Tax Audit (VID Inspection) in Latvia: What to Expect and How to Prepare

VID — Latvia's State Revenue Service — conducted over 4,500 tax audits in 2025, recovering more than EUR 180 million in unpaid taxes and penalties. About one in twelve active companies received some form of audit attention that year. The odds are not astronomical, but they are not trivial either. And when VID selects your company, the clock starts ticking on deadlines that most business owners learn about far too late.

The good news: a tax audit is not a criminal investigation. It is a verification procedure with clear rules, defined timelines, and legitimate ways to manage the process. The bad news: walking in unprepared can turn a routine desk check into a full field audit with penalties reaching 100% of the underpaid tax amount.

Three Types of VID Audits — and Why the Distinction Matters

Latvia's tax code distinguishes between three audit formats, and VID can escalate from one to another if it finds problems.

Desk audit (dokumentu parbaude). The most common type. VID reviews your submitted declarations, annual reports, and available data without visiting your premises. You might receive a request for additional documents or explanations via EDS (the electronic declaration system). Response deadline: typically 10–20 working days. Most desk audits resolve within one to three months.

This is where VID checks obvious inconsistencies — an unusually high PVN refund claim, expenses that don't match declared revenue, deductions that spike compared to prior years.

Field audit (audits). The serious one. VID officers physically visit your registered office, inspect documents, interview employees, and may examine assets or inventory. Field audits can last up to 90 days (extendable to 180 in complex cases). VID must issue a formal audit order specifying the tax types and periods under review.

During a field audit, VID can access your accounting records, bank statements, contracts, invoices, and any document relevant to your tax obligations. They can also request information from your counterparties — suppliers, clients, banks.

Thematic check. A focused review of a specific issue — for instance, whether your company correctly applied PVN reverse charge on a cross-border transaction, or whether payroll withholdings match the number of declared employees. Narrower in scope than a full field audit, but still legally binding.

In our experience, about 65% of all VID audit activity starts as desk audits. Of those, roughly 15% escalate to field audits because the desk review uncovered issues that require deeper investigation.

What Triggers a VID Audit

VID does not select companies randomly (although random selection exists in theory). In practice, the risk-scoring system flags businesses based on specific patterns.

Frequent PVN refund claims. If your company regularly claims PVN refunds — especially large ones relative to your turnover — expect scrutiny. VID must process refunds within 30 days, but it will verify the legitimacy of input PVN claims before releasing the money. Claims above EUR 15,000 almost always trigger at least a desk check.

Sustained losses. A company reporting losses for two or three consecutive years raises a fundamental question: how is it still operating? VID may suspect that revenue is being understated or personal expenses are running through the business.

Cash-intensive operations. Restaurants, retail shops, beauty salons, construction subcontractors — any business handling significant cash volumes gets extra attention. VID cross-references declared cash revenue against industry benchmarks, utility consumption, and employee headcounts.

Unusually high deductions. Claimed expenses that are disproportionate to revenue or industry norms. A consulting company with EUR 100,000 in revenue and EUR 85,000 in "vehicle expenses" will attract attention.

Counterparty connections. If one of your suppliers or clients is flagged for fraudulent invoicing or missing trader schemes, VID may audit your transactions with that entity — even if your own conduct is perfectly clean.

Large or unusual transactions. Asset sales at below-market prices, related-party loans at zero interest, sudden changes in ownership structure — these generate system alerts.

Preparing Before VID Comes Knocking

Preparation does not begin when you receive the audit notification. It begins the moment you open your accounting books each month.

Monthly reconciliation discipline. Ensure your bank statements match your accounting entries. This sounds basic, but in roughly 30% of the audits we have assisted with, the first issue VID identified was unreconciled bank transactions — payments received that were never invoiced, or invoices recorded that never generated a payment.

Document completeness. Every expense needs a supporting document: invoice, contract, delivery note, act of services rendered. Latvia requires specific invoice formats under PVN law (supplier VAT number, sequential invoice number, description of goods/services, amounts with PVN breakdown). Missing even one element can invalidate an input PVN deduction.

Transfer pricing documentation. If your SIA transacts with related parties — parent companies, sister entities, shareholders — you need transfer pricing documentation that justifies the prices used. VID has become increasingly aggressive on this since 2023, particularly for management fees and IP licensing arrangements.

Personnel files. Ensure employment contracts, salary calculations, and time records are in order. VID frequently cross-checks declared salaries against minimum wage requirements and industry standards. Paying your CEO minimum wage while the company earns EUR 500,000 annually is a red flag for hidden dividend distributions (an approach we recommend you examine through our tax regimes guide).

Retain records for the full statutory period. Latvia requires companies to keep accounting documents for 5 years after the relevant tax year. Supporting documents for fixed assets must be retained for 10 years. Losing documents does not protect you — VID will estimate taxes based on available information, and those estimates rarely favor the taxpayer.

During the Audit: Rights You Should Actually Use

Latvian law grants taxpayers specific rights during an audit. Most companies do not exercise them fully.

Right to representation. You do not need to handle the audit personally. An accountant, tax advisor, or attorney can represent your company. In our experience, professional representation reduces both the duration of the audit and the likelihood of penalties — because professionals know which documents to present, in what format, and when to push back.

Right to explanations. Before VID finalizes its audit report, you have the right to provide explanations and additional evidence. This is the most critical stage — once the audit report is issued, your options narrow significantly.

Right to appeal. If you disagree with the audit findings, you can appeal to a senior VID official within 30 days, and from there to the Administrative District Court. (We cover the full appeal process in our article on appealing VID decisions.)

Right to request a specific audit scope. If VID's audit order is vague or overly broad, you can request clarification. This matters because VID can only assess additional taxes for periods and tax types specified in the audit order.

The Most Expensive Mistake: Ignoring the Process

Some business owners react to a VID audit notification by doing nothing — ignoring requests for documents, missing deadlines, hoping it will pass. This is the single most costly approach.

When you fail to respond to VID requests, several things happen simultaneously. VID estimates your tax obligations based on its own data (industry benchmarks, counterparty information, bank data). Penalties increase because you have not demonstrated good faith. And VID may escalate from a desk audit to a field audit, expanding the scope of review.

One client came to us after ignoring three VID requests over four months. What started as a routine PVN desk check — likely a EUR 2,000 issue — had escalated into a field audit covering CIT, PIT withholding, and VSAOI for three fiscal years. The final assessment: EUR 47,000 in additional taxes plus EUR 23,000 in penalties and interest. Early engagement could have contained this to a fraction of that amount.

The penalty system itself contains a built-in incentive for cooperation: if you identify and correct errors before VID formally notifies you of an audit, penalties can be reduced by 50%. This is not a technicality — it is a substantial financial advantage that disappears the moment the audit order arrives.

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Facing a Tax Audit or Want to Make Sure Your Books Are Ready?

CORVUS Accounting & Tax has guided dozens of companies through VID audits — from initial document preparation through appeals. We know what VID looks for because we deal with it every month.

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