Starting in 2025, new Value Added Tax (VAT) registration rules will come into effect, impacting both businesses and self-employed individuals. To avoid unexpected tax liabilities and potential penalties, it is essential to understand who is required to register in the VAT Register with the State Revenue Service (VID) and when this registration must take place.
Who Must Register as a VAT Payer?
VAT registration is mandatory for various business entities, including:
- Individuals engaged in economic activities.
- Legal entities (LLC, JSC, associations, etc.).
- Partnerships and other registered structures.
- International VAT groups and tax representatives.
- Businesses from other EU countries and third countries that operate in Latvia.
If a company reaches a specific turnover threshold or conducts transactions with EU or third-country companies, registration becomes obligatory.
Mandatory VAT Registration Regardless of Turnover
Starting in 2025, the new VAT rules introduce mandatory registration even if a business does not exceed the turnover threshold, in the following cases:
- If a business receives services from VAT payers in the EU or third countries (e.g., advertising services from Facebook, Google, Amazon, Etsy, Booking.com).
- If a business provides services to VAT payers in the EU, such as digital services.
- If a business performs taxable transactions in Latvia, regardless of the turnover amount.
For example, if SIA “A” pays Facebook (META PLATFORMS IRELAND LIMITED) for advertising services, the company must register for VAT before receiving these services, regardless of their value.
Similarly, if a self-employed individual sells goods via ETSY, and the platform charges a commission, they must register for VAT before receiving these services.
What Are the VAT Registration Thresholds?
The VAT registration thresholds are:
- €50,000 turnover from the sale of goods and services in a calendar year.
- €10,000 in purchases of goods from EU countries (if the business imports goods from the EU).
If a business does not exceed these thresholds, registration is not mandatory, unless it receives services from VAT payers in the EU or third countries.
However, this threshold does not include income from the sale of fixed assets and intangible investments, if such sales are occasional.
Deferred VAT Registration: How It Works
If a company exceeds €50,000 in a calendar year but does not exceed €55,000, it has the option to defer registration until the end of the year and start paying VAT from January 1 of the following year.
For example, if a company reaches €51,000 turnover in September 2025, it can register for VAT and start paying tax from January 1, 2026.
However, if the company exceeds €55,000, registration must be completed immediately, and VAT payments must begin from the first day of the next month after exceeding the threshold.
Registration Process and Deadlines
If a company exceeds the threshold, the VAT registration process includes the following steps:
- Submitting an application to VID – Registration is done electronically via the EDS system.
- VID decision – The tax authority reviews the application within five working days.
- VAT payer status takes effect – Registration usually takes effect on the day the decision is published in the VID EDS system.
It is important to note that VAT registration can be denied if the company:
- Is not reachable at its registered legal address.
- Fails to provide sufficient information about its business activities.
- Has outstanding tax debts.
If registration is denied, the company can rectify the issues and submit a new application.
What Happens If a Business Fails to Register for VAT?
If a company does not register for VAT despite being required to do so, VID may impose sanctions, including:
- VAT assessments for the entire period when the company should have been registered.
- Fines and penalties for overdue tax payments.
- Possible suspension of the company’s economic activities in cases of severe non-compliance.
To avoid these issues, it is crucial to register on time and follow the new regulations.
Key Takeaways
The new VAT registration rules coming into effect in 2025 will significantly impact businesses. Whether a company is engaged in trade, service provision, or uses international platforms like Facebook, Etsy, or Amazon, VAT registration may be mandatory.
To prevent fines and ensure compliance, it is essential to assess VAT registration requirements in advance and submit an application to VID if necessary.
If you need assistance with VAT registration or tax consultations, BBCRiga offers professional support and guidance to ensure your business meets all regulatory requirements and efficiently manages its tax obligations.