The medical company plans to provide services - to perform various laboratory analyzes for foreign companies engaged in medical research. Are these services subject to value added tax (VAT)?
Medical services and VAT
The provision of services for consideration is a transaction subject to VAT in the sense of the Value Added Tax Law (VAT Law). Article 52 of the VAT Law defines services that are not subject to VAT, including medical services that are determined by the Cabinet of Ministers (MK) and that are provided by a medical institution using medical technologies approved in accordance with regulations.
According to the regulations of the MK No. 17 "The procedure for applying the norms of the value-added tax law and certain requirements for the payment and administration of the value-added tax" medical services of laboratory examination are also included in the non-taxable medical services. It is important to pay attention to the fact that the tax exemptions provided for in Regulation No. 17 of the Cabinet of Ministers are applicable to medical institutions that provide services to patients or patients of other medical institutions.
As can be concluded from the description of the situation, the services will not be provided to patients, but contracts will be concluded and services will be provided to foreign companies for the purpose of medical research, so such services cannot be exempted from VAT.
Therefore, if the company is not yet a registered VAT payer, it must consider the need to register in the VAT payer register of the State Revenue Service (SRS).
If the company cooperates with foreign companies, which are companies registered in the member states of the European Union, then Article 55 of the VAT Law stipulates that the taxpayer registers in the Register of VAT Payers of the SRS before starting to provide services, the place of provision of which is in accordance with Article 19 of the VAT Law .parts, is another member state and for which the recipient of services is responsible for paying the tax. This means that the company must register with the SRS, not after reaching a turnover of 40,000 euros in the previous 12 months, but immediately before providing services.
VAT rate
One of the most important facts that the company must find out is whether or not the foreign company is a registered VAT payer in its country, and it must also be evaluated which country is considered the place of service provision according to the VAT law:
if the services will be provided to a foreign company that is not a registered VAT payer, then Latvia will be considered the place of service provision and the VAT rate of 21% will have to be applied;
if the services will be provided to a foreign company that is a registered VAT payer, the place of service provision will be the place of the service recipient's seat of economic activity in accordance with Section 19, Part 1 of the VAT Law.
The table below reflects the VAT application procedure depending on the place of service provision:
|
|
The Latvian company cooperated with:
|
|
An EU member company
|
Third country companies
|
|
A VAT payer is registered
|
Not a registered VAT payer
|
A VAT payer is registered
|
Not a registered VAT payer
|
|
Place of receiving the service
|
The seat of the economic activity of the recipient of the service
|
Domestic - Latvia
|
Third country territory
|
Domestic - Latvia
|
|
Application of VAT
|
VAT is not applicable with the reference "reverse tax payment" *
|
VAT is applied at the Latvian rate of 21%
|
VAT is not applicable with the reference "reverse tax payment" *
|
VAT is applied at the Latvian rate of 21%
|
* see SRS methodical material "On references and indications in the value added tax invoice"
Conclusion
Judging by the description of the situation, it can be concluded that the medical services of laboratory examination for the purposes of medical research are considered to be subject to VAT.
Therefore, it is important to understand whether the services will be provided to companies of an EU member state or a third country, and whether the recipients of the services are registered VAT payers in their own country, thereby determining which country is considered the place of service provision and which VAT payment procedure is applicable to the transactions.