Foreign construction companies working in Latvia often ask: is it better to register a Latvian company (SIA) or operate through a permanent establishment (PE)? The correct choice depends mainly on project duration, reporting requirements, and transaction volume.
VAT Registration for Construction in Latvia
If you provide construction services in Latvia, VAT registration is mandatory in both cases:
Construction services to a Latvian VAT-registered customer are usually invoiced with 0% VAT (reverse charge). Or 21% if the customer is not VAT-registered.
VAT reporting applies whether you choose a PE or an SIA.
When Is a PE Required?
A permanent establishment arises when construction activity exceeds the term set in tax treaty (for example 6 months with Lithuania-Latvia treaty). At that point, you must either:
Register a permanent establishment (PE), or Incorporate a Latvian company (SIA)
From a corporate income tax perspective, there is no difference.
Key Difference: Reporting
Latvian SIA:
- Full annual report
- Public financial statements
- Easily accepted by group auditors
Permanent Establishment (PE):
- Balance sheet + profit & loss only
- No full public annual report
- Acceptance depends on group accounting and auditors, so consolidation might not be possible and your accounting might need to record all PE transactions in local books. For low transaction volumes, a PE is often simpler and more cost-effective.
Employees on Short-Term Assignment
If employees work in Latvia for short term on a business trip:
- No Latvian payroll taxes
- No A1 certificate required
Which Option Is Better?
In most short-term construction projects, a permanent establishment is the most efficient solution.
A Latvian SIA is usually better for long-term or recurring projects or where transaction volume in Latvia is large and audit requirements are strict.
Need help choosing between a PE and an SIA for your construction project in Latvia?
A short consultation upfront can save months of restructuring later.