Fixed establishment (pastāvīgā iestāde)

A fixed establishment (pastāvīgā iestāde) is any place other than a business’s place of establishment that has a sufficient degree of permanence and a suitable structure of staff and technical resources to supply services, or to receive and use services for its own needs. In the VAT Law it helps decide in which country a service is supplied.

When a service is supplied to a business’s fixed establishment in a different country from its place of establishment, the place of supply is where the fixed establishment is (VAT Law, Section 19). So a foreign company’s staffed office in Riga can mean that services supplied to it carry Latvian VAT.

Income taxes, such as corporate income tax, use a different concept: the permanent establishment (pastāvīgā pārstāvniecība) defined in Section 14 of the law On Taxes and Fees. A non-resident’s permanent establishment in Latvia is treated as a separate domestic taxpayer for the purposes of all tax laws.

The two concepts are similar but not identical, so a fixed establishment for VAT does not always mean a permanent establishment for income tax, and the reverse.