VAT in Latvia: Intra-Community acquisitions of goods

Definition

From 1 May 2004, when Latvia joined the European Union, the fiscal borders between old Member States and new Member States have disappeared and customs formalities no longer apply to intra-Community transactions. Since then, importation and exportation are concepts relating only to transactions with third countries. However, because the destination principle is still applied in the European Union, new rules were required to ensure that the VAT collected will accrue to the Treasury in the country of destination.

An intra-Community acquisition can be defined as the acquisition of:

Acquisition of goods by registered taxable persons

Private persons are in principle taxed in the country of origin, e.g. the Member State of purchase, at the rate applicable in that state. Taxable persons are taxed in the country of destination by the acquisition rule. A specific group of persons may sometimes be treated as private persons and sometimes in the same way as taxable persons. This group consists of:

- non-taxable persons, e.g. the state, a municipality, a holding company or a church;

- persons carrying out exempt activities, e.g. an insurance company; and

- flat-rate scheme farmers.

The main rule is that this group of persons is taxed as if they were private persons. In principle, therefore, non-taxable persons/fully exempt persons and flat-rate scheme farmers pay VAT in the Member State of origin.

If the total amount of intra-Community acquisitions of such persons, however, exceeds a threshold of LVL 7,000 (approx. EUR 10,000) in the current calendar year, persons from this category are treated as taxable persons for their intra-Community acquisitions and must register as taxable persons for VAT purposes and account for VAT on the intra-Community acquisitions.

As stated above, a taxed intra-Community acquisition of goods can occur where the purchaser is a person fully exempt from VAT, e.g. a bank, an insurance company or a hospital. It is important to keep in mind that not every bank, hospital or insurance company is automatically a fully exempt person. Most banks supply both taxable and exempt services, for instance the letting of safes or travel agent services. Insurance companies, banks, hospitals, etc. sometimes run a cafeteria which results in taxable supplies. In these circumstances they are not fully exempt persons.

Non-taxable persons/fully exempt persons and flat-rate scheme farmers who register for VAT because of taxed intra-Community acquisitions or because of purchases of goods and/or services under the reverse charge rule only, are taxable persons for VAT purposes.

Acquisition of excise goods

Energy products, alcohol and alcoholic beverages and manufactured tobacco are considered as excisable goods for Latvian VAT purposes. Excisable goods are not subject to the special rules for distance selling; they are not considered in connection with the distance selling threshold. As a result, the intra-Community acquisition of excisable goods is always taxable in Latvia (exception: purchases by private individuals).

Excisable goods may not be taken into consideration to determine the threshold of LVL 24,000 which applies to intra-Community acquisitions by a special group of taxable persons.

Purchases of excisable goods by private persons not acting in a business capacity are subject to VAT in the Member State of origin.

Acquisition of new means of transport

The transfer to Latvia from another Member State of new means of transport is always taxable as an intra-Community acquisition, regardless of the status of the supplier or the purchaser.

"Means of transport" is a term which is defined in Section 1 of the VAT Act as meaning:

-    a motorized land vehicle, the volume of the cylinder capacity of which is greater than 48 cc or with a capacity greater than 7.2 kW;

-    a ship or other floating craft which is longer than 7.5 m; and

-    an aircraft having take-off mass not higher than 1,550 kg.

New means of transport are:

-    a motorized land vehicle which has been in use for less than 6 months or has travelled less than 6,000 km;

-    a ship or other floating craft which has been in use for less than 3 months or has sailed for less than 100 hours; and

-    an aircraft which has been in use for less than 3 months or has flown for less than 40 hours.

If, for example, a person buys a 1965 Jaguar Mark II which has travelled only 5,500 km, this car is a new means of transport for VAT purposes. The supply by a German car dealer to a Latvian private person of a 9-week-old Mercedes C180 which has travelled 8,000 km is a supply of a new means of transport if the supply takes place within 6 months after the date of first entry into service. Consequently, the private person makes a taxed intra-Community acquisition of a new means of transport in Latvia. If this same private person, however, were to purchase an Alfa Romeo Spider in Naples which was not new, he would have to pay Italian VAT to the car dealer.

Deemed intra-Community acquisitions of goods

The transfer of goods owned by a taxable person between Member States shall be treated as a deemed intra-Community acquisition if the taxable person uses the goods for his business activity.

A deemed intra-Community acquisition of goods also takes place on transfer of goods between Member States by: