Company formation and accounting in Latvia
Last updated: 2018-03-18
In relation with the provision of goods transportation services and value added tax (VAT), there are quite a few nuances. Therefore I will review different situations.

The legislation in relation to VAT in all EU countries must comply with general principles, so the reviewed situations can be applied also to other EU countries.

The recipient of the service is a Latvian company (Latvian person).

If the transportation service is provided to the enterprise (merchant), which is registered in Latvia, then in most cases VAT rate is 21%.
According topart 1, Article 19 of the VAT law, place of supply (provision) of services is Latvia.
Example. The recipient of the service is a legal entity, registered in Latvia, and the recipient of the service has Latvian VAT number. Service provider transports goods from Latvia to Poland. Must apply VAT 21% rate.

But must apply VAT 0% rate, if the transport service is related to the export, import, transit of goods. In these transactions, the 0% VAT rate applies also in cases where the service is provided to a person registered in Latvia and the place of loading is Latvia. Basis: part 1, Article 46 of the VAT law.

Also must apply VAT 0% if the service is rendered in the free zone or customs warehouse in relation to the goods delivered into the European Union from third countries and the procedure - release for free circulation (import) is not started.

The recipient of the service is a person of another EU country.

If the transport service is provided to an enterprise (merchant) that is registered in another EU country and the service receiver has VAT number of another EU country, then service provider does not charge VAT (VAT should not be added to the service price, the so-called VAT reverse charge).
The place of rendering the service is place of registration / activities of the recipient of the service. Service receiver calculates charges VAT (self charge).
Example. If Latvian enterprise provides a transport service (cargo transportation outside Latvia) to German enterprise (which conducts economic activities), then the Latvian enterprise does not charge VAT. VAT is charged by the German enterprise (and at the same time deducted, if the service is used for VAT taxable transactions).

If a service receiver has no VAT number of another EU country, then it is important to determine where is beginning and end of transportation.
  • If transportation starts in one EU country and ends in another EU country, then place of transaction is a country where transportation starts. Service provider may have obligation to register as VAT payer in corresponding country.
  • If transportation took place in one EU country or outside EU, then place of transaction is the actual place of transportation. So if transportation took place outside EU, then no VAT. If transportation took place in some EU country, then must apply VAT of the EU country.

The recipient of the service is an enterprise registered outside the European Union.

To have the rights not to calculate VAT (not to add VAT to the price), must be sure that one of the following conditions is true:
  • The recipient of the service conducts economic activity (better if the recipient of the service has a VAT or an equivalent number). According to explanations of Latvian tax authority it is mandatory for service provider to get from service receiver either special certificate (confirmation) or VAT (or equivalent) number of service receiver and to check if VAT number is valid.
  • Transportation take place outside Latvia.

In this case, there are following basis for not adding VAT:
  • According topart 1, article 3 of the VAT law, a taxpayer is a person who permanently, in any place, conducts economic activity, regardless of the purpose or result of such activity.
    Taxpayers are divided into registered taxpayers (with VAT number) and not registered taxpayers (without VAT number).
  • According to part 1 of article 19, if the service is provided to the taxpayer (person who engages in business activities), then the place of supply of services is the place of business of the recipient of the services.
  • In article 5 of the VAT law, there is a list of VAT taxable transactions. Services are mentioned in point 2, part 1, that is, with VAT are taxed services, that are rendered in the course of business, for remuneration, in the territory of Latvia.
  • Since the place of supply of service is not the territory of Latvia, this service is not subject to Latvian VAT.

For example, Latvian enterprise renders goods transportation service to Russian enterprise. The Russian enterprise conducts economic activities. Transportation takes place outside Latvia. In such case, Latvian company does not add VAT to the price of the service.

Nuances (exceptions) if the transport service is provided to VAT payer of any country.

If the goods transportation service is provided to VAT payer of any EU country or VAT payer of the country outside the European Union, then it is important to determine the place of use of such service.

If the service is used outside the European Union (for example, transportation takes place outside the EU), then there is no obligation to charge VAT (part 2, article 30 of the law).
Example. One Latvian enterprise renders a goods transportation service to another Latvian enterprise. Both enterprises are registered as VAT payers. Transportation takes place, for example, in the territory of the Russian Federation. In such case, the place of rendering of the service is Russia and to the transaction must apply zero VAT.

But, if the service is used in Latvia (for example, transportation takes place in Latvia), then must apply VAT rate is 21%, despite the fact that the recipient of the service is an enterprise registered outside the European Union. For example, Russian enterprise instructs Latvian enterprise to transport goods from Riga to Liepaja (or to any other place in Latvia). The transaction is subject to VAT 21% rate.

If the transportation service is rendered to a person, not doing economic activities.

In this case it is important to determine where the transportation of goods takes place.
  • If transportation takes place in different countries of the European Union, then the place of rendering the service is the country where transportation was started (goods where loaded). So:
    • must apply VAT 21%, if transportation started in Latvia,
    • must not charge VAT in Latvia, if transportation starts outside Latvia.
  • If loading - unloading does not take place in different EU countries (takes place in one EU country, or outside the European Union), then:
    • VAT rate 21% if the transportation takes place in Latvia,
    • and the Latvian VAT is not charged if the transportation takes place outside Latvia. VAT 21% charged for that part of the carriage (distance) that occurs in Latvia. If in this case the service is rendered in another EU country, then the Latvian enterprise may have an obligation to register a VAT as a payer in the corresponding country.



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