VAT on Food in Latvia 2026: 12% Pilot Rate Explained

For years, grocery shoppers in Latvia paid 21% PVN on virtually all food products — one of the higher effective food tax rates in the European Union. Estonia applied 20%, Lithuania 21%, but countries like Poland (5% on basic foodstuffs), Germany (7%), and Spain (4% on essentials) demonstrated that reduced food VAT rates were both feasible and politically popular. In early 2026, Latvia's government launched a pilot program to test a 12% reduced rate on selected food categories, effective from July 1, 2026.

The pilot is narrower than the public debate suggested. Not all food qualifies. Understanding which products fall under 12% and which remain at 21% is not optional for food retailers, restaurants, and producers — it is the difference between correct invoicing and a compliance problem.

What the Pilot Program Covers

The 12% reduced rate applies to a defined list of food product categories, based on Combined Nomenclature (CN) codes. The government's stated goal: reduce consumer prices on staple foods without creating an across-the-board revenue gap.

Categories included in the pilot (as of the latest published regulations):

Fresh and frozen meat (beef, pork, poultry, lamb) — unprocessed or minimally processed
Fresh and frozen fish and seafood
Dairy products: milk, butter, cheese, yogurt, cottage cheese
Eggs
Bread and basic bakery products (defined by flour content thresholds)
Fresh fruits and vegetables
Cereals, flour, and basic grain products
Vegetable oils

Categories that remain at 21%:

Confectionery, chocolate, and sweets
Soft drinks, juices (non-fresh), energy drinks
Prepared meals and ready-to-eat products (with notable exceptions)
Snack foods (chips, crackers with added flavoring)
Alcohol (subject to excise in addition to VAT)
Restaurant and catering services (still 21% regardless of the food served)

The boundary between "basic bakery products" at 12% and "confectionery" at 21% is where most classification disputes will emerge. A plain wheat bread roll qualifies. A croissant filled with chocolate? Almost certainly 21%. A rye bread with seeds? Likely 12%. The exact thresholds depend on sugar content, flour composition, and processing methods specified in the regulation.

(Our professional advice: do not rely on intuition for classification. Request a formal ruling from VID for any product where the category is ambiguous. The ruling is binding on VID and protects you in case of later audit.)

Impact on Food Businesses

Retailers must update point-of-sale systems to apply 12% to qualifying products and 21% to everything else. For a supermarket with 15,000 SKUs, this is a significant IT and data project. Each product must be mapped to its CN code and classified correctly. Mistakes in either direction create liability: under-charging means you owe VID the difference; over-charging means consumer overpricing.

Producers and wholesalers must update invoicing systems and ensure that downstream buyers (retailers, restaurants) receive invoices with the correct rate. A dairy producer shipping milk (12%) and flavored milkshakes (21%) on the same invoice must split the rates correctly.

Restaurants and caterers are explicitly excluded from the pilot. Restaurant meals remain at 21% regardless of the ingredients used. A restaurant buying milk at 12% input VAT and selling a latte at 21% output VAT benefits from the rate differential — the input VAT recovery on food purchases improves their margin slightly. But the output rate does not change.

Import businesses bringing food from other EU countries or from outside the EU must apply the correct Latvian rate at import (for non-EU goods) or in their PVN declaration (for intra-Community acquisitions). An Italian cheese imported from Italy qualifies for 12% if it meets the dairy product classification.

Financial Impact: Running the Numbers

For a household spending EUR 400 per month on food, with approximately 60% of that on products qualifying for 12%, the monthly saving is roughly EUR 30 — or EUR 360 per year. Not transformative, but noticeable.

For a food retailer with EUR 2 million in annual revenue on qualifying products, the rate reduction from 21% to 12% means prices can drop by approximately 7.4% (the difference between 121% and 112% of the net price). Whether retailers pass the full saving to consumers or absorb part of it as margin improvement will vary. The government has signaled it will monitor price transmission closely.

For a restaurant with EUR 50,000 in annual food input costs shifting from 21% to 12%, the input VAT recovery decreases by EUR 4,500 (from EUR 10,500 to EUR 6,000) — wait, that is not right. The restaurant pays less input VAT on qualifying food purchases (EUR 6,000 vs. EUR 8,678 at the old rate for the same gross spending), which means lower costs but also lower deductions. The net effect is a cost reduction of about EUR 2,678 annually. Not enormous, but in restaurant margins, every euro counts.

Preparing for July 2026

Businesses in the food chain should take three steps before the July 1 effective date:

Classify your product catalog. Map every food product you sell or purchase to its CN code and determine which rate applies. Document the classification rationale for audit purposes.
Update systems. POS systems, invoicing software, and accounting platforms need to support dual food VAT rates. Test thoroughly before go-live — a misconfigured system on July 1 generates incorrect invoices at scale.
Train staff. Cashiers, procurement teams, and accounting personnel need to understand the new rate structure. The question "Is this 12% or 21%?" will come up hundreds of times in the first week.

The pilot program has a built-in review mechanism. The government will assess the program's impact on consumer prices, retailer margins, and budget revenue before deciding whether to make the reduced rate permanent, expand it, or discontinue it. For 2026, treat the 12% food rate as effective but provisional — and build your systems to handle potential changes.

Is Your Product Catalog Ready for the 12% Rate?

The new food VAT pilot requires precise CN code mapping for every product you sell. Borderline items -- smoothies, protein bars, prepared salads -- need formal VID rulings to avoid applying the wrong rate. We classify your catalog, update your invoicing system, and handle VID correspondence on borderline products.

Get your food VAT classification sorted →