Accounting for E-Commerce Businesses in Latvia — Requirements and Specifics
Picture a Latvian e-commerce business selling handmade ceramics that reaches €340,000 in revenue through Shopify, Etsy, and Amazon — and never files a VAT return in any foreign country, thanks to the OSS mechanism (an illustrative example). Before OSS launched in July 2021, that same business could have needed VAT registrations in several EU member states. The rules have gotten simpler. The bookkeeping — not so much.
Running an online store from Latvia means reconciling payment processor statements that don't match your bank statements, tracking inventory across warehouses in multiple countries, and calculating VAT at rates you don't set. E-commerce accounting differs significantly from regular SIA bookkeeping — and that's exactly why many online store owners run into unpleasant surprises in their first years. This guide covers the accounting realities every Latvian e-commerce operator faces in 2026.
Key takeaways
Revenue must be booked at the gross sale amount, not the net amount that lands in your bank account — platform and payment processor fees are a separate expense line, not a deduction from revenue
OSS lets you settle VAT on B2C sales across the entire EU in a single quarterly return, once you exceed the €10,000/year cross-border sales threshold (the return is due by the last day of the month following the quarter)
IOSS covers imports from third countries valued up to €150 (a monthly return) — but starting 1 July 2026, such shipments are also subject to a flat €3 customs duty per item (a temporary measure in effect until 1 July 2028)
Amazon FBA inventory held in other EU countries can trigger a VAT registration obligation in those countries — OSS does not replace this
Mandatory e-invoice data reporting to VID for transactions with budget institutions has been in effect since 1 January 2026; for business-to-business transactions it's voluntary until the end of 2027 and becomes mandatory from 1 January 2028
How e-commerce accounting differs from the standard case
For a classic SIA, the accounting process is relatively simple: issue an invoice, receive payment, record expenses. In e-commerce, this process becomes multi-layered.
First, your "customer" in the books is thousands of anonymous buyers, each making a relatively small payment. You don't issue an invoice to each buyer individually — instead you rely on summary reports from platforms and payment processors.
Second, money lands in your account not from the customer, but from Shopify, Stripe, PayPal, or Amazon — after fees, payment processing charges, refunds, and held amounts have been deducted. Your bank statement shows a net deposit, but your books need to show gross sales.
Third, applying VAT is no longer simple: you need to know which country the buyer is in, what VAT rate applies there, whether you've exceeded the €10,000 cross-border B2C sales threshold, and whether you're using the OSS regime.
Fourth, you have to deal with multi-currency transactions — euros, US dollars, British pounds — and exchange rate fluctuations that affect your profit.
Reconciling sales across multiple platforms
Most Latvian e-commerce businesses sell through at least two channels — their own online store (Shopify, WooCommerce) and one or more marketplaces (Amazon, Etsy, eBay). The accounting challenge isn't the selling — it's the reconciliation.
Shopify
Shopify deposits funds after deducting payment processing fees. Your bank statement shows the net deposit. But revenue must be recorded at the gross sale amount, with Shopify's fees booked as a separate expense. If you record only the net deposit as revenue, you're understating turnover — and possibly underdeclaring VAT.
WooCommerce and payment processors
WooCommerce combined with Stripe or PayPal creates similar issues — both bundle costs, deduct fees, and release held funds on a schedule.
A note on fee rates: the exact payment processor fees (Shopify Payments, Stripe, PayPal) vary by subscription plan, country, card type (domestic/international), and transaction volume — they aren't a single fixed rate for everyone. The figures mentioned here are indicative; check the current pricing directly with your provider before making decisions.
Marketplaces (Amazon, Etsy, eBay)
Marketplace sellers face an additional layer: the marketplace itself may collect and remit VAT on your behalf. Since July 2021, a platform is treated as the supplier itself in two cases: (1) it facilitates distance sales of goods imported from third countries in consignments of up to €150, and (2) the seller does not carry out business in the EU and sells goods within the EU to a non-taxable person (Article 6(5)–(6) of the VAT Law). In these cases the platform accounts for the VAT. If you are a Latvian seller shipping from EU stock, you still account for VAT on your own sales yourself (in the domestic return or via OSS). In your books, though, you still need to distinguish which transactions had VAT paid by the platform and which you're responsible for yourself.
A practical reconciliation routine
Every month, export transaction-level data from each platform (Shopify, WooCommerce, Amazon Seller Central, Etsy).
Reconcile gross sales, fees, refunds, shipping charges, and VAT.
Compare platform reports against actual bank deposits.
Book gross revenue as sales, platform fees as cost of sales, and payment processor fees as financial expenses.
OSS — the VAT One-Stop Shop
One of the most important elements of e-commerce accounting is the OSS (One-Stop Shop) regime. In Latvia, this regime has been operating since 1 July 2021.
The €10,000 threshold
Since July 2021, a single EU-wide distance-selling B2C threshold applies: €10,000 per calendar year, counted across all EU member states combined. As long as you haven't exceeded this amount, you're allowed to charge Latvian VAT at 21% on all B2C transactions across the EU. You can check the current Latvian VAT registration threshold and related calculations with our VAT calculator.
Once your combined cross-border sales to consumers exceed €10,000, you must apply the VAT rate of the destination country. A shipment to France — 20% TVA; to Spain — 21% IVA; to Germany — 19% Umsatzsteuer. Rates differ, and so do the rules.
Without the OSS simplification mechanism, you'd need to register as a VAT payer in every country you ship to. For a store with ten destination countries, that would mean ten registrations, ten sets of returns, ten sets of local rules. The administrative cost alone would sink most small online businesses.
How OSS works
OSS lets a VAT-registered business in Latvia file a single quarterly return covering all B2C transactions across the EU. Registration happens through the VID EDS portal and doesn't require a separate number — your existing Latvian VAT number is sufficient.
In practice, this looks like:
You sell to customers in France, Germany, and Italy.
You apply each country's VAT rate (20%, 19%, 22%).
Once a quarter, you file a single OSS return through Latvia's VID.
VID forwards the corresponding VAT amounts to each country's tax administration.
Importantly: OSS does not replace local VAT registration. If you have inventory, an office, or any other permanent presence in another EU country, you may still need a separate VAT registration there. OSS covers only cross-border B2C sales.
OSS return deadline
The OSS return is due by the last day of the month following the quarter: Q1 (January–March) — by 30 April; Q2 — by 31 July; Q3 — by 31 October; Q4 — by 31 January of the following year. If you miss a deadline, VID can block your access to the OSS regime, and you may end up having to register as a VAT payer in each individual member state — right back at what OSS was meant to avoid.
IOSS — imports from third countries
IOSS (Import One-Stop Shop) is a similar mechanism for goods imported from third countries (outside the EU) valued at up to €150. IOSS lets you apply VAT at the point of sale rather than at customs, significantly simplifying the process for your customer.
Unlike OSS, the IOSS return must be filed every month, by the last day of the following month (for example, January's return is due by the end of February).
An important nuance: the €150 threshold applies to the shipment, not to an individual order. If multiple orders are combined into a single physical shipment whose total value exceeds €150, the IOSS simplification no longer applies to that shipment — standard import VAT and customs procedures apply instead.
IOSS is especially important for dropshipping businesses that sell products from China or other third countries directly to EU customers. If you don't use IOSS, your customer will pay VAT at customs, plus a customs handling fee — a customer experience unlikely to encourage repeat purchases.
Customs duty changes from 1 July 2026
Starting 1 July 2026, the European Union is abolishing the €150 customs duty exemption for commercial shipments from third countries — until then, such shipments were fully exempt from customs duty. Instead, each item within such a shipment is subject to a flat €3 customs duty (per item, not per shipment). This is a temporary measure in effect until 1 July 2028, when a full EU customs reform takes effect with a standard, tariff-based calculation.
This change doesn't affect VAT — the IOSS mechanism keeps working exactly as before. But for dropshipping and other businesses importing goods from third countries, it means an additional cost that needs to be factored into pricing.
Source: European Commission — Guidance and legal text on temporary flat fee on low-value imports
Multi-currency transactions — how to record them correctly
E-commerce businesses rarely operate in a single currency. You sell in euros but pay suppliers in US dollars or British pounds. You have Stripe, PayPal, or Payoneer accounts in various currencies. Recording currency transactions correctly is vital.
The basic principle: all transactions must be reflected in euros in your books. Conversion should use the European Central Bank's exchange rate on the day of the transaction, or the rate on the last day of the previous month.
For example, if you receive $1,000 from Stripe and the ECB rate that day is 1 EUR = 1.08 USD, you record €925.93 in your books. If the exchange rate changes by the time you actually convert those dollars to euros, the difference is recorded as a currency gain or loss.
A common mistake: businesses receive money into multi-currency accounts but only book the final euro amount after conversion, ignoring the intermediate step — the currency account balances. This approach can lead to discrepancies during a VID audit.
Returns and refunds — an accounting solution
Product returns are unavoidable in e-commerce. Industry data suggests the average e-commerce return rate is typically around 15–25%, with fashion items reaching as high as 40% — the exact figure varies by category and by year. Every return affects revenue, VAT, and inventory records. Since 25 September 2026, online consumer contracts that carry a right of withdrawal must also offer an online withdrawal function — see our article on the online withdrawal button.
Recording returns step by step:
The customer requests a return.
You approve the return and issue a refund.
In the books: gross sales revenue is reduced by the refunded amount.
VAT is adjusted — if the sale included VAT, the VAT portion is refunded too.
Inventory is restocked, if the item is returned in sellable condition.
If you use OSS and sold at another country's VAT rate, the VAT adjustment for the return must be reflected in the corresponding OSS return for that country.
Inventory management and cost of goods sold
If you sell physical products, you need to track inventory — both in a Latvian warehouse and, potentially, in foreign warehouses (such as Amazon FBA centers).
You can use one of these methods to value inventory:
FIFO (First In, First Out). The first items purchased are treated as the first sold. The most commonly used method.
Weighted average cost. The average purchase price across all units in stock.
Cost of goods sold (COGS) is one of the largest expense items for an e-commerce business. An incorrect COGS calculation can significantly distort your profit figures.
Payment processor fees — how to record them correctly
Stripe, PayPal, Shopify Payments — each charges fees that need to be reflected correctly in your books. A common mistake is recording only the net deposit from Stripe as revenue. The correct approach:
Gross sales — the full amount before fees are deducted, recorded as revenue.
Payment processing fees — recorded as cost of sales or financial expenses.
This approach not only ensures a correct VAT calculation (VAT is applied to the gross amount), but also gives a more accurate picture of your turnover and cost structure.
VAT registration for e-commerce businesses
For e-commerce businesses, VAT obligations can arise for two reasons:
Domestic turnover exceeds €50,000 (the standard Latvian VAT threshold).
The €10,000 EU-wide cross-border B2C sales threshold is exceeded — destination-country VAT must then be applied, which you can handle by registering for OSS (or by registering in each country separately). On its own this does not create a duty to register as a Latvian VAT payer — that is set by the €50,000 threshold.
Source: Value Added Tax Law
Important: the OSS registration procedure, and whether it requires Latvian VAT-payer status, is set by Section 140.³ of the VAT Law and VID guidance — check it with VID or your accountant before registering.
For foreign businesses selling to Latvian consumers through an online store, the VAT registration threshold doesn't apply — registration is typically required from the first taxable transaction, unless OSS is used.
E-invoices in e-commerce — what changes in 2026
Latvia's e-invoicing rollout happens in two separate stages, which are easy to confuse — so it's worth keeping them clearly apart.
Stage one — using e-invoices (issuing and receiving invoices in structured format):
For G2G, B2G, and G2B transactions (with government and municipal institutions) — mandatory since 1 January 2025.
For B2B transactions (between businesses) — mandatory from 1 January 2028.
Stage two — reporting e-invoice data to VID (an additional, separate requirement):
For G2G, B2G, and G2B segments — mandatory since 1 January 2026.
For Latvia-registered businesses in B2B transactions — data reporting to VID is voluntary from 1 January 2026 through 31 December 2027, becoming mandatory from 1 January 2028.
E-invoices must conform to the PEPPOL BIS Billing 3.0 and EN 16931 standards, in structured XML format.
Specific to e-commerce: if you also sell to Latvian government institutions (B2G), e-invoicing for those transactions is already mandatory. For other e-commerce businesses — whose customers are mostly consumers or other businesses — the voluntary 2026–2027 period is a good opportunity to gradually adapt your invoicing system before it becomes mandatory in 2028.
Tax planning for e-commerce businesses
E-commerce businesses, like any SIA, can take advantage of Latvia's tax benefits: 0% corporate tax on reinvested profit, the alternative corporate tax regime, and input VAT recovery.
Specific tips:
Using OSS lets you avoid costly VAT registration in every EU country.
Correct COGS calculation directly affects your gross profit and, in turn, your corporate tax base at the time dividends are distributed.
Separating platform fees from revenue reduces your VAT base — if fees are incorrectly included in revenue, you end up paying VAT on an amount you never actually received.
Common mistakes in e-commerce accounting
Recording revenue at net instead of gross. This understates the VAT base and creates a risk of underdeclaring VAT.
Forgetting to register for OSS after exceeding the €10,000 threshold. Without it, every country you ship to requires a separate VAT registration.
Ignoring Amazon FBA inventory in your accounting and VAT position. Inventory held in another EU country can trigger a local VAT registration obligation regardless of OSS.
Failing to record currency conversion on the correct date. This creates mismatches between platform reports and your accounting records.
Not factoring the customs duty change (from 1 July 2026) into pricing when importing goods from third countries.
E-commerce accounting isn't easy, but it's manageable once you understand the core principles and use the right tools. Our team specializes in serving e-commerce businesses — we help with reconciling Shopify, WooCommerce, and marketplace sales, administering OSS/IOSS VAT, and multi-currency bookkeeping. Get in touch to discuss your specific situation, or see our accounting services.
Frequently asked questions
Can I use OSS if my business isn't a VAT payer?
This should be checked with VID: Section 140.³ of the VAT Law provides the Union scheme for taxable persons making distance sales of goods in the EU, but the conditions for domestic VAT registration are clarified by VID. Consult your accountant before registering for OSS.
What happens if I exceed the €10,000 threshold mid-year?
Once your combined cross-border B2C sales exceed €10,000, you must start applying the buyer's country's VAT rate. If you're already registered for OSS, this transition happens automatically. If you're not registered, you need to register as quickly as possible — otherwise you're in breach of VAT rules.
What's the difference between OSS and IOSS return deadlines?
The OSS return is filed once a quarter, by the last day of the month following the quarter. The IOSS return is filed every month, by the last day of the following month — more frequently, since it covers individual import shipments rather than aggregated quarterly sales.
How do I record dropshipping transactions?
In dropshipping accounting, you need to separate two layers: your sale to the customer (revenue) and your purchase from the supplier (cost). It's important to correctly determine how VAT applies — are you an intermediary, or are you considered the primary supplier? The answer depends on who is responsible for delivering the goods and their compliance. Also keep in mind the new €3 customs duty from 1 July 2026 on shipments from third countries valued up to €150.
Does Amazon FBA inventory create a VAT registration obligation in other countries?
Yes, very likely. If your products are stored in Amazon warehouses in other EU countries, this can trigger an obligation to register as a VAT payer in those countries. OSS doesn't cover situations where you have a permanent presence (including inventory) in another member state. Under Amazon's Pan-European FBA program, inventory is most commonly placed in countries such as Germany, France, Italy, Spain, and Poland, but the specific country list and requirements change from time to time — always check the current information in your Amazon Seller Central inventory reports.
Is e-invoice data reporting to VID already mandatory for my e-commerce business?
If you also sell to Latvian government or municipal institutions (B2G), yes — since 1 January 2026. If your customers are consumers or other businesses (B2B/B2C), data reporting to VID is voluntary until the end of 2027 and only becomes mandatory from 1 January 2028.
Related reading: VAT registration, when a freelancer should switch from self-employed to a SIA and the online withdrawal button and accounting for refunds.
Sources
Last updated: September 2026. Information based on the Value Added Tax Law, the European Commission's official OSS/IOSS and customs reform materials, and VID's published e-invoicing rollout deadlines. Payment processor fee rates are indicative and should be verified with the specific provider.
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