Company formation and accounting in Latvia
Last updated: 2018-01-26
In this example goods are computer hardware.
A company is registered in Latvia. But goods are located outside Latvia (goods are located in another European Union country, for example, in Germany).
Initial ("the first") seller of goods is not Latvian company (in the example, initial seller is German company).
Goods are not delivered to Latvia. Goods are delivered to another European Union country (for example, Spain).

Is there an obligation to pay VAT in such transaction?
Answer depends on legal status of all persons, involved in the transaction.

If all parties in the transaction have VAT number.

If all three persons are registered as value-added tax payers in different EU countries (in this example, Germany, Latvia and Spain), then the transaction can occur as follows.
The initial ("first") owner (the German company), according to instructions of the intermediary (the Latvian company), delivers the goods to the final recipient of the goods (the Spanish company).
Until Year 2013 in the law "On Value Added Tax" there was the concept of a triangular (tripartite) transaction (point 35 of article 1, article 27 and part 2 of article 28). According to the "old" law, such transaction is the delivery of goods in the territory of the European Union, a transaction in which three persons takes part, and each of the persons is registered as a VAT taxable person in different member state of the European Union.
According to part 2, article 28 of the "old" law, to such transaction applies VAT 0% rate.

In the "new" law there is no concept of a triangular (tripartial) transaction. But VAT "rate" remains the same. Basis are following:
  • For the initial seller of the goods (in the example German company). To have rights not to add VAT to the transaction amount, German company must fulfill the following requirements:
    • The buyer (in the example the intermediary, the Latvian company) must have a valid Latvian VAT number and
    • The goods must be exported from the seller's country (from Germany) to another EU country (the seller must have transport documents that confirm the export of the goods).

The seller does not add VAT to the price of the goods. In the VAT declaration (part PVN2 of the declaration), the seller specifies such transaction with a special mark (letter S).
  • The seller (the intermediary - the Latvian company) the purchased goods in the same month sells to "final" buyer (in the example, - the Spanish company). The goods were exported from Germany to Spain (transport documents are available). In such case must apply part 4 of article 16 of the law.
  • The "final" buyer (in the example the Spanish company) in the VAT declaration calculates VAT on the purchase amount. If the purchased goods will be used for VAT taxable transactions, then the Spanish company in the same declaration decreases the calculated VAT.

If a final buyer has no VAT number.

In the example, it is assumed that:
  • the initial / first seller (the German company) has a VAT number, and
  • the Latvian company has a VAT number, but
  • the final receiver / buyer of the goods (in Spain) is not registered as VAT payer (for example, the final recipient is an individual final consumer of the goods).
According to the article 10 VAT law, such a transaction is the distance sale.

The seller (in the example Latvian company) must take into account the annual amount of such sales in each country of the European Union. It is because, if amount of such sales to particular EU country receives certain limit, then the Latvian company must register as VAT the payer in the corresponding country.
Limit for different countries is different. More common limits are 35,000 and 100,000 euros (for Latvia, for example, limit is 35 000 euro).

If Latvian company is registered as a VAT payer in a certain EU country, then in this country it is necessary to submit VAT reports and pay VAT for distance sales to this country. To the price of the goods need to add VAT of the country in which a buyer is located.
In such case in Latvia do not need to pay VAT from such distance sales VAT.

If Latvian company is not registered as VAT payer in a certain EU country (if no obligation to register), then to the price of the goods must add VAT according Latvian rate (usually 21%).

If only a first seller has VAT number.

That is, Latvian company (intermediary) and the final buyer (an individual in Spain) do not have VAT numbers.

In such case, Latvian company needs to check net turnover during any 12 months. Company must register as VAT payer, if net turnover exceeds 40,000 euros during 12 months.

Also, Latvian company should monitor the amount of purchases from another EU country. If the amount of purchases during a calendar year reaches or exceeds 10,000 euros, then a company must register as VAT payer.

If the Latvian company is not registered as a VAT payer, then there is not obligation to add VAT to the price of the goods. But the initial seller (in the example the German company) must add VAT to sale price (for the Latvian company increases purchase price).



Comments, questions







You might be interested in:
More about company formation and taxes in Latvia