Value-added tax (VAT) is a consumption tax applied to goods and services. Unlike sales tax, VAT is levied incrementally at each stage of the supply chain as value is added to a product, from initial production to final sale.
European Union (EU) member states, including Latvia, follow the EU VAT Directive, a framework that regulates and standardizes VAT; however, each country also implements its own specific rules and rates.
VAT in Latvia is collected at each stage of production and distribution. Businesses charge VAT on their sales (output VAT) and can deduct VAT paid on purchases (input VAT), paying the net difference to the Latvian tax authority. This mechanism creates a transparent and accountable chain, with each business acting as an intermediary tax collector. Ultimately, the final consumer bears the cost of VAT.
Foreign and domestic companies doing business in Latvia must be aware of the country’s VAT rules. Transactions that occur in Latvia or involve Latvian customers may create VAT obligations, including registering for VAT, charging the correct rate, and meeting ongoing compliance requirements.
Latvian VAT rates
Latvia applies four distinct VAT rates to sales of goods and services:
Standard rate (21%): Most goods and services are taxed at this rate. It covers everything not explicitly listed under the reduced or zero rates.
Reduced rates
- 12%: This rate is applied to certain essential items. Examples include pharmaceutical products, printed books and newspapers, domestic passenger transport, accommodation services, and district heating. This reduced rate is intended to support the affordability of products that are important to a well-functioning society.
- 5%: Only a small number of items qualify for this rate. Previously, this reduced rate was introduced to support local agriculture and food affordability.
Zero rate (0%): Some items are taxable but at 0%, including exports outside the EU, intra-EU supplies to VAT-registered buyers, and international passenger transport. Zero-rated products allow for input VAT recovery, unlike exemptions. These items are sometimes called genuine exemptions.
Exemptions: Exempt activities are not subject to VAT and do not allow input VAT deduction. These are sometimes called nongenuine exemptions. In Latvia, they include postal services, healthcare, education, financial services, and residential real estate leasing. Businesses operating solely in exempt sectors cannot recover VAT on related purchases.
Registering for VAT
VAT registration is a requirement for businesses that conduct taxable activities in Latvia. Companies must assess their operations to determine when registration becomes mandatory, as late registration can result in penalties and backdated tax liabilities.
Resident vs. nonresident businesses
- Latvian-established (resident) businesses have a registration threshold of €40,000 in annual taxable turnover. If this threshold is reached or exceeded within a 12-month period, registration is required. Small businesses with revenue below this amount may voluntarily register to recover input VAT.
- Nonresident businesses, whether within the EU or outside it, face no threshold. If they make any taxable sale in Latvia not covered by the reverse charge mechanism (more on this later), the obligation to register is immediate. This includes goods stored in Latvia or services provided locally.
Who needs to register
There are multiple situations in which a business is required to register for VAT in Latvia, including:
- Latvian turnover exceeds €40,000 annually.
- Goods or services are supplied to Latvian customers without a reverse charge.
- Goods with a price above €10,000 are acquired from other EU states.
- Services are received from foreign suppliers with a reverse charge.
- Goods are held in Latvia for local sale.
Voluntary registration is allowed. This is especially useful for startups seeking to reclaim VAT on expenses.
How to register
Domestic companies apply via the State Revenue Service (VID), using a form called the Iesniegums reģistrācijai PVN maksātāju reģistrā (application for registration in the VAT payers register). Meanwhile, foreign companies use a separate application for nonresident VAT payers.
Some of the required documents that organizations need are proof of the company’s registration, the authorized person’s identification, and all relevant business activity details. Processing generally takes five business days or fewer.
Working with a tax representative in EU countries
Currently, Latvia does not require most businesses to appoint a fiscal representative, whether they are based in the EU or outside it.
However, companies unfamiliar with local procedures may choose to work with a tax consultant or compliance firm. Companies from non-EU countries without reciprocity may still need a representative for VAT refunds.
When to charge tax
Businesses must determine when Latvian VAT applies. This depends on the place of supply, the customer type, and the nature of the goods or services. Incorrect application of VAT can result in underpayments or disputes with tax authorities.
Reverse charges
The reverse charge mechanism shifts the responsibility for reporting and paying VAT from the seller to the purchaser. It’s relevant in several distinct transaction types — typically these:
- Intra-EU B2B acquisitions of goods.
- Services from foreign suppliers.
- Certain domestic sectors, including construction, electronics, and metal sales.
The buyer reports both output and input VAT in their return, making the transaction neutral when both parties are VAT-registered.
Taxable products and exempt products in Latvia
Taxable products (with VAT rate):
- Digital products (apps, e-books, software): 5% to 21%
- Packaged food and restaurant meals: 21%
- Pharmaceuticals and medical devices: 12%
- Hotel stays and accommodation: 12%
- Printed books and newspapers: 12%
- Fresh local produce: 5%
- Exports and intra-EU B2B sales: 0%
Exempt products (no VAT, no deduction):
- Medical services
- Education and training
- Financial services
- Residential property rental
- Insurance
- Postal services
- Cultural events (in many cases)
B2B vs. B2C
- B2B transactions often involve a reverse charge or zero rating. The buyer declares VAT and reclaims it, minimizing cash impact.
- B2C sales require the seller to charge Latvian VAT based on the consumer's location, particularly when selling digital services or goods across borders.
Marketplace facilitators
Online marketplaces are treated as the supplier in certain scenarios. If a non-EU seller uses a platform like Amazon to sell goods priced under €150 to Latvian consumers, the platform becomes responsible for VAT. This reduces compliance burdens for sellers but does not apply to all transaction types.
VAT deductions
Input VAT can be deducted when related to taxable sales, and businesses making both taxable and exempt supplies must allocate input VAT proportionally. Certain restrictions apply to:
- Representation expenses (only 40% deductible).
- Passenger vehicles for mixed use (50% deductible).
- Luxury cars priced over €50,000 (no deduction).
Statute of limitations
The State Revenue Service can audit and issue VAT adjustments for up to three years after the tax period, and any fraud or deliberate evasion can extend this period. Businesses have the same timeframe to correct any past returns or claim input VAT.
Staying compliant with Latvian VAT regulations
Compliance begins with proper invoicing and ends with accurate returns and recordkeeping. All filings are digital, and errors may lead to penalties.
Invoicing requirements
To comply with Latvian VAT law and preserve a business’s right to deduct input VAT, each invoice must meet specific content standards. A valid VAT invoice must include the following elements:
- Unique sequential invoice number.
- Issue date and supply date (if different).
- Supplier and customer names, addresses, and VAT numbers (if applicable).
- Description of goods and/or services.
- Quantity, unit price, and net amount.
- VAT rate and amount in EUR (€).
- Total payable.
- Reverse charge or exemption reference, if applicable.
Invoices must be issued by the 15th of the month following the supply. Simplified invoices are allowed for totals under €150, and electronic formats are accepted if content integrity is preserved.
Filing VAT returns
Most businesses file monthly VAT returns via the Electronic Declaration System (EDS). The return summarizes:
- Output VAT (sales).
- Input VAT (purchases).
- Net VAT payable or refundable.
The deadline is the 20th of the month following the reporting period. New businesses and those with intra-EU activity generally file monthly, regardless of turnover.
Other required forms
Based on the nature and scope of their operations, businesses engaged in VAT-liable activities may also be required to submit additional reports beyond the standard return:
- EC Sales List (PVN 2 form): For B2B intra-EU sales.
- Domestic transaction report: For sales and purchases with Latvian VAT payers.
- Intrastat declarations: For intra-EU goods exceeding annual thresholds.
Filing deadlines
Returns and related reports are due by the 20th of the month following the sale. Intrastat reports are due by the 10th. Any late filing will result in penalties and interest.
Recordkeeping requirements
Businesses are legally required to retain key VAT-related documentation for a minimum of 10 years. This helps support audits, corrections, and refund claims during the statute period.
The required records include:
- Sales and purchase invoices.
- VAT returns and reports.
- Customs documents.
- Contracts and transport records.
Digital records are fully permitted under Latvian VAT law, but they must be stored in a way that guarantees accessibility, authenticity, and protection against unauthorized edits.
Risks of noncompliance
Failing to meet VAT obligations in Latvia may lead to a range of financial, legal, and operational consequences that can disrupt business continuity and erode trust with both authorities and clients. These consequences include:
- Fines as high as €720 for late returns.
- Interest of 0.05% per day on unpaid VAT (up to 40%).
- Penalties as high as 50% for underreporting.
- Criminal charges in fraud cases.
- Refund delays or denial.
- VAT number suspension.
Latvia’s tax authorities frequently cross-check reported data between suppliers and customers using automated systems, which helps them detect discrepancies and omissions.
Tips on staying compliant with Latvian VAT regulations
Businesses that follow these best practices will have a much easier time staying VAT compliant in Latvia:
- Track turnover to register early.
- Use OSS (One-Stop Shop) or IOSS (Import One-Stop Shop)for cross-border B2C sales.
- Validate VAT numbers with the VIES system.
- Apply correct VAT codes and invoice formats.
- Reconcile VAT returns monthly.
- Respond quickly to VID inquiries.
Software solutions
Automated tax compliance platforms can ensure and greatly simplify compliance. They generally offer a range of automation features, including:
- Real-time VAT calculation by product and location.
- Auto-generated, compliant invoices.
- Filing support for Latvian returns, EC Sales Lists, and Intrastat.
- OSS/IOSS integration.
- Secure, organized recordkeeping.
Numeral cuts down on manual input by automating calculations, form generation, and data entry across various jurisdictions. It diligently tracks deadlines, flags potential issues before they become filing problems, and adjusts quickly to any rate or regulatory changes.
Businesses using tools like Numeral are more likely to remain fully compliant, audit-ready, and able to respond quickly to VAT requirements as they change over time.
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Final thoughts
Latvia's VAT system is built on the foundation of EU-wide principles but includes national rules that affect how rates are applied, how registration works, and what businesses must do to stay compliant.
Accurate VAT compliance depends on handling each task with care, including registration decisions, rate applications, proper invoicing, and timely filings. Compliance becomes more manageable when companies combine knowledge of local regulations with effective tools that allow them to reduce their risk and focus on strategic growth.
Using tools like Numeral, along with strictly adhering to a disciplined compliance process, makes it possible to manage VAT obligations efficiently and confidently.
