Reverse VAT: domestic vs EU reverse charge

“Reversā maksāšana” or “reversais PVN” (reverse VAT) is the colloquial Latvian name for the mechanism the VAT Law calls the reverse charge (nodokļa apgrieztā maksāšana): the buyer, not the seller, accounts for the VAT. In practice there are two cases to tell apart: the domestic reverse charge between Latvian VAT payers, and the cross-border reverse charge in trade with other countries.

The domestic reverse charge covers only the sectors the law lists, such as construction, timber, scrap metal and electronics, and only where both parties are VAT-registered in Latvia (VAT Law, Sections 141 to 143.4).

The cross-border reverse charge applies in any sector. When a Latvian business receives a service from a business in another EU country, the recipient accounts for VAT in Latvia (Section 88), and the same happens when it buys goods from a VAT-registered seller in another EU country (Section 86). In the other direction, a Latvian service provider invoices without Latvian VAT and the foreign client accounts for VAT in its own country.

In both cases the invoice must state that the reverse charge applies. What differs is the reporting: services and supplies of goods to VAT payers in other EU countries also go into the PVN 2 report, while domestic reverse charge invoices must be itemised in the PVN 1 report whatever their amount.