Upcoming VAT Changes in 2025

In a significant move to harmonize VAT requirements for small and medium-sized enterprises (SMEs) across the European Union, Latvia is implementing new VAT registration rules starting January 1, 2025. These changes, stemming from Directive 2020/285, aim to create a more level playing field for businesses operating across the EU while maintaining support for smaller enterprises.

Key Changes Coming in 2025

New Dual Threshold System

The reform introduces a dual threshold system for VAT registration:

• National threshold: Remains at €50,000 for operations within Latvia

• EU-wide threshold: New €100,000 limit for total EU operations

Modified Registration Requirements

• Calendar year basis: VAT registration threshold will be calculated on a calendar year basis (January 1 - December 31) instead of any rolling 12-month period

• Expanded transaction scope: Both taxable and non-taxable transactions will count toward the threshold, with exceptions for fixed assets and non-regular transactions

• Grace period: Businesses exceeding the threshold by no more than €5,000 can delay registration until the following January 1

Cross-Border Operations

• Equal treatment: Non-Latvian EU businesses will have the same registration requirements as local companies

• One Stop Shop (OSS): Integration with the small business scheme for easier cross-border VAT compliance

• Special "EX" code: Introduction of an "EX" code for VAT numbers of businesses utilizing exemptions in other EU countries

Practical Example

A Latvian e-learning company with €20,000 turnover in Latvia and €40,000 in Estonia wouldn't need to register for VAT in Latvia but would need to register in Estonia once reaching their €40,000 threshold. They could choose between direct registration in Estonia or using the OSS system through Latvia.

Impact on Business Operations

These changes offer several advantages:

• Simplified compliance for cross-border operations

• More flexible registration requirements

• Better integration with EU-wide systems

• Clearer thresholds for international operations

Preparation Steps for Businesses :

• Review their current and projected EU-wide turnover

• Monitor their calendar year revenue carefully

• Consider OSS registration for cross-border operations

• Plan for potential registration timing if approaching thresholds

Looking Ahead

These changes represent a significant modernization of VAT administration for small businesses in Latvia and across the EU. While maintaining protection for truly small enterprises, the new system provides a more coherent framework for growth and cross-border trade.