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Accounting and taxes in electronic commerce

In general must apply the same legislation as for any other activities (trading). However for online sales there are some nuances.

Registration of structural entity, declaration about accounts in payment service providers.

You should register company's website or mobile application in State revenue service (SRS) as structural entity. If you sell goods in any online sales website (for example, amazon.com, ebay.com), you must register in SRS your company's profile (link to account) in the online sales website.

During 10 days from moment, when made decision about creation of structural entity, you must fill out and submit special form in online declaration system (ODS).
For online commerce companies usually uses accounts opened with payment service providers (PSP). You must register such account with SRS (can submit application in ODS, writing information about opened account).
If you change website address (URL) or PSP account, you should inform SRS about it.

What information about you (your company) must show in your website?

Must provide following information:
  • Company name or your name and surname (if you as private person is doing business).
  • Legal address (for merchants - legal persons). Actual address or place of business (for example, website address).
  • Registration number (if you or your company have the number). For Latvian private (natural) persons need to show second part of personal code.
  • If offered goods or services are VAT taxable, then must provide VAT number.
  • Contact information, so that clients can quickly communicate directly to you (phone, email).
You can provide the information, for example, in the Contacts section of the website.

Information related with obligation to register with SRS in the register of VAT taxable persons.

You must register if any of following conditions is true:
  • Your company buys goods within the territory of European Union (EU) and during calendar year amount (without VAT) of purchased goods is at least 10 000 euro.
  • Amount of VAT taxable sales (goods, services) during previous 12 months is more than 40 000 euro.
  • Your company provides services to tax payer of another EU country (there are exceptions).
  • Your company receives services from tax payer of another EU or any other third country (territory), then does not carry out economic activity in Latvia.
For example, if your company receives domain registration or hosting services from some USA company (that is not doing business in Latvia), then need to register as VAT payer before your company receives the services.
For more information, please ask writing email to abways@abways.lv.

Exception is distance sales (goods from one EU country deliver to another EU country and sell to person without VAT number). In such case need to check amount of sales to each EU country during calendar year. If the amount increases certain limit, then in the corresponding country you must register as VAT payer.

Application of VAT. The different rates.

Sale of goods.
  • If you export the goods, the VAT rate is 0%. But you must prove export (fact that goods are exported outside the EU). Bet, Jums ir jāpierāda, ka preces ir eksportētas (izvestas ārpus ES). The most reliable proof is the creation of customs declaration (and approving at the customs office). You can create the declaration, using EDMAS (electronic system of processing customs data). Need to take into account that SRS compares customs data with VAT report data. The data must be the same.
  • If you sell goods to VAT taxable person of another EU country and deliver the goods from Latvia to another EU country, then do not need to add VAT to price of goods. But if you do not deliver goods from Latvia to another EU country (transfer / hand over goods to buyer in Latvia), then must apply VAT standart rate - 21% (for some groups of goods need to apply reduced VAT rate.
  • If you sell goods to Latvian any person, then must apply VAT standart rate - 21% (or reduced rate).
  • Also must apply VAT 21% (or reduced rate) if you sell goods to another EU person without VAT number. Exception is distance sales. But in case of distance sales your company must register as VAT payer and must pay VAT in the country of buyer (so, in any case must pay VAT).
  • If you buy goods outside EU (for example, in China) and sell the goods to buyer, located in EUR, then it is important when buyer gets ownership of goods and who imports the goods (prepares customs declaration). If a buyer get ownership in the moment when goods are located outside EU, then do not need to apply Latvian VAT law to such transaction. Because such transaction is not mentioned in the 5-th article of the law. VAT on import pays the person who performs import procedure (imports goods).
  • Regarding to agency (intermediation) in sale of goods if a buyer is EU person without VAT number, you should take into account Article 26 of VAT law. Place of rendering agency services is the place where according to VAT law (in the meaning of law) is the place of "main" transaction (sale of goods). If place of "main" transaction is outside EU, then (for application of VAT law) place of provision of agency services is also outside EU.
If your company imports goods, then you have option to choose to apply special VAT regime for import of goods.

Provision of services (e.g. supply of software, provision of access to databases).
  • If you provide services to any Latvian person, then must apply VAT 21% rate.
  • If you provide services to VAT taxable person of other EU country, then do not need to add VAT to price of services (must apply VAT reverse charge - receiver of services "pays" VAT). There are multiple exceptions, but in general the exceptions are not related with online sales.
  • If you provide electronic services to EU person without VAT number, bet in general must apply service receiver's country VAT rate (in Latvia you can register for application of MOSS regime). The legislation contains an exception. If during a year total amount of electronic services rendered to non VAT payers is less than 10 000 euro, then you can choose to apply Latvian 21% VAT rate.
  • If your company provides services to person, registered (located) outside EU, then you do not need to add VAT to the service price.

Traceability of transactions, documentation, other questions.

If you sell goods in some online sales platform (website), then it is possible that website's soft automatically creates sales invoices and send the invoices to buyers. However need to take into account that for each transaction (sale) your company must have tax invoice that matches Latvian legislation (invoice must contain all details and also must contain Latvian language).

In case of SRS examination you would need to "show" whole "chain" for particular transaction (for example, movement of goods and money). For example, you buy goods from China company and sell the goods in some online sales website to some EU private person; goods from China "goes" directly to the buyer. In such case you should have following documents:
  • Sales invoice, received from China company. In invoice your company must be specified as a buyer.
  • Proof that goods are delivered from China to certain EU country to certain buyer. If there is a tracking number in the sales invoice, then should exist a website where you can enter tracking number and see movement of goods. You should need to save screenshot of the website's page.
  • Sales invoice, issued by your company. In sales invoice a buyer is the EU private person.
  • Document that proofs that your company received payment of the buyer. It may happen that you have only online sales website's statement about incoming payments, but in the statement there are not specified persons, from which you received payments. In such case you must create (prepare) detailed information about each payment to be able to determine on what date each buyer paid.

You should be check whether the goods sold by your company or the services provided (for example delivery, update of software) are those that can be used for military purposes. Regarding to the circulation (movement) of goods of strategic importance you can consult at Strategic Goods Export Control Division.
Before transaction need to check that business partner is not registered (not located) in high risk third country (for example, Iran, Pakistan, Panama).

Must pay attention if you buy goods from private person.
  • If a seller has registered in Latvian SRS as person engaged in economic activities, then your company has no obligation to withhold any taxes from the payment to the seller. Before payment must make sure that that receiver has registered in SRS.
  • If a seller is Latvian tax resident and sells personal property, then in general do not need to withhold any taxes (there are several exceptions in legislation). Before payment from seller must receive special statement - confirmation.
  • If a seller is resident of EU or European Economic Zone country and in Latvia received more than 75% from income, then also in general do not need to withhold any taxes. And also must receive statement - confirmation.
  • In other cases must withhold tax from payment and must pay the tax to state budget.
In all cases must report to SRS about the payment to a private (natural) person.
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