The value-added tax in Latvia is applied according to the Value Add Tax Act to any goods and services. VAT is paid by every registered taxpayer and goes into the Latvian state budget. Latvia has double taxation agreements with more than 50 states in order to avoid double taxation.
The standard VAT rate in Latvia is 21% starting July 2012, but there are also a reduced VAT rate of 12% that applies to pharmaceutical products and medical equipment, dairy products, transportation, tourism facilities and delivery of heating products such as wood, literary works. A 0% tax rate applies to import and exports supplies within the Community, services related to imports and exports of intra-community products, international transport of supplies and passengers, goods and services for diplomatic missions, European institutions, and international and non-profit organizations.
Banking and financial services, as well as transactions with share and securities are exempt from VAT in Latvia. Other services exempt from VAT are: social security services, medical care, education services, real estate services such as leasing, gambling and postal services.
Latvian companies are required to register for VAT if during the last year the taxable products and services have brought the company earnings that exceed the 35,000 LVL (50,000 euros) threshold. If its earnings have not exceeded this threshold, VAT registration remains optional. In case the company supplies goods or services to an EU state, the company is required to register for VAT before the transaction is concluded.
Foreign companies are required to register for VAT in Latvia if they provide taxable goods or services. The registration can be made directly or through a representative. Companies that are not registered for VAT in Latvia but make distant sales and the value of the sold products or services exceed the threshold of 24,000 LVL (34,000 euros) must also register for VAT with the Latvian authorities. If a company does not register for VAT in time, it must pay the VAT for all taxable goods and products made during the period it was not registered plus the calculated penalties.
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