Chapter 1 of Title XII of the VAT Directive allows for the possibility for Member States to
apply special schemes for small enterprises, including the possibility of exempting taxable
persons below a certain annual turnover. This exemption implies that a taxable person does
not have to charge VAT on his supplies and, consequently, he or she cannot deduct the VAT
on his inputs.
Under Article 287(10) of the VAT Directive, Latvia may exempt from VAT taxable persons
whose annual turnover is no higher than the equivalent in national currency of EUR 17 200 at
the conversion rate on the day of its accession. By virtue of Council Implementing Decision
2010/584/EU2 Latvia was authorised to apply a higher threshold and thus to exempt from
VAT taxable persons with an annual turnover not exceeding EUR 50 000. This measure was
extended by Council Implementing Decision 2014/796/EU until 31 December 2017. By
Council Implementing Decision (EU) 2017/24084, Latvia was authorised to extend the
measure until 31 December 2020 and, at the same time, to decrease the exemption threshold
from EUR 50 000 to EUR 40 000.
According to the Latvian authorities, the measure facilitates VAT collection, enabling Latvia
to simplify administrative procedures for small enterprises and thus reduce the administrative
burden on them. Moreover, the measure also reduces the workload for the tax authorities.
Further, the Latvian authorities explain that in the last years they observed a reduction in the
number of registered VAT payers, partly due to the faster removal of VAT payers from the
VAT register as a result of measures adopted to combat VAT fraud, while the VAT revenue
continued to increase and the cost incurred by the Latvian tax administration to collect one
euro decreased. Those results, coupled with the fact that Latvia´s neighbouring countries have
similar thresholds for the application of the special scheme for small enterprises (the threshold
in Estonia is fixed at EUR 40 000 while the threshold in Lithuania is of EUR 45 000), advise
to maintain the threshold at the current level. According to the estimates of the Latvian
authorities, lowering the threshold further will not have a major positive fiscal impact or
increase the number of persons registered for VAT purposes, because, as actual data for 2018
show, the impact in fiscal terms and in terms of the number of enterprises was lower than
forecast. By contrast, increasing it, for example to EUR 50 000, would have a negative fiscal
impact.
The measure has an optional character. Therefore, small businesses whose turnover does not
exceed the threshold will still have the possibility to exercise their right to apply the normal
VAT arrangements.
Derogations are normally granted for a limited period to allow an assessment of whether the
derogating measure remains appropriate and effective. Moreover, the provisions of Articles
281 to 294 of the VAT Directive on the special scheme for small enterprises have recently
been reviewed. The new directive laying down simpler VAT rules for small enterprises5
requires that Member States adopt and publish the laws, regulations and administrative
provisions, which are necessary to comply with the new rules, by 31 December 2024 at the
latest. Member States will have to apply those national provisions from 1 January 2025.
It is therefore appropriate to authorise Latvia to apply the derogating measure until 31
December 2024.
Source: europa.eu
