Upcoming Changes and How They Will Impact Your Business
In a move aimed at curbing the shadow economy and fostering stable economic development, Latvia’s Ministry of Finance (MoF) has introduced significant updates to its e-invoicing regulations. These changes, set to take effect over the next few years, will impact all businesses operating within the country. Here’s a comprehensive look at what these updates entail and how your business can prepare.
Mandatory E-Invoicing: A Two-Phase Implementation
Starting from January 1, 2025, all companies registered in Latvia will be required to issue structured e-invoices for B2G (Business-to-Government) transactions. This initial phase targets budget institutions and aims to streamline public sector operations through digital transformation. By January 1, 2026, the mandate will expand to include B2B (Business-to-Business) transactions, ensuring that all business invoices follow the EN 16931 standard.
Understanding the Continuous Transaction Controls (CTC) Regime
A cornerstone of Latvia’s strategy is the implementation of a Continuous Transaction Controls (CTC) regime for B2B transactions. Scheduled to commence by the end of 2025, this system will facilitate real-time reporting and enhance VAT compliance. Businesses will need to adopt structured electronic invoices, which will be transmitted via a decentralized model. The three proposed methods for invoice exchange include:
- E-address tax authority (TA) solution
- PEPPOL network
- Any method agreed upon by the parties, such as email or direct integration
What is a Decentralized CTC Regime?
A decentralized Continuous Transaction Controls (CTC) regime allows businesses flexibility in how they transmit their invoices to the tax authorities. Unlike centralized systems where all data flows through a single government portal, a decentralized approach supports multiple transmission methods. This model offers businesses the following advantages:
- Flexibility: Companies can choose the most suitable method for their operations, whether through the e-address TA solution, PEPPOL, or another agreed method.
- Efficiency: By allowing direct integration and alternative transmission methods, businesses can streamline their invoicing processes.
- Scalability: The decentralized model can easily accommodate growing transaction volumes and varying business needs.
Technical and Compliance Requirements
To comply with the new regulations, businesses must understand the technical requirements and timelines:
- E-Invoicing Models: Latvia plans to use a post-audit model, with no mandatory infrastructure specified as of now.
- Mandatory Formats: By 2025, invoices must be in the Peppol BIS format for structured e-invoicing.
- E-Signature: Currently, there is no requirement for electronic signatures on invoices.
- Archiving: Businesses must retain invoices for five years for goods and services and ten years for real estate. Archiving abroad is permitted under certain conditions.
Preparing for the Transition
Businesses should start preparing for these changes now to ensure a smooth transition. This involves:
- Reviewing and Updating Accounting Systems: Ensure that your accounting software can handle structured e-invoices in the EN 16931 format.
- Training Staff: Educate your team about the new requirements and how to comply with them.
- Choosing the Right Exchange Method: Decide whether you will use the e-address TA solution, PEPPOL, or another agreed method for transmitting invoices.
- Consulting with Experts: Engage with tax compliance experts to understand the specific implications for your business and ensure all legal and technical requirements are met.
Latvia’s shift towards mandatory e-Invoicing and the implementation of a CTC regime represents a significant step towards digital transformation and improved tax compliance. By understanding and preparing for these changes, businesses can not only ensure compliance but also benefit from more efficient and automated accounting processes. Stay ahead of the curve by making the necessary adjustments now and leveraging the advantages of digital invoicing.
