VAT in Latvia and Public bodies

Public bodies

Public bodies such as the state, provinces and municipalities are not considered to be taxable persons in respect of activities or transactions in which they are engaged as public authorities.

Section 3 of the VAT Act provides that a public body providing taxable activities must register as a taxable person for VAT purposes if such an authority performs taxable transactions and such transactions may create significant competitive distortion. According to Section 3 of the VAT Act, the public body must register as taxable person for VAT purposes if it performs the following services and supplies:

-    telecommunication services;

-    supplies of goods (including water, gas, electricity, steam and heating);

-    goods transport services;

-    port or airport services;

-    public passenger transport services;

-    agricultural intervention transactions, implementing the condition of regulations regarding the organization of a common agricultural product market;

-    organization of fairs and trade exhibitions;

-    warehousing services;

-    television and radio services of a commercial nature;

-    tourism services;

-    advertising services of a commercial nature;

-    public catering services (with some specific exemptions);

-    supplies of goods for the personal use of employees; and

-    leasing services.

For public bodies, the threshold of LVL 35,000 (approx. EUR 49,800) also applies. Namely, if public bodies provide the above-mentioned transactions and the amount of these transactions exceeds the threshold of LVL 35,000, the respective public body is obliged to register with the State Revenue Service as a taxable person for VAT purposes.

Public bodies can only deduct VAT on their inputs in so far as they are related to taxable activities. Since public bodies may act in several capacities, practical problems arise as to the allocation of inputs.

Public bodies acting in a governmental or non-taxable capacity are not liable for VAT, except in the case of importation. If the state or local authorities acting as such take part in intra-Community transactions, they are treated as private persons and pay the VAT according to the origin principle. The supplier will therefore charge VAT on his supplies to public bodies in other Member States as if they were domestic supplies.

If public body acting as such, however, purchases goods in other Member States for an amount exceeding a threshold of LVL 7,000 (approx. EUR 10,000), this public body is obliged to register as a taxable person and such purchases are deemed to be intra-Community acquisitions, taxed in the country of destination.

While public bodies acting in a governmental capacity are not taxable persons in relation to services and goods supplied by them, they could become liable to VAT (and register as a VAT taxable person in Latvia) under the reverse charge rules in respect of certain services supplied to them from abroad where the received services are for ensuring economic activities.