Latvia has over 27,000 registered associations (biedrības) and foundations (nodibinājumi), making the nonprofit sector one of the most active in the Baltics relative to population size. Yet a persistent myth suggests that NGOs do not need real accounting — that a bank statement and a folder of receipts is enough. It is not. Latvian law requires every association and foundation to maintain proper accounting records, file annual reports, and comply with tax rules that, while more favorable than those for commercial entities, are far from simple.

This guide covers the accounting rules that apply specifically to Latvian NGOs, including the simplified reporting options, grant management, donor restrictions, and the rules governing public benefit organization (sabiedriskā labuma organizācija) status.

Legal Forms: Associations vs. Foundations

Before getting into the accounting details, the structural difference matters:

Associations (biedrības) are membership organizations. They have members who participate in governance, pay membership fees, and elect a board. An association can have as few as two founding members.

Foundations (nodibinājumi) have no members. They are governed by a board and exist to manage assets dedicated to a specific purpose. A foundation can be established by a single founder.

Both forms are registered with the Register of Enterprises (UR) and can apply for public benefit organization status. Both follow the same accounting rules — but their revenue sources and governance structures differ, which affects how financial statements are structured.

Simplified Reporting: When It Applies

Latvian NGOs benefit from simplified financial reporting requirements — but "simplified" does not mean "optional."

Small NGOs (revenue below EUR 800,000 and fewer than 25 employees) may prepare:

A simplified balance sheet.
A simplified income and expense report.
Notes to the financial statements (abbreviated).

They are exempt from preparing a cash flow statement and from audit requirements (unless their statutes or a donor mandate require one).

Larger NGOs (exceeding the EUR 800,000 revenue threshold or 25 employees) must prepare full financial statements, including a cash flow statement, and may be subject to audit or review engagement requirements.

Filing deadlines: NGOs must file their annual report with UR within 4 months of the financial year end. For organizations with a calendar year fiscal year (the vast majority), the deadline is April 30. Late filing carries the same penalties as for commercial entities: warnings, then fines, and eventually forced liquidation proceedings.

The double-entry requirement: Even the smallest association must use double-entry bookkeeping. Single-entry bookkeeping — recording only cash receipts and payments — has not been permitted for Latvian NGOs since 2016. In practice, many small associations (a neighborhood group with EUR 3,000 in annual membership fees) resist this requirement, but VID and UR enforce it during inspections.

Revenue Recognition: Grants, Donations, and Membership Fees

NGO revenue comes from fundamentally different sources than commercial income, and each requires distinct accounting treatment.

Grant Accounting

Grants are the primary funding source for most active Latvian NGOs. EU structural funds, EEA/Norway Grants, government program grants, and private foundation grants each come with conditions — and those conditions determine how you account for the money.

Restricted grants (tied to specific activities):

Recognize the grant as deferred income (a liability) when received.
Transfer to revenue as eligible expenses are incurred, matching the expense and revenue in the same period.
Unspent grant funds at the project's end must be returned (and removed from deferred income) or carried forward if the grant agreement permits.

Example: Your association receives a EUR 50,000 grant from the EU's Erasmus+ program for a 12-month youth mobility project. In the first quarter, you incur EUR 12,000 in eligible expenses.

Grant received: DR Bank EUR 50,000 / CR Deferred income EUR 50,000
Q1 expenses incurred: DR Project expenses EUR 12,000 / CR Bank/payables EUR 12,000
Revenue recognition: DR Deferred income EUR 12,000 / CR Grant revenue EUR 12,000

At quarter-end, your balance sheet shows EUR 38,000 in deferred income, and your income statement shows EUR 12,000 in revenue against EUR 12,000 in expenses — net zero, as most grant-funded projects should show when managed correctly.

Unrestricted grants and general operating support:

Recognize as revenue when received (or when the right to receive is established, if later).
These funds can be used for any purpose within the organization's statutory activities.

Donations

Cash donations are recognized as revenue when received. If a donor specifies a purpose (restricted donation), treat it like a restricted grant — defer and release as expenses are incurred.

In-kind donations (equipment, services, goods) are recorded at fair market value on the date received. A company donating EUR 5,000 worth of computers to your association requires a valuation document and a donation agreement.

Anonymous donations: Latvian law permits anonymous donations, but amounts exceeding EUR 1,000 per single anonymous donation must be reported to the State Revenue Service (VID) within 15 days. This anti-money-laundering provision catches many NGOs off guard.

Membership Fees

Membership fees are recognized as revenue over the membership period. Annual fees received in January cover 12 months — if your fiscal year ends December 31, the full amount is recognized in the current year. If the membership period crosses fiscal years (a fee received in September for September–August), defer the portion attributable to the next fiscal year.

Tax-Exempt Status: What It Means and What It Does Not

All Latvian associations and foundations are exempt from corporate income tax (CIT) on income from their statutory (non-commercial) activities. This includes:

Grants and donations.
Membership fees.
Revenue from charitable or educational activities directly related to the organization's stated purpose.

Commercial activities (selling goods or services, renting property, running events with ticket sales) are taxable under the standard CIT rules — but only if the commercial activity is not directly related to the NGO's statutory purpose. An environmental association selling reusable bags as part of its educational mission? Likely exempt. The same association renting out its office space on weekends? Taxable.

The VAT question: NGOs are subject to the same VAT registration threshold (EUR 50,000) as commercial entities. Grant and donation income is not counted toward this threshold (these are not taxable transactions), but commercial revenue is. An NGO selling EUR 60,000 worth of educational materials must register for VAT, even if its total budget is 90% grant-funded.

Public Benefit Organization (PBO) Status

Public benefit organization status (sabiedriskā labuma organizācija, or SLO) confers significant advantages — and creates additional obligations.

Advantages:

Donors (both individuals and companies) can deduct donations from their taxable income — up to 20% of the individual's annual income for personal donors, or up to 5% of the previous year's pre-tax profit for corporate donors. This is a powerful fundraising tool: corporate donors are far more likely to give when the donation reduces their tax bill.
PBO status signals legitimacy and governance quality to international donors and grant-making institutions.

Requirements for PBO status:

The organization must operate in one of the recognized public benefit areas: culture, education, science, sports, health, social welfare, human rights, environmental protection, or civil society development.
At least 90% of donations and grants received must be used for public benefit activities (not administrative overhead).
The organization must file an annual activity report with the SLO committee (in addition to the financial annual report filed with UR).
Board members and founders must not receive disproportionate compensation or benefits from the organization's activities.

Loss of PBO status: If VID or the SLO committee determines that the organization is not meeting the 90% activity spending threshold, or that funds are being diverted for private benefit, PBO status can be revoked retroactively. The consequences are severe: past donors may lose their tax deductions, and the organization must return any tax benefits it received.

Expense Documentation for NGOs

Grant-funded NGOs face stricter documentation requirements than most commercial entities because grant auditors examine supporting documents down to individual receipts.

What auditors expect:

Procurement documentation. For purchases above EUR 500 (some grants set the threshold at EUR 1,000), multiple quotes are required. EU-funded projects above EUR 10,000 may require formal procurement procedures.
Time sheets. Staff paid from grant funds must document their time spent on the project. If an employee splits time between a grant-funded project and general operations, the time allocation must be documented daily or weekly.
Travel documentation. Per diem claims, transport receipts, hotel invoices, and a written purpose statement for each trip. The per diem rates for NGO travel follow the same Cabinet Regulation No. 969 rates used by commercial enterprises.
Beneficiary lists. Projects serving individuals (training programs, social services) must maintain anonymized lists of beneficiaries, including dates and types of services provided.

Disallowed costs. Grant auditors routinely disallow:

Expenses incurred outside the grant period (even by one day).
Costs without proper procurement documentation.
Staff costs without timesheets.
Travel without a clear connection to project activities.

Disallowed costs must be returned to the grant provider. For an association operating on thin margins, a EUR 5,000 disallowance can threaten the entire budget.

Common Mistakes in NGO Accounting

Mixing restricted and unrestricted funds. Every grant has specific eligible cost categories. Using a culture grant to pay the electricity bill is a compliance violation, even if the office is where cultural activities take place. Maintain separate cost centers for each project.
Treating volunteer contributions as revenue. Volunteers provide labor, not cash. You cannot record volunteer hours as revenue and matching expense (a practice sometimes seen in Anglo-Saxon accounting). Under Latvian standards, volunteer contributions are disclosed in the notes, not on the income statement.
Failing to file the SLO activity report. This is separate from the UR annual report and has its own deadline and format. Missing it puts PBO status at risk.
Assuming all NGO income is tax-exempt. Commercial income is taxable. Rental income is taxable. Interest income on bank deposits is taxable. The exemption applies to statutory activity income only.
Paying board members without proper documentation. Board compensation must be approved by the members' meeting (for associations) or the supervisory board (for foundations) and must be reasonable. Excessive board compensation is a red flag for both VID and PBO oversight.

If your association or foundation needs accounting that understands the difference between a restricted grant and a donation receipt, contact our team.

Accounting for NGOs, Associations, and Foundations in Latvia