The Latvian government May 22 adopted the procedure for refunding to foreign individuals the 18 percent VAT for goods to be taken out of Latvia and accommodation services received in Latvia.
"VAT refunds for hotel services would be a very positive step to position Latvia and its historical capital Riga as more competitive against other attractive and popular tourist destinations," said Tamara Turko, the financial controller of the Radisson SAS Daugava hotel in Riga.
"VAT refunds will also help hotels in Riga to overcome difficulties achieving maximum occupancy after the Riga 800 celebrations when the demand will not be so high as this summer," she noted.
In many popular tourist destinations, VAT on hotel rooms is considerably lower and, therefore, guests pay less for hotel services.
In Norway hotel services (both room and banqueting revenues) are not taxable; in Belgium, France and Luxembourg VAT on hotels is 6 percent and in Sweden 12 percent.
In Estonia, VAT for accommodations to foreigners is not refunded, while in Lithuania U.S. citizens can present the invoice and ask for a tax refund, a Radisson SAS Hotel representative said.
Under the new rules VAT refunds will be carried out by companies duly licensed by the Finance Ministry. Those companies will have to sign contracts with shops or hotels and provide them with special vouchers and packaging for goods.
Shops and hotels will be required to display information about the possibility of getting VAT refunds.
In order to receive a VAT refund when taking goods bought in Latvia through border control points, foreign individuals will be required to present to customs officials and a representative from the licensed company the purchased goods together with the special voucher filled in at the shop.
Similar procedure will apply to VAT refunds for hotel services used in Latvia.
Foreign individuals can receive VAT refunds for goods bought in Latvia as of Jan. 1, 2000.
Coupled with the accommodation tax refund scheduled to begin next January, the Finance Ministry expects a dent in the state budget.
"But the amount of refunds may be partly compensated as the possibility to get the tax refunds is likely to encourage foreign individuals to use accommodations services in Latvia more extensively, leading to a growth in tourism which in turn will have a positive effect on state budget revenues," the ministry said in its report.
The Tax-Free Shopping company, which deals with VAT refund in Latvia, said that the refund opportunity so far has not been very popular among foreigners.
"One reason perhaps was that we were allowed to refund VAT only to passengers using sea or air connections," Ineta Vigupe, the company's director, told The Baltic Times. "There is no ferry connection to Riga, and only 10 percent of the passengers use airplanes to get to Latvia." But starting May 26, foreigners leaving Latvia by bus or by car will also be eligible for the refund at major customs points. The minimum purchase amount had also been halved, starting Jan., 2001, from 118 lats ($187) to 56 lats.
The Latvian government is also ready to repay VAT on fuel purchased in Latvia for foreign truckers as part of the May 22 resolution.
VAT will be refunded by the parity principle in cases when the country where the legal entity providing trucking services is registered as a tax payer levies VAT or other similar taxes and the same tax refund rules will also apply to Latvian truckers.
The new regulations apply to VAT paid on fuel purchased after Jan. 1, 2001.