A new solution for individuals conducting economic activity in Latvia - the special VAT regime

For individuals conducting economic activity in Latvia who receive services or purchase goods from business partners outside Latvia, VAT matters often become complex and time-consuming. Considering that, with the amendments to the VAT Law effective from 01.07.2025, changes have been introduced that significantly simplify VAT accounting for individuals conducting economic activity, we have implemented a solution that substantially eases the work for those users who are registered under the special VAT procedure in accordance with Article 139.² of the VAT Law.

In this article, we will briefly and clearly explain how to activate this regime and what additional opportunities the new functionality provides in everyday work.

What is the special VAT regime and who is it intended for?

The special VAT regime applies to individuals conducting economic activity who receive services, the place of supply of which is determined in accordance with the first part of Article 19 of the Value Added Tax Law, from taxpayers of the European Union (EU), third countries or third territories, or who acquire goods within the EU territory. Based on this procedure, registered persons pay VAT only in certain cases - for received services and/or purchased goods, but VAT does not need to be paid on income received from the sale of services or goods.

The following must register under this regime:

• Real estate landlords using Booking.com, airBNB.com
• Merchants, artists, manufacturers using Etsy.com
• Anyone using advertising services from Meta (Facebook.com, Instagram.com), Google.com, YouTube.com, LinkedIn.com

VAT registration process

In order for an individual conducting economic activity to register under the special VAT registration procedure, a completed structured application "Application for Registration under the Special VAT Registration Procedure (Article 139.²) or Exclusion Therefrom" must be submitted within the VID EDS system.

The application form in VID EDS can be found by logging into your EDS profile: "Documents" - "Create new document" - "All documents" - "Application for Registration under the Special VAT Registration Procedure (Article 139.²) or Exclusion Therefrom" - "Registration".

The decision on registration in the VAT payers' register under the special registration procedure or the refusal of registration is made within five working days of receipt of the registration application.

How to activate the special VAT regime in the pats.lv system?

To start using the functionality, go to:

Profile → Tax information → VAT data, then below mark: "I am a special VAT regime payer".

Afterwards, you will need to specify:

• Date from - when you became a special VAT regime payer (the start date of the VAT payer status)
• Date to - when you stopped being in this regime (if you are still in the special VAT regime payer status, leave it blank)

What changes after the regime is activated?

When the regime is enabled, the user can take advantage of automated functions, and pats.lv automatically adapts transaction processing:

1. VAT is calculated only for those transactions where it is required.
2. The system automatically separates the transactions that specifically belong to the transaction group to which the special regime applies.
3. These changes allow precise management of VAT application and reflection of specific operations.

Correct application of VAT

• When registering expenses with partners from the EU and third countries, you will need to select the reverse VAT rate, as well as indicate the EU VAT number in transactions with EU partners.
• For EU transactions, you must additionally indicate the member state to which the partner belongs.

Transactions with partners in another country or with another VAT payer are processed in accordance with the requirements of the specific member state. For example, if a company cooperates with another EU VAT payer, the VAT application rules of both member states must be taken into account.

This helps to avoid errors and ensures compliance with regulatory acts.

Automatic preparation of the VAT notification

One of the main advantages is automated report preparation.

If the special VAT regime is activated in the profile:

• in the "Reports" section, a Notification of VAT Payment is automatically created
• the report is prepared based on the transactions registered in the pats.lv system

How does it work in practice?

• You can search for a specific report by period to quickly find the necessary data.
• You can view the report in PDF format, which clearly shows the value of each transaction, in order to verify the data
• You can download an XML file intended for submission to the SRS

How to submit the report in the SRS EDS system?

The process is simple:

1. Download the XML file from pats.lv
2. Go to the SRS EDS system
3. Open the "Documents" section
4. Select "Upload from XML file" and upload the XML
5. Check the report
6. Click "Submit"

In conclusion

If you are a special VAT regime payer, be sure to activate this function in your pats.lv profile - it will significantly ease both transaction accounting and report submission. However, it must be remembered that when using this functionality, all applicable rules and requirements must be observed.

Want to start a business in Latvia but are not sure about the most suitable type of activity and tax payment regime? The right choice is the foundation for successfully developing your business - learn about the main differences and good luck making the right choice!