 10% applies to specific items. Some specific goods and services are exempt from VAT and export from Latvia is taxed with 0% or considered to be out of scope of the Act at all.

Registration Obligation

VAT registration limit is generally 35 000 lats (EUR 48900) at the moment.

A foreign trader must register for VAT in the following circumstances:

• If for a non-taxable legal person or a non-taxable natural person who performs economic activities, the value of goods without tax acquired in the territory of the European Union exceeds LVL 7000 (EUR 10 000) in the current calendar year, then the relevant person shall submit a submission for registration with the State Revenue Service Register of Value Added Tax Taxable Persons until the 15th day of the month following the taxation period, when the threshold specified – 7000 lats (EUR 10 000) – has been exceeded. A non-taxable legal person or a non-taxable natural person who performs economic activities has the right not to submit a submission for registration, if after one acquisition of goods in the territory of the European Union, by which the registration threshold of 7000 lats is exceeded, it is not intended to perform other acquisitions of goods in the territory of the European Union in next calendar year, the total value of which would exceed 7000 lats. In such case the referred to person shall pay the tax into the State budget without registration in the State Revenue Service Register of Value Added Tax Taxable Persons.

• If another Member State person supplies goods inland to a non-taxable person to whom in the Republic of Latvia excise duty is applied, then such other Member State person prior to the performance of the transaction shall register in the State Revenue Service Register of Value Added Tax Taxable Persons irrespective of the value of the excise goods supplied.

• If an EU-registered VAT payer supplies goods to a Latvian entity not registered as a VAT payer and that supply exceeds LVL 24 000 (EUR 34 150) within a 12 month period.

• Regardless of amount, if a recipient is non VAT registered person and the excised goods are to be supplied or goods are to be installed in Latvia.

• Persons whose legal address is in the Republic of Latvia and who receive assistance within the scope of foreign financial assistance fund financed projects, prior to the acquisition of goods in the territory of the European Union performed within the scope of the project and prior to the receipt of services from taxable person from other Member States, shall register in the State Revenue Service Register of Value Added Tax Taxable Persons for a period until the end of project activities.

It is expected in the near future that a person liable for VAT in another country without a permanent establishment in Latvia will be able to appoint a tax agent for transactions with excise goods. The tax agent after its registration with the State Revenue Service will calculate VAT and pay it into the state budget.

Obligations after VAT registration

Once the company has been registered for VAT in Latvia the formal requirements must be met.

The monthly VAT returns should be submitted to the State Revenue Service and VAT paid by the 15th of the next calendar month at the latest. If this is not done the tax officials have the right to impose a fine and/or delete your VAT ID from the register.

NB! It is possible to make corrections to input-VAT in amount of bad debts, if several criteria as set out in the Act are met.

Using the 0% VAT rate

Business to business (B2B) transactions made in EU are called supply of goods in the territory of the European Union and taxed with rate 0% VAT, if the following requirements are met:

• The accompanying documents of the goods/services (including invoices) indicate that the receiver of the goods is another Member State taxable person with a valid VAT registration number;

• The goods are dispatched or transported from inland to a destination in another Member State and this is certified by the existing goods transportation documents.

Receiving the invoice with 0% means the recipient of goods shall apply VAT Reverse Charge Mechanism, what means that the declaration obligation lies on the recipient of goods.

The Seller declares the performed supply of goods and services in the territory of the European Union together with the monthly VAT declaration in a special annex (Pārskats par preču piegādēm un sniegtajiem pakalpojumiem Eiropas Savienības teritorijā).

Claiming overpaid VAT back

Overpaid VAT arises, when the VAT paid once with the goods/services purchased for business purposes is higher than VAT charged, selling the goods or services of your business. Overpaid VAT shall be covered by the State, where the business is mainly located and where a company is VAT registered.

Latvian tax payer may claim the overpaid VAT back, if the overpayment is recognized, in the following ways:

• Through monthly VAT declarations where the goods/services bought and sold are declared. The overpayment is calculated at the end of declaration form. The declaration, including the overpaid VAT, contains also a claim of overpaid VAT refund. Therefore additional application for the amount is not required. Latvian State Revenue Service examines the declaration, if the refundable amount is high, the Service may ask additional questions about the business and particular invoices/contracts. If the amount is justified, the refundable VAT is transferred to cover other tax payments or to the tax payers bank account. However, in general, the overpaid VAT refund to the bank account may be requested only after fiscal year is ended.

• Through Cross-Border Refund System the VAT is overpaid in another EU state. If the goods/services, bought with foreign VAT are used for the business purposes in Latvia, Latvian VAT payer has a right to apply the overpaid VAT back from Latvian State Revenue Service, who itself contacts with the foreign tax authority, issues required evidences (scanned invoices are accepted) and requests the overpaid VAT back.