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Changes in the Application of Value Added Tax and Excise Duty to Diplomatic Missions and Armed Forces Units in Latvia
Significant amendments are adopted for the Cabinet of Ministers Regulation No. 908 of 18 December 2012, "Procedure for Applying the 0% Value Added Tax (hereinafter - VAT) Rate for Supplies of Goods and Services Provided to Diplomatic and Consular Missions, International Organizations, European Union Institutions, the North Atlantic Treaty Organization (NATO), Armed Forces Units of Other NATO Member States and Other EU Member States, and the Procedure for Refunding Excise Duty on Excise Goods Purchased in the Republic of Latvia and Applying Excise Duty Exemption" (hereinafter referred to as "CM Regulations").
These amendments aim to align with the latest amendments to the Value Added Tax Law adopted on 12 December 2024, which came into force on 1 January 2025, and the amendments to the "Excise Duty Law" adopted on 15 May 2025, which came into force on 2 June 2025. These changes will affect both individuals, including diplomatic and consular representatives, employees of international and EU institutions, civilian personnel accompanying armed forces, and their family members, as well as legal entities, including foreign diplomatic missions registered in Latvia, EU and international organizations, as well as armed forces units of EU and NATO member states, and the Ministry of Foreign Affairs, Ministry of Defense, and the State Revenue Service (hereinafter - SRS).
Overall, the aim of these CM Regulations amendments is to modernize and streamline the application and refund procedures for tax relief, making them clearer and less bureaucratic for all parties involved.
Changes in the Application of the 0% VAT Rate to Diplomatic and Consular Missions
The current CM Regulations do not specify the procedure for applying the 0% VAT rate in domestic transactions based on an exemption certificate for diplomatic and consular missions registered in Latvia, except for the construction of real estate for official purposes. The amendments aim to clarify the regulatory framework to expand the direct application of the 0% VAT rate to all domestic transactions for official purposes, transitioning from the refund mechanism. The existing volume of goods and services, as well as the threshold amount (≥178 EUR, or by note), will be retained. The rights to purchase construction goods and services with the 0% VAT rate remain unchanged. The CM Regulations amendments will not change the application of VAT concerning excise goods. Furthermore, the Ministry of Foreign Affairs' rights to approve or issue VAT and/or excise duty (hereinafter - ED) certificates is expanded, allowing their use without additional approval for up to 36 months. These amendments allow the direct application of the 0% VAT rate for supplies of goods and services to diplomatic and consular missions domestically, based on the certificate.
Application of Excise Duty Exemption for NATO and EU Member States Armed Forces Units
On 15 May 2025, the Saeima adopted amendments to Article 20 of the "Excise Duty Law," removing the restriction that previously prohibited the application of ED exemption or refund for alcoholic beverages, tobacco products, e-smoking liquids, and their components. As a result, these goods can now be purchased according to the exemption or refund procedure if they are intended for official NATO or EU armed forces needs. Considering this, appropriate amendments to the CM Regulations are adopted:
- Deleted point 68 and amend point 70, removing restrictions on ED exemption for alcoholic beverages and tobacco for official armed forces needs.
- Clarified subpoints 10.3., 10.4., and 10.4.1., specifying that ED refund applies only to official needs.
- Amend Appendix 2 to add a note that a "person who is part of a NATO member state's armed forces unit" and a "person who is part of an EU member state's armed forces unit" may not apply for ED refund, which is only available when NATO or EU armed forces purchase goods for official needs, and supplement the table with data for calculating excise duty refund.
Documents Required for VAT and ED Refund
To simplify the VAT and ED refund process and to reduce the administrative burden, it will no longer be necessary to submit copies of supporting documents for all invoices. In the case of VAT refunds, copies will only need to be submitted for invoices with a taxable value or VAT equal to or exceeding 1,000 EUR. For smaller amounts, competent authorities (Ministry of Foreign Affairs, Ministry of Defense, SRS) retain the right to request originals or copies if doubts arise. No threshold value is set for ED refunds, as ED is not calculated from the transaction value indicated in the supporting document.
To ensure the SRS has access to all necessary information about the transaction, which was previously provided by attached invoices, it is planned to clarify the VAT and ED refund application form and its appendix content, including the following new information fields:
- Supplier of goods or service provider,
- Total value of the transaction (supporting document),
- VAT invoice payment date,
- If a vehicle is purchased, its make, identification number, and state registration number (applies to Appendix 1).
Submission and Transmission of Applications for VAT and ED Refund to the SRS
Applications for VAT and ED refunds will henceforth need to be submitted in one copy, with certified document copies attached. The State Protocol Service of the Ministry of Foreign Affairs and the Ministry of Defense are responsible for electronically sending the document package to the SRS. The electronic document circulation will follow the Cabinet of Ministers Regulation No. 473 of 28 June 2005, "Procedure for the Development, Formatting, Storage, and Circulation of Electronic Documents in State and Local Government Institutions and the Procedure for Electronic Document Circulation between State and Local Government Institutions or between these institutions and individuals and legal entities." The method of submitting applications for VAT and ED refunds is not restricted, allowing a flexible approach. The requirement for the authorized person of the competent authority to sign and stamp the application, certifying the right to a tax refund, are abolished. Instead, the authority can indicate the relevant information in the cover letter sent together with the documents to the SRS. It is not planned to separately regulate the actions of the applicant and the authorized person when completing and submitting the application for VAT and/or ED refund.
Decision Notification
To reduce the administrative burden, the SRS will no longer issue favourable decisions for full VAT and ED refunds to each subject individually. Instead, the SRS will inform the State Protocol Service of the Ministry of Foreign Affairs or the Ministry of Defense by sending a summary of the refunded VAT and ED in list form, thus sending information for multiple subjects at once. The procedure for issuing partial refund or refusal decisions remains unchanged. That is, the SRS sends the decision to the State Protocol Service of the Ministry of Foreign Affairs or the Ministry of Defense within five working days after the decision is made, which in turn informs the applicant of the decision within seven working days.
Technical Amendments
Technical amendments include:
- To include VAT exemption also for charging services for electric vehicles and hybrid cars;
- To remove outdated links to the Ministry of Foreign Affairs website;
- To clarify the title of Appendix 3 and the list of goods and services included in it, aligning it with current tax regulations. The title is generalized, as the method of applying the 0% VAT rate for diplomatic and consular missions has changed from a refund procedure to direct application, while retaining the list of goods and services;
- To clarify the procedure for applying the 0% VAT rate to the US embassy and related persons. This is related to the fact that the application of VAT to diplomatic and consular missions has changed from refund to direct application, which also applies to the US embassy, while related persons continue to use the refund procedure;
- To add the purchase of electricity to the list of goods and services for which tax exemption applies.