why do you require VAT planning ?

because of:

• different VAT rates in Latvia (22% standard, 12% reduced) and other EU member-states
• different treatment for place of rendering of services or delivery of goods
• different systems applicable for VAT refund
• VAT may considerably impact your company's cash-flow, also by selling of immovable property or shares of property

VAT on sale of immovable property

Sale of movable property (mainly real estate) is not VATable in Latvia, except for the sale of unused immovable property or the building land. The latter must be registered with the tax authorities and becomes subject to the ordinary VAT rate.

Unused immovable property:

• newly built building or structure (also stationary equipment installed therein), if such is not utilised after being approved for use,
• newly built building or structure (also stationary equipment installed therein), if such is utilised and sold for the first time within one year after being approved for use,
• building or structure if such is not utilised within one year after renovation, reconstruction or restoration works have been completed,
• building or structure if after renovation, reconstruction or restoration works have been completed it is utilised and sold for the first within one year after being approved for use,
• object of unfinished building - building or structure if it has not been approved for use, and
• building or structure if renovation, reconstruction or restoration is carried out therein, but it has not yet been approved for use;

Building land:

The parcel of land in respect of which a construction permit has been issued for the building thereof, or for construction of engineering communications therein, or for construction of roads, streets or supply of engineering communications intended for it, is considered as VATable building land.

The land parcel shall be deemed a land for the building if the construction permit for the referred to construction works has been issued after 31 December 2009. Any construction permits received before 31 December 2009 (or prolonged or re-registered after 31 December 2009) do not create VAT liabilities for the sale of land.

Nevertheless, sale of immovable property may be subject to other taxes, such as:

• 2% withholding tax in case the seller is a non-resident and the purchaser - Latvian taxpayer;
• Stamp duty of 2% from transaction value are chargeable (with the upper limit of 30 000 LVL) upon registering the change of the title/ ownership at the Landbook;
• Real estate tax payable to the local municipality, for which the new owners shall be registered in 30 days from the purchase.

VAT upon disposal of shares of property

Capital investments can be both - money investments and property investments (for example, immovable property, equipment, capitalization of debts etc). When the property is invested in the share capital of the company, it becomes a property of the company.

It should be noted that the company cannot deduct any input VAT (VAT that is given in received invoices for the purchased goods/services) that is directly connected to VAT exempt transactions (such as capital investments) - Article 6 of Latvian VAT Law. More specifically you are allowed to deduct the input VAT proportionally to the amount of VAT exempt transaction from all transaction carried out by the company. Separate VAT accountancy (dividing VATable/VAT exempt transactions and referable costs) may assist you to avoid any negative result and make a significant VAT savings.

Question of VAT deductions connected to the disposal of shares or property in Latvia is rather controversial. Therefore we advise you to obtain advice on possible VAT consequences before making of acquisition.

Sale of the share may also incur for other taxes, similarly as described for the real estate.

how we can help you ?

• By tax planning of transactions in accordance with Latvian VAT and other tax laws,
• By preparing of supportive documents and assisting in implementation,
• By finding the most effective solutions for both non-EU and intra Community sales.