How to recover overpaid taxes?

In what situations do overpayments occur?

Tax overpayments can arise due to various reasons, including:

1. Clarifying tax declarations from previous periods.
2. Receiving information from the State Revenue Service (SRS) regarding the cancellation of calculated liabilities.
3. Paying an amount larger than necessary to cover obligations into the unified tax account.
4. Submitting value-added tax (VAT) returns.

In some instances, situations may unfold where the SRS initially provides information about calculated obligations, but later deletes them, leading to a tax overpayment. For example, upon receiving information from the SRS about the calculated minimum mandatory contributions to state social insurance (VSAOI), a company pays the full amount. However, after the payment, the SRS informs that it has received detailed information from the State Social Insurance Agency about the calculated minimum mandatory contributions to state social insurance, resulting in an overpayment.

There is a risk that, during the preparation of a tax payment, the displayed amount exceeds the calculated and declared tax amount, leading to a tax overpayment.

One of the most common scenarios for tax overpayment occurs when submitting a VAT return where the input tax amount surpasses the calculated tax amount, resulting in a VAT overpayment.

When does overpayment of taxes occur?

The tax administration is obligated to provide accessible SRS EDS data on overpaid tax amounts administered by the SRS to the taxpayer. Information in the SRS EDS is updated as soon as data on a new obligation enters the information system or upon confirmation from the State Treasury that the payment has reached the state budget. The processing time for this information depends on factors such as the type of tax, payment execution time, and the involvement of various tax administration institutions. While regulatory legislation and the SRS website do not specify a deadline for renewing SRS EDS information, on average, the processing occurs within two to three working days.

In cases where a larger amount is paid into the unified tax account than required to cover all obligations, a tax overpayment occurs. This overpayment is displayed in the SRS EDS as unattributed contributions and is utilized to cover the next payment when due. Contribution amounts not linked to specific obligations are also reflected if none of them are yet due.

If the company has no tax debt at the time of payment and liability coverage, the overpaid amount appears in the "debt (-), overpayment (+)" field. Overpaid taxes automatically cover new obligations in the next tax payment period, starting with the oldest. Once applied to a tax liability that is already due, an overpayment cannot be recovered.

How to recover overpaid taxes?

Article 16, Part 1, Clause 10 of the Law "On Taxes and Fees" stipulates that the company has the right to request the refund of overpaid tax amounts or divert the current tax payment to cover within three years after the deadline for submitting the specific tax return. At the end of the deadline for requesting an overpayment refund, the company's right to request an overpayment refund has been lost. Also, before submitting the application, the company must make sure that it has no tax obligations. If the company has a tax debt at the time of evaluation of the application, the refund of the overpaid tax amount will be refused.

In order to recover the overpaid taxes, the company must submit a free-form application for refund of the overpayment, indicating the company's bank account. The application can be submitted electronically, in person or by mail.
After receiving the application, the SRS evaluates the refund or diversion of overpaid taxes to cover debts and sends a prepared decision. Upon receiving a positive answer, after the tax company has submitted a justified application to the SRS, the overpaid tax amounts are refunded to the bank account specified by the company within 15 days, if the specific tax regulatory legal act does not provide for a different refund time and procedure.

It should be noted that the VAT overpayment refund procedure differs from the other tax refund procedures. For Latvian companies, the VAT overpayment is refunded within 30 days after the declaration deadline or from the day on which a revised or late tax declaration was submitted. The VAT overpayment is refunded to the account specified in the taxpayer's VAT return.

How to avoid losses?

Based on Section 4, Part 2 of the Accounting Law (GL), accounting must provide users of the financial statement with true and complete accounting information, and one of the measures that allows compliance with this requirement of the law is accounting control. Article 5 of the GL stipulates that the accounting control of the company includes the control of accurately accounted taxes.

In order to make sure that the taxes are accurately recorded, the SRS EDS and accounting data match, the company must implement an internal control system that regularly compares the tax liabilities listed in the accounting against the SRS EDS tax returns and other tax liabilities. When maintaining such a control system, it is important to remember that when clarifying declarations or receiving clarifications from the SRS, these data must be updated. By maintaining such control on a daily basis, it is possible to quickly determine the time and amount of overpayment of taxes, as well as recover the overpayment or reduce the next tax payment in time.
* The information mentioned in the text applies only to legal entities registered in Latvia.