Upon client's request VAT Agents can offer VAT audit.

VAT audit represents the review of any previous tax periods of the company or review of specific aspects such as examination of the Fixed establishment or Permanent establishment, which may have the impact on VAT rate.

Currently VAT refunds are made automatic within 10 days further to approval of annual VAT return (also for the smaller period in case specific conditions of the VAT law are fulfilled). This however does not prevent Latvian tax authorities from making of tax audit (it is possible to provide within 3 year except for cases when the audit is provided according to possible offence as per Criminal Law).

Permanent establishment / Fixed establishment

Upon registering for VAT it is important to understand whether the foreign company has a fixed establishment or a permanent establishment in Latvia, which later on could affect the applicable VAT rate.

The term Fixed establishment can be found in Latvian VAT Law and EU Council Implementing Regulation No 282/2011 (laying down implementing measures for Directive 2006/112/EC on the common system of value added tax). Briefly, Fixed establishment is a place of performance of economic activity of a person where it has permanent access to the necessary technical and human resources in order to supply specific goods or to provide specific services, as well as to receive and use goods and services for the activity thereof.

Whereas, Permanent establishment usually is defined in the tax treaties (in case Latvia has concluded this type of treaty with the home country of the non-resident). When no double tax treaty is signed rather vast definition of the Law "On taxes and duties" becomes applicable stating that foreign company has a Permanent establishment in Latvia if all the below listed conditions are compiled with simultaneously:

• the foreign company utilises a specific place for activities in Latvia;
• the place for activities is permanently utilised or is established for the purpose of being utilised permanently; and
• the place for activities is utilised for the performance of entrepreneurial activities (commercial activities).

In addition, it shall be considered that a foreign company has a permanent establishment in Latvia if it performs in Latvia at least one of the following referred to activities:

• utilises construction sites or performs building, assembly or fitting activities or performs supervision or consultative activities related to the construction sites or the referred to activities;
• utilises equipment or installations, drilling platforms and special ships intended for the research or acquisition of natural resources, or carries out supervisory or consultative work related thereto;
• within a time period or time periods, which together exceed 30 days in any six month period provides services, including consulting, management and technical services, utilising his or her employees or associated personnel; or
• utilises the activity of a natural, legal or other person for the benefit of his or her entrepreneurial activities (commercial activities) if the person referred to has been granted and regularly exercises (more than once in a taxation period) authorisations to enter into contracts in the name of a foreign undertaking.

The permanent establishment of the foreign company is liable to all taxes, which are payable in Latvia by the resident companies under the applicable tax laws.

Therefore, if you want to check any overpaid/ accrued input VAT of your company or any other tax aspects, we would be pleased to help you!