Introduction

Latvia is at the cusp of a significant digital transformation in its invoicing practices through the mandatory implementation of electronic invoicing (e-invoicing). This initiative, being rolled out in phases since the beginning of 2025, aims to streamline financial transactions, enhance tax compliance, and curb the shadow economy. Below is an in-depth exploration of e-invoicing in the Republic of Latvia, its implications, benefits, and the roadmap for its adoption by businesses registered in Latvia.

Mandatory E-Invoicing in Latvia

The Latvian authorities have implemented a centralised exchange model for the current B2G requirement. E-invoices can be submitted through a direct integration from a taxpayer’s enterprise resource planning (ERP) software to the central platform, through the use of an e-invoicing service provider or manually by email or using the eAddress portal. Latvia’s e-invoicing model aligns with European Union standards and allows the use of formats such as PEPPOL BIS Billing 3.0 and other EN 16931 compliant formats, ensuring interoperability and compliance across borders.

E-Invoicing Compliance Implementation Timeline

The adoption of the use of electronic invoices in Latvia follows a phased approach:

1. 1 January 2025: E-invoicing becomes mandatory for Business-to-Government (B2G) transactions for locally resident taxpayers. This includes invoices issued to state budget institutions and other government entities.
2. 1 January 2026: The mandate extends to Business-to-Business (B2B) transactions. Locally resident taxpayers will be required to issue structured electronic invoices for goods and services within Latvia.

Electronic Invoicing in Latvia: Legal Framework

The legal basis for mandatory e-invoicing in Latvia stems from amendments to the Accounting Law enacted by Parliament on 31 October 2024. These amendments authorize the Cabinet of Ministers to issue detailed regulations governing invoice circulation by mid-2025. The initiative also complies with EU Directive 2014/55/EU on electronic invoicing in public procurement. The delay of the release of the technical regulations by the Ministry of Finance may, in part, be due to the foreseen adoption of the Vat in the Digital Age (ViDA) directive by the EU Parliament, which allows for Latvia to implement a B2B mandate without the need for derogation or permission from the European Commission as well as setting out the requirements for future domestic B2B e-invoicing systems for member states.

Technical Framework of B2B Electronic Invoice System

The B2B Latvian e-invoicing system will operate under a decentralized Continuous Transaction Controls (CTC) model. This system facilitates real-time reporting of invoice data to the State Revenue Service (SRS), ensuring enhanced VAT compliance. Businesses will have multiple options for submitting invoices such as through Latvia’s government portal, eAddress, potentially via the PEPPOL network, through e-invoicing service providers and directly from ERP systems.

Further technical details of the B2B electronic invoicing system are due to be released by the Latvian Ministry of Finance in the second half of 2025.

Objectives of E-Invoicing in Latvia

Latvia’s Ministry of Finance has outlined several goals for this initiative:

• Curbing the Shadow Economy: By digitizing invoicing processes, the government aims to reduce tax evasion and improve transparency in financial transactions.
• Enhancing Efficiency: E-invoicing eliminates manual data entry, reduces errors, and accelerates payment processes.
• Standardization: The adoption of EU-compliant standards ensures uniformity across public and private sectors and will assist with future compliance with the ViDA directive.

Benefits of Latvian B2B E-Invoicing

The shift to mandatory e-invoicing offers numerous advantages for Latvian businesses and government entities alike:

For Businesses

1. Improved Accuracy: Structured invoices minimize errors associated with manual data entry.
2. Cost Reduction: Eliminating paper-based processes reduces printing, postage, and storage costs.
3. Enhanced Security: Digital invoices come with advanced security features that protect sensitive data from fraud.
4. Streamlined Operations: Automation frees up resources for other critical tasks, boosting productivity.
5. Better Cash Flow Management: Faster invoice processing leads to quicker payments.

For Government

1. Real-Time Monitoring: The CTC regime allows authorities to track transactions instantly, improving VAT collection.
2. Transparency: Digital records make auditing easier and more reliable.
3. Environmental Benefits: Reduced reliance on paper contributes to sustainable practices.

Challenges and Preparations for Mandatory E-Invoicing

While e-invoicing promises significant benefits, its implementation comes with challenges that businesses must address, such as the need for technical readiness, with local taxpayers needing to ensure they have a technical solution in place before the mandate, training needs to ensure staff are adequately educated on new invoicing procedures and compliance requirements, and potentially significant initial costs as the upgrading of systems and integration of new software requires upfront investment.

To ensure a smooth transition, the Latvian authorities have suggested that local taxpayers, review existing accounting systems for compatibility with e-invoicing standards, train employees on the technical aspects of e-invoicing, consult tax professionals and e-invoicing service providers for guidance on compliance, and choose appropriate platforms or methods for invoice submission.

Penalties in the Context of E-Invoicing Compliance

Penalties for non-compliance with Latvia's e-invoicing rules are tied to broader regulations on invoicing and VAT obligations. As Latvia transitions to mandatory e-invoicing, businesses that fail to comply may face financial and legal consequences.

Key Penalties for Non-Compliance with Mandatory Electronic Invoicing

1. Fines for Non-Adherence to E-Invoicing Standards:

Businesses failing to issue structured electronic invoices as required by law may incur penalties. While specific fines for e-invoicing violations have not been explicitly detailed, Latvia’s general penalties for non-compliance with accounting and invoicing obligations can apply. These include fines of up to 400 units or EUR2,000.00.

2. VAT-Related Penalties:

Non-compliance with VAT reporting obligations tied to e-invoicing can lead to severe penalties:

·        Up to 30% of the unpaid VAT amount.

·        Late payment interest of 0.05% per day on the unpaid VAT.

These penalties underscore the importance of accurate and timely reporting of invoice data to the State Revenue Service (SRS), especially when the B2B mandate kicks in from 1 January 2026.

3. Operational Disruptions:

Non-compliance can result in supply chain disruptions, delayed payments, and increased manual work, which negatively impact operational efficiency and customer relationships.

4. Legal Consequences:

In severe cases, businesses may face legal actions or suspension of commercial registration if non-compliance persists.

Implications for Businesses

Failure to comply with Latvia’s e-invoicing mandates can have far-reaching consequences beyond monetary fines. Businesses risk damaging their reputation and operational efficiency due to payment delays and strained relationships with customers or government entities. Moreover, non-compliance could hinder their ability to participate in public procurement processes.

Conclusion

Latvia’s move toward mandatory e-invoicing represents a significant step in its digital transformation journey. By adopting structured electronic invoices for B2G and B2B transactions, the country aims to enhance efficiency, improve tax compliance, and foster economic stability.

As of 1 January 2025, local taxpayers must send invoices to government entities as e-invoices. Furthermore, the impending B2B e-invoicing requirements from 1 January 2026 means that businesses must prepare by upgrading their systems or procuring the services of an e-invoicing provider, training staff, and familiarizing themselves with technical standards like PEPPOL BIS Billing 3.0. While challenges exist, the efficiency benefits as well as steep fines for non-compliance make this transition a worthwhile endeavour.

Through careful planning and proactive measures, Latvia’s businesses can not only meet regulatory requirements but also unlock new opportunities in a digital-first economy. Chat to the team at eezi, powered by VAT IT, to find out more.