EU VAT guide – Latvia

VAT rates in Latvia 

How much is VAT in Latvia? 

The Standard VAT Rate (pievienotās vērtības nodokli (PVN)) in Latvia is 21%. 

Some supplies are exempt from VAT. This applies to business activities like health care, insurance, and some educational services.

The exact list of taxable transactions and allocated Latvia VAT rate can be found in VAT Latvia regulations. 

VAT thresholds in Latvia 

Valuable information about the VAT threshold in Latvia and applicable provisions can be found in the VAT legislation. Also, a helpful source of information is an interpretation of the appropriate information shared by Tax Authority officials. 

VAT registration threshold for resident businesses: The resident business can benefit from the threshold of EUR 50,000 if in the pre-tax year or during the tax year they haven’t surpassed the indicated threshold.

VAT registration threshold for non-resident businesses: No registration threshold. Consequently, VAT registration is required before making a taxable supply.

VAT registration threshold for intra-EU distance sales of goods and B2C supplies of services: EU-wide harmonized threshold of EUR 10,000.

VAT registration threshold for non-EU established suppliers of Electronically Supplied Services: No registration threshold.

VAT Taxable Activities in Latvia

A taxable person by Latvia VAT Law is a legal person or individual who carries out economic activity independently, whatever the purpose or results. 

Types of taxable activities that trigger the imposition of Latvia VAT: 

• The supply of goods and rendering of services in Latvia for consideration;
• Receipt of reverse-charge services by a taxable person in Latvia;
• Export of goods;
• Import of goods.

Other case scenarios exist where domestic or foreign businesses should impose Latvia VAT on their transactions. 

Tax Representative in Latvia 

For non-EU-established businesses, having a tax representative for all VAT compliance-related activities is often mandatory. Tax persons with tax residence in third countries or territories with mutual assistance agreements signed with Latvia can fulfill their tax obligations without the requirement to contract a tax representative. 

For EU-established companies, having a tax intermediary isn’t compulsory. Still, the economic operator could acquire the professional to ease up and streamline compliance challenges for its operations in the country. 

VAT on Electronically Supplied Services in Latvia 

Electronically Supplied Services 

Under the EU VAT Directive 2006/112/EC, Electronically Supplied Services (ESS) are defined as services provided via the Internet or comparable digital networks. One of the most important characteristics of ESS is their clear reliance on automation, which reduces manual human intervention to the bare minimum, if not entirely.

Services that don’t base their delivery upon digital channels are most probably not classified within the group of Electronically Supplied Services. Consistent with the EU VAT Directive and its Implementing Regulation, Latvia has incorporated the concept of digital services into its national framework.

This adoption should guarantee uniformity in the taxation and regulation of digital services, thereby simplifying the complexities associated with their tax compliance.

However, despite this clarification, the terms “digital services,” “digital products,” and “electronic services” are frequently used reciprocally. This approach can cause concern for different parties involved in the transaction regarding how to approach different types of digital products or services from the taxability perspective. 

Taxability Rules for ESS

The EU VAT reform adopted on July 1, 2021, has significantly revised the taxability rules within the EU Single Market.  This reform introduced transparency and long-waited uniformity when it comes to VAT compliance for taxable persons operating cross-border. 

These modifications are founded on the uniform approach when it comes to the applicability of the rules for mandatory VAT registration, tax reporting, and the remittance of taxes for taxable persons who make supplies to EU customers. 

Significant Updates from the 2021 E-commerce Reform:

• B2B Electronically Supplied Services: In these types of transactions for determining the place of supply for taxation purposes the general rules should be followed. This ensures that VAT obligations are clear and aligned with the established framework, simplifying tax calculations for businesses;
• B2C Electronically Supplied Services: Concerning taxable persons established outside the EU, the destination principle shall prevail. Practically the place of supply is defined on the basis where the residence of the customer;
• Distance Sales of Goods and ESS: For EU-based suppliers, reaching an annual turnover threshold of EUR 10,000 is very important. Taxable persons who make turnover below this annual threshold may opt to follow their home country’s VAT rules or report transactions through the One-Stop Shop (OSS) schemes;
• Distance Sales Exceeding the EUR 10,000 Threshold: Merchants established in the EU whose annual turnover exceeds this threshold should apply VAT rates based on the destination principle. 

The comprehensive alignment of VAT regulations. under the umbrella of common rules defined through the EU VAT Directive simplifies compliance procedures for businesses operating within the EU. This policy also supports economic harmony across Member States, fostering a competitive and consistent environment for businesses of all sizes.

How much is VAT in Latvia for Electronically Supplied Services?

VAT rate Latvia: A standard VAT rate of 21% is applied in most cases on sales of Electronically Supplied Services in Latvia

E-Commerce VAT Rules in Latvia 

On July 1, 2021, EU regulators adopted important revisions to the VAT Directive, specifically to the sections relevant to the E-commerce sector. This reform was a logical step after the ever-growing impact of the digital economy. The bureaucratic apparatus for handling cross-border transactions became very costly and often not-so-easy to handle for various groups of taxpayers. 

Relevant Aspects of the 2021 E-Commerce VAT Reforms:

• Cross-Border Sales of Low-Value Goods: The reforms introduced a uniform EU threshold for the import of low-value goods from third countries or third territories. This measure allows businesses to manage VAT obligations more efficiently through a simplified reporting system;

• Intra-Community Distance Sales: The reforms have eliminated the previously established threshold for intra-community distance sales of goods. These thresholds have been defined per national rules, further complicating the compliance for non-resident suppliers;
• Domestic Sales by Deemed Suppliers: Under specific circumstances, the operators of digital platforms will bear the VAT responsibilities. From a practical standpoint, it means that the tax responsibilities of the underlying supplier will shift to the platform operator;
• Provision of B2C ESS: The range of services eligible for reporting under the One-Stop Shop (OSS) schemes has significantly expanded. This broadening greatly simplifies VAT reporting for taxable persons operating cross-border. The existence of these provisions makes things easier when it comes to determining the place of supply rules. 

Improvements for uniform reporting systems:

Besides the introduction of new taxability rules, additional equally important rules have been enacted by the 2021 E-commerce package. With this we mean the introduction of the new OSS schemes, the Import-One-Stop-Shop, and as well the broadening of the reporting scope for the users of the OSS schemes. 

The E-Commerce VAT package made the following special schemes available:

• Union One-Stop-Shop Scheme;

• Non-Union One-Stop-Scheme;

• Import One-Stop-Shop Scheme.

Overview of EU VAT Special Schemes

Eligibility for the Non-Union Scheme:

This scheme can be leveraged exclusively by taxable persons who aren’t established within the EU. Simplified reporting tool, permits non-EU tax resident merchants to aggregate their B2C cross-border deliveries of various types of services, under one declaration and file it in their Member State of Identification. The value of this simplified scheme is significant, it paves the way for merchants to decrease their yearly budget for VAT compliance challenges across the Single Market. 

Eligibility for the Union Scheme:

Taxable persons that have their establishment in some of the Member States can use the Union OSS scheme to report their intra-community distance sales of goods and cross-border B2C services. This simplified reporting method elevates the quality and efficiency of their compliance duties.

The economic operators that don’t have a permanent establishment within one or more Member States, can profit from this simplified scheme for reporting all of their intra-community distance sales of goods, to customers based within the community.

Eligibility for the Import Scheme:

The Import One Stop Shop (IOSS) is open to both EU and non-EU businesses. This scheme is used for reporting the VAT for imports of low-value goods from third countries or third territories.  Digital platforms that intervene in the facilitation of the sale of low-value goods bear the tax responsibility instead of online vendors.

These schemes are part of the EU’s effort to reduce the administrative burden on responsible taxpayers while safeguarding the established compliance systems. By providing these options, the EU aims to support the growth of international trade and digital commerce.

OSS Return and Payment 

Latvia’s VAT system doesn’t offer a specially designed simplified registration system for non-resident digital service providers.  Nonetheless, non-resident businesses can utilize the One-Stop Shop (OSS) schemes. By taking advantage of one or more of these modern reporting schemes they can surpass the obligation to get registered for local VAT. 

The rollout of the OSS schemes has substantially decreased the level of VAT compliance burden for foreign providers that have customers in Latvia. The standardized EU VAT reporting rules permit many suppliers to operate in full compliance with the tax rules, even without local registration. 

However, the scope of these schemes doesn’t give unconditional “freedom” to non-resident suppliers, when it comes to making taxable supplies to customers residing in Latvia. 

In many circumstances, they will be obliged to adhere to the domestic rules and follow local registration procedures.

Electronic Platform and Deemed Supplier Rules 

Latvia adopted into its national framework the novelties introduced through the E-commerce VAT package in 2021. Embracing the harmonized EU VAT rules has significantly reduced compliance and administrative costs for non-resident businesses making taxable supplies to customers based in the country.

With the adoption of new provisions, Latvia has incorporated the “deemed supplier” tax concept, which has reshaped the taxability rules within the digital economy. Under the EU VAT Directive, a digital marketplace operator is recognized as a “deemed supplier” in two specific scenarios:

• When goods valued at EUR 150 or less are imported from outside the EU, and when the original suppliers sell directly to EU customers using the intermediary services of the digital marketplace or;
• When goods in free circulation within the EU are offered by vendors whose residence is outside the EU to customers based in the Member States through the usage of the facilitation service provided by the digital platform.

Latvia has implemented the E-commerce VAT package in alignment with the EU VAT Directive, as a necessary move to harmonize its rules to the ones valid across the EU. Among the new provisions, there is a concept of the deemed supplier, when the VAT responsibility is shifted from the original vendor to the digital platform operator.   

When the conditions are met, the VAT compliance duty is shifted from the original supplier to the marketplace, who will then act as a liable party towards the VAT duties that originally should be handled by the merchant. 

This multi-sided transaction scenario is made of two tax-relevant operations:

1. Business-to-Business (B2B): The initial sale from the original vendor to the digital marketplace is treated as a B2B transaction.
2. Business-to-Consumer (B2C): The subsequent sale from the marketplace to the final consumer is treated as a B2C transaction.

This approach outlines that the tax responsibility is transferred from the online merchants to the marketplace operator. This change simplifies VAT obligations for digital platforms and ensures that Latvia’s tax practices are consistent with those across the EU.

Invoice Requirements in Latvia 

General invoice information:

• Date of invoice issuance;
• Date of the supply of goods or provision of services if different from the date of the invoice issuance;
• Unique invoice numbers issued in sequence.

Seller information:

• Company name;
• Full address (head office);
• Billing address if different from company address;
•  VAT number.

Customer information:

• Name;
• Full address;
• VAT number;
• Delivery address;
• The billing address is different from the delivery address.

Fiscal Information:

• Description and breakdown of the goods or services – quantity, discounts, unit price excl. VAT;
• Total without VAT;
• VAT amount; 
• The VAT rate(s) applied and the breakdown of VAT per rate;
• Invoice Total.

Additional information required in particular cases:

• Exemption reference – guaranteed by precise norm;
• Reverse charge – term if applicable;
• Self-billing – term if applicable;
• Tax Representative information for non-resident business.

Foreign Currency Invoice in Latvia  

In Latvia, it’s permissible to issue tax invoices in foreign currencies, but the VAT amount on the invoice must be shown in EUR.

VAT Return in Latvia 

Domestic returns

Domestic taxpayers and non-established foreign businesses who conduct business under the national VAT Latvia rules in general submit declarations:

1. Monthly; 
2. Quarterly or; 
3. Yearly.

Penalties for late reporting and omitted declarations 

Taxpayers should charge Latvia VAT on their transactions when the responsibility rises and submit the VAT return. If they do the return fillings after the deadline, they can expect to allocate more funds than they would if they had filled the return within the permitted time frame. 

For late submission of the declaration or erroneous declaration, the TA will issue a provisional calculation of the owed tax, which should be paid following the defined deadline. The payment of the provisionary calculated tax doesn’t eliminate the responsibility of providing the correct declaration. 

• For an erroneous declaration that resulted in paying the calculated-owed tax in the amount lower than it should have been done the taxable person will pay the penalty of the value of the 10% of the owed tax amount.

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