The next year will bring us new VAT system changes all over the EU

Large-scale draft amendments to the VAT Law have started their course towards adoption in Latvia. The amendments are related to stricter regulation of third-country e-commerce. The European Commission has just suggested postponing implementation of the draft in the EU from the beginning of next year to July 2021 due to the virus. This means that there is still some time to study the draft in more detail and tell you about it in a later tax newsflash. I will just mention that this large-scale VAT draft will affect such matters as:

  • introduction of the one-stop-shop principle (all EU VAT obligations can be settled in one EU country) for e-commerce, service provision to consumers, as well as imports;
  • new form of return,
  • removal of the distance sales threshold (presently in Latvia – EUR 35K, except supply of excise goods);
  • removal of the EUR 22 low-value goods (without VAT) supply threshold;
  • e-commerce portals to be held responsible for VAT obligations of traders who use these platforms to sell their goods, if not registered for VAT in the EU;
  • a new EUR 10K threshold for micro-enterprises in relation to all the above provisions.

Digital service tax likely to eventually be introduced in the EU

Additionally, among other EU news it is worth noting that Hungary is introducing a tax on e-commerce this year (0.1-2.5%; from 1.5.2020, though it was said that the tax would be valid only for the term of the Covid-19 crisis). These are the consequences of a range of recent CJEU judgments where the CJEU did found no contradictions between this tax and EU law. However, this event might open the gate for a much broader introduction of digital tax in other EU countries. As far as I am aware, this initiative calmed down in Latvia after seeing how French efforts failed against US counter-measures.

Keeping track on tax policy guidelines developed by the MoF

It will be interesting to observe which behind-the-scene battles prevail in Latvia. Somebody will have to pay the invoice for the party launched by the virus. However, digital tax is not likely to be the saviour – solutions to these issues might be found in guidelines distributed by the MoF in February as regards tax policy guidance for the next four years (2021-2025) with all kinds of wonders even before the virus crisis, such as amendments to the natural resource tax system, openly stating that their purpose was to fill the state purse instead of solving nature protection issues. Luckily, as a result of our research, among others, the craziest changes to the natural resource tax (NRT) have disappeared from the drafts.

Will VAT be reduced on fruit, restaurants and e-publications

You may note that this year will end the 3-year term determined by the EC for application of 5% VAT to Latvian-specific fruit and vegetables. According to unofficial sources, apart from the stated guidelines the FM is presently working on additional matters, for example, on a decreased rate on e-books and e-magazines, as well as on restaurants. By the way, Germany has recently decided to support restaurants to allow them to recuperate during the next year by applying a 7% VAT rate. We already have an idea how to encourage the FM & SRS to start applying a 12% rate to e-books, in case anyone is interested.


Do you remember? Shortly before the virus, there was some event: it was called Brexit. Some EU countries have already announced that in order to carry on trading in EU countries traders from the UK will need to appoint a fiscal representative by the end of the year. This requirement is indicated in the VAT Law and Directive, as regards third-country traders whose fiscal representatives undertake responsibility for payment of VAT. Fiscal representatives are mandatory in 19 out of the 27 EU countries. Third-country companies can register in Latvia as VAT payers without the help of fiscal representatives; however, if third-country companies use the services of fiscal representatives, they need not register in Latvia as VAT payers. Sorainen cooperation partners provide these services all over the EU. By the way, did you notice that Northern Ireland, although part of the UK, will maintain the EU VAT regime for a 4-year transition period (after 1.1.2021) (this means: delivery of goods to London will be considered as imports, but delivery to Riga – as delivery within the EU).

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