Amendments to VAT Act and submission of VAT returns

As of 1 July 2016, amendments to the VAT Law on special VAT treatment of cereals and industrial crops supplies have entered into force. Henceforward, consignee will pay VAT on domestic supplies if the transaction will take place between VAT payers in Latvia. The adopted amendments are aimed to reduce VAT fraud in cereals industry.

Further, the VAT Law has been supplemented with Article 143² providing that special VAT scheme is applied to supplies of certain cereal and industrial crops and oilseeds supplies including mixture of the goods in unchanged condition which are not normally used for final consumption. Taking into account codes of combined nomenclature of the Common Customs Tariff, the new VAT application scheme applies to the following supplies of goods:

According to provisions of the VAT Act and the application of VAT reverse charge mechanism, the settlement of said supplies must be carried out in non-cash.

Regarding VAT reverse charge mechanism, merchants operating in the cereals industry will be eligible for refund of overpaid VAT during the tax year if overpaid VAT amount of the tax period exceeds 1 500 euro (as per amendments the determined prior minimum VAT refund amount is rounded from EUR 1 422.87[1]).

Changes in submission of VAT return

Taking into account the above mentioned amendments, rules of submission VAT return and its Annexes have been adjusted[2]. Transactions under Article 143² of the VAT Act shall be indicated in the VAT return applying the code "R 5" if goods are supplied and tax invoice issued or advance payment received starting from 1 July.

In addition, on June 28 amendments to the same regulations No.40 "On the value added tax declaration" have been adopted stating that starting from 01.01.2017 all transactions with a net value (excluding VAT) exceeding 500 euros (currently 1 430 euros) will have to be listed in the VAT return. As stated in the annotation of drafted amendments, in view of the SRS, reduction of threshold of the listed transactions will be more transparent, comprehensive and comparable from both sides i.e., input and sales. It will consequently allow to identify effectively unjustifiable or fictitious transactions.

[1] Article 109(5)4 of the VAT Act

[2] 29.06.2016 Amendments to the Cabinet Regulations No.40 “Regulations on VAT returns”.