What is the VAT group?
Value Added Tax (hereinafter – the VAT) group is two or more taxable persons which has been established on the basis of a memorandum of association of the VAT group for the performance of mutual transactions inland and has been registered with the State Revenue Service (hereinafter – the SRS) VAT Taxable Persons Register. The participants of the VAT group are treated as a single accountable persona and therefore, transactions performed between the VAT group members are no subject to VAT.
The participants of the VAT group members can be:
- capital companies which are in one group of companies and
- branch of a foreign merchant (legal entity) in the Republic of Latvia, if such foreign merchant is in the composition of the same group of companies.
A foreign company cannot be a participant of the VAT group.
The VAT group may be formed, if the total value of the taxable transactions of at least one participant of the VAT group is at least EUR 350 000 during the previous 12 calendar months until the month when a submission for registration of a VAT group is submitted.
Why would it be advisable to register the VAT group?
- in order to improve the cash flow, especially companies:
- which have intra-group transactions or
- when one of the group members is in a VAT refund position and another in a VAT liability position
- to eliminate the risk of incorrect VAT treatment of intra-group transactions
- to increase the recoverable input VAT amount if one of the group members has VAT taxable transactions and another has VAT taxable and exempt transactions.
What should be taken into account before the VAT group registration?
In case if a potential group member has VAT taxable and exempt transactions, then before it joins the VAT group it is advisable to evaluate whether in the particular case there will be benefit from the VAT group. Namely, in a certain cases the VAT group registration instead of expected increase of recoverable VAT amount might even reduce it.
It should be taken into account that the all members of the group remain jointly liable for any VAT debts, as well in a case if one of the group members will have VAT audit than other members of the group will also be audited.
How to register the VAT group?
The maximum number of participants in the VAT group is not limited.
In order to register the VAT group an application for the VAT group registration and an agreement on establishment of the VAT group should be submitted to the tax authorities.
The VAT group shall be deemed as registered within the VAT Register of SRS starting from the first day of the next taxation period after the SRS has taken the relevant decision.
How Leinonen can help you in respect of the VAT group registration?
We can help you by:
- analyzing of the VAT group benefits and costs;
- analyzing your optimal VAT group structure;
- assisting in implementation the optimal VAT recovery methodology;
- preparing of the VAT group documentation (including an agreement on establishment of the VAT group) and submitting them to the SRS;
- providing assistance of preparing first VAT group return.
Information prepared by Leinonen Latvia, Tax & Legal Advisory Department.