Latvian Ministry of Finance has developed amendments to the Value Added Tax Law that provide for simplifying and equalising VAT application rules and requirements for small and medium-sized companies, as confirmed by the ministry.
With the amendments to the law, it is planned to revise the existing relief, which allows small and medium-sized businesses, subject to a certain threshold, not to register in the VAT register of the State Revenue Service (VID) and not to pay VAT.
Currently, small and medium-sized companies can only be exempted from paying VAT up to a certain threshold in their own country. On the other hand, following the amendment of the law, these companies carrying out transactions subject to VAT in other member states of the European Union (EU) will be entitled to apply for VAT exemption of that EU country, as defined by that EU member state.
As a prerequisite for the exercise of such rights, will be the turnover of small and medium-sized companies, which will not exceed the exemption threshold of the respective EU Member State and the total turnover in the EU, which is set at EUR 100 000.
This procedure will apply to VAT payers of other EU member states who carry out VAT taxable transactions domestically, as well as domestic VAT payers will be able to use the exemption in other EU member states.
The Ministry of Finance reports tat VAT registration threshold starting from next year will be calculated not for the previous 12 months, which is how it is now, but for the calendar year.
The types of transactions that form the VAT registration threshold will also be clarified. In addition to VAT taxable transactions, VAT exempt real estate transactions and financial and insurance services will also be included in the value of the VAT registration threshold. In addition, if the VAT registration threshold is reached in one calendar year, in the next year small and medium-sized companies will have to become a registered VAT payer and pay VAT. This will also apply to those small and medium-sized companies for which the VAT registration threshold calculated in accordance with the amendments to the law has been exceeded in 2024. Thus, the amendments to the law provide for transitional provisions that determine the actions of VAT payers in the event that the VAT registration threshold is exceeded in 2024 in accordance with the new regulation.
The amendments to the law will also introduce a transitional period for those VAT payers whose turnover in a calendar year exceeds the VAT registration threshold, from which they must register with the VID, VAT register and start paying VAT. Small and medium-sized companies will be able to continue not to pay VAT until the end of the calendar year if their turnover in that year does not exceed the VAT registration threshold of EUR 50 000 by more than 10%, i.e. EUR 5 000. In this case, VAT payers will have to register with VID, VAT register and pay VAT on VAT taxable transactions only from the next calendar year. However, if the turnover of small and medium-sized companies during the calendar year exceeds EUR 55 000, they will be required to register with the VID, VAT register and pay VAT from the moment of exceeding the mentioned value.
The draft law also includes other amendments developed in cooperation with VID, sectoral ministries and the non-governmental sector. They are aimed at reviewing the application of the VAT 0% rate in transactions with diplomatic and consular missions registered in Latvia, clarifying the definition of the purchase of goods in the EU territory, clarifying the place of supply of services for cultural and sporting events, improving the legal framework in the field of VAT in accordance with EU requirements and harmonizing with the legal framework of other sectors.
New legislative requirements are to come into force on the 1st of January 2025.