October 28, 2017

Start-ups and small companies frequently ask when do they have the obligation to register as VAT payers in Latvia. There can be different circumstances the occurrence of which requires a company to register in the VAT register, but this article discusses the most common one – exceeding the minimum threshold of the amount of taxable transactions (50 000 EUR).

According to Section 50, Paragraph 1 of the Law on the Value Added Tax (VAT Law), a tax payer has the right not to register in the Register value added tax payers maintained by the State revenue service if the total amount of the taxable goods deliveries or of the services provided within the previous 12 months did not exceed 50 000 EUR.

Excess of just a couple of euros will result into the necessity to register in the VAT Register. However, a very common mistake is to think that the threshold of 50 000 EUR relates to the total amount of all transactions of the company. It may be that during the previous 12 months the company performed both taxable and non-taxable transactions. Therefore it shall be noted that the threshold above includes only the transactions to which VAT applies. The amount of non-taxable transactions is not to be taken into consideration.

It is worth mentioning that a taxable transaction is not the one to which applied 0% tax rate, but the one to which tax is not applicable at all. Sometimes the companies apply the tax to transactions which in fact are not taxable. According to Section 5, Paragraph 1 of the VAT Law, taxable transactions are the following transactions performed within the internal territory: 1) delivery of goods for remuneration; 2) rendering of services for remuneration; 3) acquisition of goods in EU for remuneration.

Therefore, in determining the application of VAT attention shall be paid to the place of performance of the transaction. The VAT Law lists many provisions, which aim to determine the place of transaction in different situations. Worth mentioning that a transaction the place of which seems obvious to be Latvia, can in fact turn out to be performed in another country. Especially it relates to the transactions related to performance of services.