Latvia proposes new VAT rules for Cross-Border E-Commerce and 0% VAT on Defence Procurement

Latvia has proposed amendments to clarify VAT rules for cross-border e-commerce, the €10,000 distance sales threshold, and special VAT schemes. The proposal also introduces 0% VAT for eligible EU SAFE defence purchases and clarifies VAT treatment for diplomatic missions.

Latvia's Ministry of Finance announced on October 28, 2026, that it had prepared and submitted amendments to the Value Added Tax (VAT) Law for government consideration. The draft law can be viewed:

• https://tapportals.mk.gov.lv/legal_acts/01e6f41b-dde3-40e5-9d02-8ea6ad817f74# 

The proposed changes focus on three main areas: simplifying VAT rules for cross-border e-commerce, introducing a 0% VAT rate for eligible defence procurement under the European Union's SAFE instrument, and clarifying the VAT treatment of excise goods purchased by foreign diplomatic and consular missions.

The amendments aim to align Latvian legislation more closely with EU rules, reduce administrative difficulties for businesses, and ensure consistent VAT treatment across Member States.

The amendments are currently proposals and have not yet entered into force. Their final requirements and implementation dates will depend on the legislative process.

One of the main objectives of the proposal is to clarify how VAT applies to distance sales of goods between EU Member States.Distance sales generally involve goods sold by a business to consumers in another EU country, often through online stores or other electronic sales channels.

Under EU VAT rules, the location where VAT must be paid depends on several factors, including where the goods are dispatched, where the customer is located, and whether the supplier qualifies for specific rules or thresholds.

Latvia's proposal will clarify the definition of intra-EU distance sales and identify which transactions must be included when calculating the applicable VAT threshold.

This is particularly relevant for online retailers that sell products to consumers in several EU countries. The changes aim to make it easier for businesses to determine whether Latvian VAT rules or the VAT rules of another Member State apply to a particular transaction.

The proposal provides further clarification on the existing €10,000 threshold used to determine the place of supply for certain cross-border transactions. Under the proposed approach, when a qualifying supplier chooses to apply the domestic place-of-supply rule for distance sales, only relevant goods dispatched from Latvia to other EU Member States can be included in the calculation described by the Ministry. For example, an online retailer based in Latvia that sells products to customers in Lithuania, Estonia, and Germany must correctly identify the transactions relevant to the threshold calculation. The €10,000 threshold itself is not being increased or reduced. Instead, the amendment clarifies which transactions are included when determining whether the relevant conditions are met.

It is important to distinguish this clarification from the wider EU rules, under which the €10,000 threshold can also cover certain cross-border telecommunications, broadcasting, and electronically supplied services.

For e-commerce businesses, the clarification could help prevent incorrect VAT treatment and reduce uncertainty when applying domestic or destination-country VAT rules.

The amendments also address special VAT schemes that allow businesses to declare and pay VAT on certain cross-border transactions through a single Member State. These include the EU's One Stop Shop (OSS) arrangements, which simplify VAT reporting for eligible businesses selling goods and services to consumers in multiple EU countries. Without OSS, businesses may otherwise need separate VAT registrations in several Member States, depending on their activities. The proposal provides for a temporary expansion of the Union OSS scheme to include certain supplies of gas, electricity, heating, and cooling energy. This would allow qualifying suppliers to use the simplified VAT reporting arrangement for these transactions during the relevant period.

The amendments also aim to simplify VAT refunds for goods and services used to support transactions covered by specified special VAT schemes.

These changes are intended to reduce administrative burdens and ensure more consistent application of EU VAT rules.

Businesses using OSS should monitor the final legislation to determine whether their reporting procedures or software configurations will need to change.

Another part of the proposal concerns the rules for supplying goods to warehouses in other EU Member States. These arrangements, commonly associated with call-off stock, allow businesses to transfer goods to another Member State for delivery to an identified customer under specific conditions. The proposed amendments will clarify when the warehouse delivery rules apply and establish their expiry date. This is particularly relevant for businesses using cross-border warehouse arrangements to store products closer to their customers.

The planned changes form part of the wider effort to align national VAT legislation with EU requirements.

Businesses operating international warehouses or distributing goods across several Member States should review the final transitional provisions to understand how existing arrangements will be treated.

In addition to e-commerce changes, Latvia plans to introduce a 0% VAT rate for eligible transactions supported by the EU's Security Action for Europe (SAFE) instrument. SAFE is an EU financing instrument designed to support defence procurement and strengthen the European defence industry.

The proposed 0% VAT treatment will apply to qualifying supplies of goods, services, and imports carried out under procurement contracts supported by SAFE.

The proposal also clarifies the application of the 0% VAT rate to certain excise goods purchased by foreign diplomatic and consular missions registered in Latvia. The affected products include fuel and alcoholic beverages acquired for official purposes. The changes concern the procedures and conditions for applying the 0% VAT rate to qualifying transactions. Retailers and other suppliers selling these products to diplomatic missions may therefore need to review the supporting documentation and procedures used when applying this treatment. The proposal does not establish a general 0% VAT rate for all purchases made by diplomats or foreign

Implementation Impact and What Businesses Should Do

Latvia's proposed VAT amendments are primarily relevant to e-commerce retailers, cross-border suppliers, businesses using special VAT schemes, and companies involved in qualifying defence or diplomatic transactions.

Businesses should take the following steps:

• Review cross-border sales: Check how intra-EU distance sales are identified and classified for VAT purposes.
• Verify threshold calculations: Ensure that the €10,000 threshold is calculated according to the applicable EU and Latvian rules.
• Check OSS configurations: Review whether existing VAT reporting software can accommodate any changes to special VAT schemes.
• Review warehouse arrangements: Identify cross-border call-off stock operations that could be affected by the proposed expiry rules.
• Assess special 0% VAT transactions: Businesses involved in SAFE procurement or diplomatic sales should verify the applicable eligibility and documentation requirements.
• Monitor legislative developments: Follow the approval process and wait for the final legal text and effective dates before implementing changes.

For POS and e-commerce software providers, the main potential impact concerns VAT classification, cross-border transaction handling, and integration with accounting and VAT reporting systems. The proposal does not introduce new fiscal cash register certification requirements or general changes to fiscal receipt issuance.

The source for this text is an article that was published by VatUpdate - Source

Nikolina Basić Senior Legal Consultant Linkedin profile