Latvia VAT Guide: Rates, Registration, & Reporting Requirements Explained

VAT in Latvia - Three Types of Rates

There are three types of VAT rates in Latvia:

1. Standard VAT rate,

2. Reduced VAT rates, and

3. Zero VAT rate.

How Much is VAT in Latvia’s Regions?

There are no specially dedicated regions with different VAT rates in Latvia, meaning that the stated standard, reduced, and zero VAT rates are applicable throughout the country.

VAT Registration Threshold

Important information related to the VAT threshold in Latvia can be found in VAT Latvia law, bylaws, and official documents published by the government body responsible for applying VAT-related rules and regulations, such as the Ministry of Finance or State Revenue Service Agency.

Under the VAT Law rules, different VAT registration thresholds exist for Latvia's domestic and foreign taxable persons. The threshold for domestic taxable persons is EUR 50,000, whereas no such threshold is defined for foreign taxable persons.

As an EU Member State, Latvia incorporated EU-wide VAT rules regarding the VAT registration threshold for intra-community distance sales of goods, B2C supplies of services, and electronically supplied services supplied by suppliers established outside the EU.

Taxable persons involved in intra-EU distance sales of goods and B2C supplies of services are subject to an EU-wide EUR 10,000 registration threshold. In contrast, non-EU suppliers of electronically supplied services do not have a registration threshold.

Types of Taxable Activities in Latvia

To understand taxable activities in Latvia, it is necessary to clarify the meaning of the term taxable person. Under the Latvia VAT Law, taxable persons are defined as any person, natural or legal, who continuously and independently performs any economic activity, including any activity of producers, traders, or persons supplying services or agricultural activity, irrespective of the purpose or results of such activity.

Therefore, when performed, certain activities make taxable persons liable for VAT. Those activities are known as taxable activities and include the supply of goods in the European Union, the exportation of goods for a fee, the supply of services for a fee, and the acquisition of goods in the territory of the European Union for a fee.

VAT Registration Process

Domestic and foreign taxable persons, such as businesses, undergo a similar process when registering for VAT in Latvia. However, some notable differences relate to the documents needed and other requirements to complete the registration process.

Latvia VAT Registration for Domestic Businesses

Domestic businesses that exceed the VAT registration threshold of EUR 50,000 must apply to the State Revenue Service (SRS) for VAT. Notably, businesses below this threshold can register for VAT voluntarily if they find this beneficial. 

The VAT registration application can be submitted electronically through the government electronic declaration system (EDS) porta, by email with an electronic signature, or by a person at any SRS client center.

Upon receiving the application, the SRS processes it within five business days.

Latvia VAT Registration for Foreign Businesses 

Foreign businesses involved in taxable activities must register for VAT before making any supply. The documents needed to complete the registration are the Application of taxpayers of another Member State and a third country or territory for registration in the State Revenue Service’s Value Added Tax Payers Register and the Power of Attorney when the tax representative applies.

Although the exact application documents are submitted, the process has some differences for EU and non-EU businesses. While EU businesses do not need a tax representative to complete this process, although they can appoint one, non-EU businesses must appoint one.

VAT Returns in Latvia

VAT-registered taxable persons must submit monthly, quarterly, or annual VAT returns through the EDS.

Generally, monthly VAT returns are filed by the 20th day of the month following the end of the reporting period. The same deadline applies for quarterly VAT returns, whereas annual VAT returns must be submitted by May 1 of the year following the reporting period.

Penalties for Failure to File Tax Return

Taxable persons who do not follow the VAT rules and regulations may face additional financial burdens in the form of penalties and interests.

Filing a late or incorrect VAT return may result in SRS issuing a provisional calculation on the due VAT that taxable persons branching the VAT Law must pay within the provided deadline. Even when these provisional calculations are paid, the taxable persons still must file a correct VAT return to the SRS.

The SRS may also impose a 10% of the due VAT when an incorrect VAT return is reported, and the amount paid is less than it should have been paid if the VAT return was correct.

VAT Rules for Electronically Supplied Services 

The definition of Electronically Supplied Services (ESS) is applied throughout the EU with the adoption and implementation of the EU VAT Directive 2006/112/EC. The EU VAT Directive defines ESS as services provided automatically over the Internet or similar online networks, with minimum to no human input.

Services that heavily rely on human intervention or are delivered on non-digital channels are not recognized as ESS, and the EU-wide rules for ESS do not apply to those services.

In practice, some other terms often appear when discussing the ESS. Those terms are digital services, digital products, and electronic services, which have the same meaning as the ESS. Sometimes, this may cause problems and confusion, but all these terms are used interchangeably.

As an EU country, Latvia implemented the taxable rules for ESS into its national legislation, simplifying VAT-related compliance.

Taxability Rules for ESS:

The EU Single Market has undergone significant changes in the past year, with 2021 marking one of the most crucial years regarding VAT and the Single Market. In 2021, the EU VAT reformatory package was implemented, which uniformed the EU VAT landscape, making it more transparent and less complex to comply with.

The 2021 EU VAT reform introduced taxability rules concerning the B2B and B2C supply of ESS and distance sales of goods.

For the B2B supply of ESS, the general rules are applied when determining the place for supply relevant for taxation purposes. This rule helps businesses to easily determine where and under which rules the transaction should be taxed. Regarding the B2C supply of ESS, the destination principle applies to these transactions. Under this principle, the place of supply is determined based on the consumer's residency.

The EUR 10,000 threshold is the most essential part of taxability rules related to distance sales of goods and ESS. Suppliers who remain under the threshold may apply their home country's VAT rules. In addition, these taxable persons can voluntarily register for one of the One-Stop Shop (OSS) schemes and operate under the rules defined for schemes.

However, suppose the annual turnover is generated from distance sales of goods and ESS. In that case, suppliers must apply the VAT rates of the country where the consumer is located, e.g., VAT rate Latvia.

How much is VAT in Latvia on ESS?

The Latvia VAT rate for ESS is 21%.

E-Commerce Rules

The EU e-commerce landscape changed dramatically in 2021 when the EU VAT Directive and its e-commerce rules came into force. With the fast pace of development in the e-commerce sector and digital economy, changes to the EU VAT system were more needed.

These changes impacted both EU and non-EU businesses operating in the EU market. New and updated rules made complying with EU rules for cross-border transactions much more manageable.

Some of the most significant changes relate to cross-border sales of low-value goods, intra-EU distance sales, domestic sales by deemed suppliers and expanding the single registration and reporting system.

The cross-border sales of low-value goods introduce a new EUR 150 threshold for imported goods from outside the EU. Implementing this threshold abolished the previously established EUR 22 threshold. New rules significantly improved the reporting system related to these transactions.

The EUR 10,000 threshold for intra-EU distance sales contributed to removing the national thresholds, which made VAT compliance much more difficult. With the unified EU threshold, it is much easier for suppliers to determine which VAT rate to apply and where the transaction is taxable.

The deemed supplier rule, which makes the digital platform responsible for charging, collecting, and remitting VAT under specific conditions, is also one of the novelties that reshaped the EU VAT landscape. Under these rules, digital platforms are responsible for VAT for the underlying suppliers when requirements are met.

Another notable change under the EU e-commerce reformatory package was the further development of the Mini One Stop Shop (MOSS), established in 2015. In addition to expanding the existing Union and non-Union schemes, the third scheme, Import One Stop Shop (IOSS), was introduced. 

Thus, the MOSS became the One Stop Shop (OSS) system, which has three schemes:

• Union Scheme,

• Non-Union Scheme,

• Import Scheme.

VAT EU Reporting

VAT-registered taxable persons in Latvia must submit two EU VAT reports: the recapitulative statement, also known as the EC Sales List and the Intrastat report.

EC Sales List

EC Sales Lists (ESL) are tax returns containing all information relating to the supply of goods and services to another EU VAT-registered taxable person in another EU Member State. The ESL is filed monthly to the State Revenue Service by the 20th day following the reporting period.

Intrastat

An intrastat report is a statistical report that includes data on goods supplied by EU VAT-registered taxable persons in different EU countries. For Intrastat reporting to become mandatory for taxable persons, they must exceed the EU import and export thresholds, also known as arrivals and dispatches.

If the dispatches exceed EUR 400,000, the statistical report UPS-01 must be filled. However, if the dispatches to another EU Member State are valued at more than EUR 10 million, then a more detailed Intrastat report is required.

For arrivals, the threshold is set at EUR 570,000 for the standard UPS-02 and EUR 7 million for the more detailed UPS-02 report.

Digital Reporting

There are no mandatory digital reporting requirements for e-invoicing or SAF-T in Latvia. However, mandatory B2G e-invoicing will be implemented in the upcoming period, followed by compulsory B2B e-invoicing.

The only mandatory reporting is the National Recapitulative Statement, which applies to all taxable persons registered in Latvia for VAT.

Local Businesses

Local VAT-registered businesses must submit a monthly or quarterly National Recapitulative Statement (NSA) as an appendix to the VAT return. This statement contains information on all transactions regardless of value, including B2B, B2C, and B2G transactions, sales and purchases, domestic transactions, and intra-EU acquisitions.

The only transactions excluded from the NSA are transactions below EUR 150.

Non-Resident Businesses

The same rules apply to local businesses concerning the NSA apply to non-resident businesses.