The company (registered value added tax (VAT) payer in Latvia) wants to hire programmers from a third country to provide its services, but some service providers are VAT payers, some are not. Should the VAT on services received from third-country nationals be reported in the VAT return, regardless of whether they are VAT payers? Are there other taxes to be withheld from transactions?
The services received from third countries are indicated in the VAT declaration as follows: the calculated VAT for the receipt of the service is shown in column 54 of the VAT declaration "Calculated VAT on the services received", the deductible input tax - in column 63 "Amount of VAT on goods and services received". The transaction must be deciphered in the VAT declaration appendix PVN1 "Overview of input tax and tax amounts specified in the tax declaration for the taxation period" in part 1 "Tax amounts for domestically purchased goods and services" with transaction type - N "The transaction partner does not have a VAT registration number".
If the services are subject to the VAT rate of a third country, such invoices do not need to be presented in the VAT return.
But it should be remembered that there may also be an obligation to withhold personal income tax (IIN) in transactions with third-country persons. According to Article 3, Part 3, Clause 2 of the Law "On Personal Income Tax" (Law on Personal Income Tax), computer programming service is considered as taxable income, as it is income from professional activity. According to Article 11, Part 1.2 of the Law on IIN, professional activity is any independent provision of professional services outside of employment legal relations.
The withheld VAT from hard income must be paid to the Latvian state budget no later than the 23rd day of the month following the payment of the month.
A Latvian company that makes a payment of taxable income to a natural person must submit a VAT report on payments to non-residents. This report must be submitted no later than the 15th day of the month following the month of expenses.
In the event that a natural person does not have a tax resident certificate, which indicates that a third-country person pays taxes in the country in which he is registered as a tax payer, then the Latvian company is obliged to withhold VAT at a rate of 23% if the earned income is up to EUR 6508.33 per month or a 31% rate if the income is above the above amount. The resident certificate is required so that the taxpayer - natural or legal person - can apply tax benefits and the recipient of the service can avoid withholding VAT.
In order to apply the tax relief, it is first necessary to receive a completed, signed resident's certificate from the recipient of the income - an application for the application of tax relief (Appendix 3 of the Cabinet of Ministers' Regulation No. 17 "Procedure for the application of the norms of the Value Added Tax Law and separate requirements for the payment and administration of value added tax" Application of a taxpayer of another Member State and a taxpayer of a third country or a third territory for registration in the register of value added taxpayers of the State Revenue Service").
Other cases in which the obligation to withhold IIN in transactions with third-country persons may still arise are mentioned in Section 3, Part 3 of the Law on IIN. IIN is not withheld for income that is not mentioned in Section 3, Part 3 of the law.
Source: iFinanses