Construction in Latvia is one of the most regulated and complex industries from an accounting perspective. The reverse VAT charge, subcontractor chains, project cost allocation, acceptance certificates, and specific requirements of the Construction Law create an environment where mistakes cost considerably more than in other sectors. In 2026, these requirements have become even stricter: the minimum wage in construction has risen to €1,050, oversight of subcontractor tax compliance has intensified, and amendments to the Construction Law have clarified the allocation of liability between the client, the builder, and the construction supervisor.
Why Construction Accounting Differs from Standard Accounting
Standard SIA accounting is linear: an invoice to a client, an invoice from a supplier, an entry. In construction, that linearity disappears. Each site is a separate financial centre with its own budget, cost structure, and revenue schedule. Subcontractors can stretch three or four levels deep. VAT is not simply added and deducted — in most transactions between VAT-registered persons, it is not paid at all, but it must be reported on both sides of the return.
Furthermore, every construction project has its own life cycle: procurement, contract signing, design, construction, commissioning, and the warranty period. The accounting needs to track costs and revenues at each of these stages, because payments are often tied to specific completion percentages or acceptance certificates.
The Reverse VAT Charge in Construction — How It Works
This is the single most important element of construction accounting, without which no construction company can operate. The reverse VAT charge (reverse charge) means that the VAT on construction services is accounted for not by the service provider, but by the service recipient. This mechanism was introduced to prevent VAT fraud schemes in which a subcontractor collected VAT from the customer but never paid it to the state.
The reverse charge applies if:
Both parties — the service provider and the recipient — are registered as VAT payers in Latvia.
The service falls within the list of construction services set out in Article 13.¹ of the VAT Law: construction, reconstruction, renovation, repair, restoration, and demolition of buildings and civil engineering structures. This also includes the assembly of building structures, but does not include design, architectural services, or construction supervision — unless they are provided as part of a comprehensive construction contract.
In practice, the reverse charge works as follows: the builder issues an invoice for €50,000 + VAT 0% (indicating "VAT reverse charge"). The customer (also a VAT payer) reports this amount in their VAT return both as output VAT (assessed) and as input VAT. Nothing is paid into the budget, but the transaction is declared.
The most common mistake: applying the reverse charge to transactions with a non-VAT payer (e.g. a private individual building a house). In this case, the reverse charge must NOT be applied — standard VAT at 21% must be charged instead.
Acceptance Certificates — The Basis for Revenue Recognition
In construction, revenue is not recognised at the moment an invoice is issued — it is recognised according to the stage of completion. This typically takes place on the basis of monthly acceptance certificates (darbu pieņemšanas-nodošanas akti) signed by both parties — the builder and the customer (or the construction supervisor).
A certificate must contain:
The name and address of the site
The reporting period (usually a month)
The scope of completed works in physical units and in monetary terms
A breakdown by type of work or by cost estimate lines
Signatures of both parties
These certificates are legally binding documents confirming that the customer has accepted a specific volume of work. It is on the basis of these certificates that invoices are issued, and they also serve as the basis for VAT application and accounting entries.
Delayed or unsigned certificates represent one of the biggest financial risks in construction. If a certificate is not signed, the builder cannot issue an invoice and therefore cannot receive payment. But the costs — materials, wages, subcontractors — have already been incurred, creating a cash flow gap.
Project Cost Tracking — Why Standard Accounting Is Not Enough
A construction company with several concurrent sites needs project (job) cost accounting. For each site, you must be able to determine:
Direct material costs: concrete, reinforcement, finishing materials purchased for a specific site.
Direct labour costs: wages of workers who have worked on the specific site (must be recorded on time sheets by site).
Subcontractor costs: separately for each subcontractor and each site.
Indirect costs: the construction supervisor's salary, equipment rental, electricity at the construction site — allocated proportionally across sites.
Without such tracking, it is impossible to determine the profitability of each site. Conversely, with precise tracking, you can identify which site is making a loss, which is making a profit, and why.
Wages in Construction — The Minimum Rate and Labour Taxes
In 2026, a separate minimum wage applies to the construction sector: €1,050 per month. That is €270 more than the general minimum wage (€780). For construction companies, this means significantly higher labour costs than in other industries.
The total employer cost for one worker on the minimum wage:
Gross salary: €1,050
Employer social contributions (23.59%): €248
Business risk duty (0.36%): €4
Total employer cost: ~€1,302 per month
The worker's net pay (approximate): after employee social contributions of 10.50% (€110) and PIT at 25.5% (on 1,050 – 110 – 550 = €390 → €99) — approximately €841 net.
Additionally, cumulative working time is frequently used in construction, which requires extra record-keeping. Overtime pay in construction follows the general rules of the Labour Law — at least 200% of the hourly rate.
Subcontractors and Their Tax Risks
In construction, subcontractor chains can be long: main contractor → subcontractor → sub-subcontractor. The State Revenue Service (SRS/VID) pays heightened attention to such chains. If any subcontractor fails to pay its taxes, liability may also be directed at the main contractor.
In 2026, joint and several liability for tax payments has been strengthened. If the main contractor knew or ought to have known that the subcontractor would not pay taxes (e.g. the subcontractor is a "shell" company with no employees and no assets), the main contractor may be held jointly and severally liable for the unpaid taxes.
Recommendations to protect yourself:
Check the subcontractor's SRS tax debt (publicly available information).
Verify that the subcontractor is registered in the Builder's Register (if carrying out construction work that requires registration).
Retain documentation relating to all subcontractors and any checks carried out.
Include a clause in the contract requiring the subcontractor to confirm compliance with its tax obligations.
The Builder's Register and Other Mandatory Requirements
Every company performing construction work requiring a building permit must register in the Builder's Register (Būvkomersantu reģistrs). Registration is handled by the State Construction Control Bureau (BVKB).
Registration requirements:
A designated responsible construction works manager with appropriate education and experience (registered in the Construction Specialists Register).
Civil liability insurance (the minimum limit depends on the complexity of the works — 3% of the contract sum, but not less than €10,000).
The company must meet certain qualification criteria (experience, technical resources).
In 2026, new amendments to the Construction Law came into force, redefining construction stages and strengthening liability for construction quality. Construction companies must pay particular attention to the conformity of their documentation — each site must have a clearly identifiable responsible person, a construction site log, and as-built documentation.
The Most Common SRS Audit Triggers in Construction
The SRS monitors the construction industry particularly closely, given its historically high level of shadow economy. The most common reasons that draw SRS attention:
Discrepancies between acceptance certificates and VAT returns. Where the reverse charge has been applied to transactions that do not qualify, or where the certificates show a higher volume than the returns.
Subcontractors with no employees. If a subcontractor reports large turnovers but has no employees and purchases no materials — a sign of a "shell" company.
Cash wage payments. Still a widespread practice in construction — paying wages in cash without proper records. This is a direct path to a penalty.
Lack of time recording. If workers are on site but there are no time sheets, the SRS may question the wage payments and assess additional tax.
Incorrect VAT treatment of materials. The reverse charge does not apply to the purchase of materials — they are purchased with VAT at 21%. A common mistake is attempting to apply the reverse charge to materials as well.
Construction accounting demands precision, a systematic approach, and a deep understanding of the industry's specific features. The reverse VAT charge, project-based cost accounting, acceptance certificates, and subcontractor management are areas where professional accounting support is not merely advisable — it is essential. Our team specialises in serving construction companies and helps you avoid the most costly mistakes.
Last updated: June 2026. Information is based on the Value Added Tax Law, the Construction Law with 2025/2026 amendments, official SRS materials, and the requirements of the State Construction Control Bureau.
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