Helpful information for the board members of a starting company

The obligations and responsibilities of Members of the Management Board

Management board members have an obligation arising from law (Commercial Code, Bankruptcy Act, Competition Act, etc.) to manage the company, organise the accounting and represent the company.

The Taxation Act stipulates an additional area of responsibility in the field of taxation according to which a member of the management board must ensure the timely and complete settlement of monetary and non-monetary obligations of the company arising from taxation law. In summary, it could be concluded that laws have subjected members of the management board to the obligation of being informed from all perspectives of the company’s business activities and use of financial resources. The objective of stipulating such an obligation is the protection of the creditors’ interests in addition to the protection of the owners’ interest and the objective of the law is definitely also to provide an opportunity for supervisory bodies to examine the business activities of a company if necessary in order to ensure that activities are compliant with legislation. In order to enable supervisory activities, the law stipulates that the members of the management board are subjected to the obligation of organising the accounting and record-keeping of the company. A situation where a member of the management board assigns the organisation of business activities and control over financial resources to a third party under a civil law contract does not correspond to the spirit of the law. Such civil law contract cannot release a member of the management board from their responsibility.

The Commercial Code stipulates that a member of the management board of a private limited liability company (OÜ) has the obligation to organise the company’s activities with due care of a business owner. Court precedent states that a member of the management board must be diligent, adequately informed in order to make decisions and should not assume risks on behalf of the company that are unwarranted. If a member of the management board fails to act with a level of diligence that a normal reasonable individual would demonstrate under similar conditions in such a position, this constitutes a violation of the duty of care on the part of the management board member and this may result in liability. Therefore, a member of the management board must take all measures in order to achieve the best outcome for the company.

An individual that gives their consent for being elected as a member of the management board must educate themselves as to what consequences this may entail and what their scope of activity is. The individual must understand that action or inaction on their part may result in liability. Serving as a member of the management board cannot be purely formal.

Accounting and taxation

Accounting entities are all legal entities and sole proprietors registered in Estonia and they must comply with the Accounting Act.

A member of the management board of a company is responsible for organising the accounting function of the company. This individual may handle the accounting by themselves, hire an accountant or purchase accounting services. The primary requirement is to ensure the provision of up-to-date, relevant, objective and comparable information concerning the financial position, economic performance and cash flows of the company.

Businesses must withhold and pay their required taxes and to file tax returns on a timely basis. The website of the Estonian Tax and Customs Board has forms of tax returns, tax calendar and sole proprietor’s (FIE) tax calendar available.

Company registration portal

The Company Registration Portal is a portal that enables annual reports and documents to be submitted to the Commercial Register electronically. Through the portal, applications may be filed for the registration of a company, the modification of its details in the register, for its liquidation or for its removal from the register. In addition, the Company Registration Portal includes an accounting software, e-Financials, which helps a start-up or small business operator to handle accounts conveniently. Any citizen may log into and use the Company Registration Portal. It may be entered using an Estonian (also for e-Residents the digital ID), Finnish, Latvian or Belgian ID card or an Estonian or Lithuanian Mobile ID.

Find the Company registration portal here

Obligations of VAT payers

As a VAT payer, you must meet the obligations that persons liable to value-added tax are subjected to from the date of registration, including:

  • Retention of documents, keeping of records and issuance of invoices corresponding to requirements;
  • Filing an income and social tax, contributions to mandatory funded pension and unemployment insurance premium tax return (Form TSD) by the 10th day of each month
  • Payment of taxes and contributions on the basis of the filed Form TSD by the 10th day of each month.
  • Adding value-added tax to the taxable value of any goods sold and services rendered;
  • As a VAT payer, you are entitled to deduct the value-added tax payable on goods and services purchased for the purposes of taxable revenue in the same taxable period from your value-added tax liability (input VAT). If you are not engaged in business or the goods and services have been purchased for the purposes of tax-exempt revenue, you cannot deduct any input VAT.
  • Calculate the payable VAT amount that must be paid into the state budget by the 20th day of the month following the taxable period (generally the calendar month);
  • File a value-added tax return (Form KMD) by the 20th day of each month, including its annex (Form KMD INF). The annex to the VAT return contains information on invoices issued to and received from legal entities, sole proprietors and government, municipal and city agencies if an invoice or total value of invoices excluding VAT is 1,000 euros or more per transaction partner;
  • VAT payers that engage in the sale of goods or rendering of services to VAT payers from other European Union Member States must file a report on Intra-Community revenue (Form VD) by the 20th day of each month.

Filing tax returns

  • The period of taxation with respect to value-added tax is the calendar month. If the number of calendar days in your first taxable period is below 15 (for example if you are registered as VAT payer since the 18th day of the month), you may include the revenue of your first period in the revenue of your next taxable period, filing a single VAT return for the two taxable periods;
  • If a due date for meeting an obligation is a public holiday or other holiday, the due date is deemed to be the first business day following the holiday;
  • The Estonian Tax and Customs Board will notify all new VAT payers on a monthly basis during the first six months following their registration of the due dates for filing tax return forms KMD and TSD via email;
  • It is possible to file all tax returns electronically through the e-Tax Board/e-Customs. You can find out more information for concluding a contract for using e-Tax Board/e-Customs from: http://www.emta.ee/eng/e-taxe-customs/creation-e-services-account-business-client
  • Filing a VAT return (Form KMD) and its annex (Form KMD INF) on paper is only permitted to entities that have been registered as VAT payers for less than 12 months and do not include more than 5 invoices in the annex to the value-added tax return. Entities that have been registered as VAT payers for more than 12 months and/or include more than 5 invoices in the annex to the value-added tax return may file their VAT return and its annex on paper only if they submit a reasoned application to the Estonian Tax and Customs Board;
  • Filing a Form TSD on paper is permitted only if Annex 1 to the Form TSD has up to 5 rows filled out, i.e. the tax return contains up to five payees.

Verification of value-added tax identification numbers of business partners

It is always worth thoroughly examining the other party’s background and the circumstances of the transaction prior to entering into a transaction in order to reduce business risk and tax risk. According to current court precedent, a taxable person that became aware of the actual circumstances (indicating tax fraud) involving a transaction but nevertheless participates in the transaction that may constitute committing tax fraud, may become subject to suspicion in the involvement of tax fraud.

If any doubt persists, we advise you to refrain from such a transaction and consider seeking out a counterparty that is more trustworthy.

Registration of employment

The employment register is a register that contains employment-related information and is maintained by the Estonian Tax and Customs Board. Data contained in the employment register are a basis for the assignment of social benefits related to employment (medical insurance, unemployment insurance benefit, etc.) and for benefits to low-wage employees.

Registration of employment is required for all natural persons and legal entities that provide employment. A person that provides employment (employer) is an Estonian resident or non-resident legal entity, Estonian government agency or local government agency, natural person or sole proprietor (füüsilisest isikust ettevõtja – FIE) that enters into an agreement that forms a basis for employment or appoints an individual (employee) to a job position. In the employment register, the employment of any natural persons must be registered where the tax liability occurs in Estonia and this must be done without regard to the form of the agreement or duration. As an exception, employers must enter into the employment register any work performed for a company or for a sole proprietor on the basis of voluntarism without any compensation.

Start of employment must be registered by the date that the individual performing the work becomes employedTermination and suspension of employment must be registered within ten calendar days of the date that employment is suspended or terminated.

Employer’s minimum social tax liability

Social tax is paid by employer in full and a general rate is 33% of the gross payment. There is always a minimum obligation for social tax to be paid, in 2018, it is 155.10 euros monthly, even if there were no payments for salaried work for each employee.

Beginning from 1 January 2018 the overall tax-free amount (basic exemption) of 6000 euros per year or 500 euros per month will be applied on all types of income and the increased basic exemption on pension and compensation for accident at work will not be applied in the future.

In year 2018:

  • annual income up to 14 400 euros gives 6000 euros as annual basic exemption
  • in case annual income increases from 14 400 euros to 25 200 euros, basic exemption decreases according to the following formula: 6000 – 6000 ÷ 10 800 × (income amount – 14 400)
  • if annual income is above 25 200 euros, basic exemption is 0.

Income amount consists of earned income and other revenues, service fees received on the basis of a contract for services, business income, gains from transfer of property, rental income, royalties, interest, dividends, taxable pensions, benefits, scholarships and grants, awards, compensations or other income.

Gross salary from which income tax, unemployment insurance premiums and contributions to mandatory funded pension are withheld, as well as other gross payments taxed by withholding income tax, are considered income amount.

Wage payment service in the Internet bank of LHV

LHV Pank and the Estonian Customs and Tax Board have launched a collaboratively developed wage payment service whereby business operators can disburse and declare wages and pay taxes simultaneously in LHV’s Internet bank without visiting the E-Tax/E-Customs.

In particular, the new service streamlines the declaration of wages for small business operators who have wage disbursements of a simpler type. Where a wage payment service is used, in most instances business operators are relieved of having to enter information into various portals.

The wage payment service may be used for six disbursements provided for private individuals: 1) wages; 2) management board member remuneration; 3) remuneration under a contract under the law of obligations (e.g. contract for services); 4) sickness pay; 5) payment of the minimum rate of social tax; 6) disbursement of a taxable dividend. Other types of disbursements provided for an employee or disbursements for non-residents have to be declared as before.

When the service is used, a customer of LHV can set the relevant features for the transfer in the Internet bank (e.g. wage payment, work hours, tax-exempt income calculation). The bank sends initial taxation data to the Estonian Customs and Tax Board, which automatically calculates the tax amount payable on an individual basis and sends back to the bank information about the tax amounts payable, so that the customer can see the resulting tax liability already when effecting a transfer. If so desired, the tax amount may be paid together with any other amounts straight away or later. Payments may be recorded in order to make wage payments in one go going forward.

Taxation of goods

Place of supply of goods

In Estonia, only supply of goods whose place of supply is Estonia is subject to taxation; hence, determination of the place of supply is very important in terms of taxation.
The place of supply of goods is Estonia if:

  • goods are delivered to the recipient or made available for it in some other manner in Estonia or exported from Estonia, or intra-Community supply or distance selling is carried out from Estonia;
  • a business operator from another Member State registered as a taxable person in Estonia engages in distance selling to an Estonian party that is not a taxable person or a limited taxable person;
  • goods sold by a business operator in another Member State is installed or assembled in Estonia by the seller or it is assembled in Estonia for it;
    goods, including goods consumed or sold for being taken away aboard, are sold aboard a water craft or aircraft that departs on an international journey from Estonia;
  • natural gas or electricity is sold through grid to a reseller that is located in Estonia and that is a taxable person in Estonia;
  • natural gas or electricity transmitted through a grid is sold to the purchaser of the goods who uses the goods in Estonia.

Therefore, in the case of transactions where goods are not exported from Estonia, goods are not transported or the transport of goods located in Estonia is even physically impossible (in the case of an immovable located in Estonia), the place of supply is always Estonia. On the other hand, it is worth keeping in mind that if goods are not brought to Estonia at any point in time, it is not Estonian supply.

Transactions not considered supply of goods

There are a number of transactions in the case of which the right of ownership for goods does pass over yet which, exceptionally, are not considered supply. In the Value-Added Tax Act, there is a list, which includes the following transactions:

  • transfer of a company or a portion thereof for the purposes of the Law of Obligations Act;
  • dispatch of goods from Estonia by a party without their sale, except for the delivery of goods to another Member State for business there;
  • privatisation of the assets of the state, a rural municipality or a city;
  • transfer of assets to another company, non-profit association or foundation during the merger, division or transformation of companies, non-profit associations or foundations;
  • transaction among parties registered as a single taxable person;
  • turning over goods for free in the interests of business as a sample of goods not for sale or turning over goods whose taxable value does not exceed 10 euros for the purposes of advertising.

If something is turned over without receiving money or other goods or services in return, this type of transaction is not subject to value-added tax as a rule. At the same time, exchange of goods is supply and a transaction subject to value-added tax.

Export of goods

Exportation of goods from Estonia is considered export if Union goods are delivered to a destination outside the customs territory of the Union by the seller of the goods or the purchaser of the goods that is a party from a foreign state. Hence, the export of goods is considered to be dispatch of Union goods resulting in or followed by the sale of the goods, since under section 4 of the Value-Added Tax Act, supply is not considered to include the dispatch of goods from Estonia by the owner of the goods without the sale of the goods (except for the delivery of the goods to another Member State for one’s business there).

Therefore, the exportation of goods from Estonia is only considered export in the case of exportation out of the customs territory of the Union, that is, in event of delivery to a non-Community state. As a rule, the export of goods is considered to be the dispatch of goods from the territory of the Community, resulting in or followed by the sale of the goods.

Import of goods

Import of goods is the delivery of goods to Estonia from a non-Union state. In particular, the import of goods is the admission of goods with an non-Union status to free circulation. Goods may arrive in Estonia also not directly from a non-Union state but rather through another Member State; before its admission into free circulation, the goods have undergone some other customs procedure postponing import (e.g. transit). For the purposes of the Value-Added Tax Act, in addition to the referral of goods for a procedure for admission into free circulation, also the referral of goods for temporary admission with partial relief from import duties is treated as the import of goods. The import of goods is considered to include also the referral of goods undergoing a customs outward processing procedure for a procedure for admission into free circulation or other instances resulting in customs debt. For example, illegal delivery of goods to the customs territory of the Union or the illegal exportation of goods from the customs territory of the Union.
Intra-Community supply of goods
Taxation of trade in goods among companies, registered as persons liable to value-added tax, within the territory of the European Community is subject to the rules applicable in the country of location of the buyer. A seller registered as a taxable person in Estonia does not add value-added tax on goods delivered to a buyer registered as a taxable person (or also delivered by the buyer) in another Member State. Although supply is considered to have occurred in the country of origin of the sale of goods (taxed at a rate of 0%), taxation occurs in the country of destination for the goods, according to the value-added tax rates applicable in the country of destination for the goods. Apart from the sale of goods, it is also treated as intra-Community supply of goods if a taxable person delivers goods to another Member State for its business there.
Sale may be treated as intra-Community supply only if:

  1. the seller is certain that the buyer has registered as a taxable person in another Member State and the seller has indicated on the invoice both its taxable person registration number and the taxable person registration number assigned to the buyer in the other Member State.
  2. goods are taken from one Member State to another Member State
  3. the invoice refers to Article 138 of Directive 2006/112/EU or the relevant clause of subsection 15 (3) or (4) of the Value-Added Tax Act. A reference may be replaced also with some other clear and unambiguous notation (e.g. triangular transaction, sale of a new means of transport or the like).

When the sale of goods is treated as intra-Community supply, it is essential for both the seller and the buyer to be taxable persons in their Member States. In an exception to the above, the sale of excise goods or a new means of transport to a party from another Member State, that is, both a party registered as a person liable to value-added tax and a party not registered as one, together with its delivery from Estonia to the other Member State, except for the sale of excise goods to a natural person for their personal use, is treated as intra-Community supply of goods under clause 7 (1) 2) of the Value-Added Tax Act.
Intra-Community supply of goods occurring in Estonia is not considered to include the supply of goods not located in Estonia but rather located in another Member State at the time of their sale. In this case, the seller of the goods has to allow for the tax legislation of the Member State in which the goods are actually located and the seller has to know whether it is obliged to register as a taxable person in that other Member State where the goods are actually located at the time of sale (except for a triangular transaction).

Intra-Community purchase of goods

Intra-Community purchase of goods is (subsections 8 (1), (2) and (5) of the Value-Added Tax Act):

  • purchase of goods from a taxable person from another Member State with their delivery from the other Member State to Estonia or the purchase of a new means of transport from a party from another Member State with its delivery from the other Member State to Estonia;
  • delivery of goods used in business from another Member State to Estonia for own business occurring in Estonia;
    purchase of goods from a taxable person from another Member State if the taxable person uses its taxable person registration number in Estonia at the time of the purchase of the goods and the goods are delivered from the seller’s Member State to another Member State, except where the taxable person proves that:

    1. value-added tax on the intra-Community purchase of goods is paid in the Member State to which the goods have been delivered, or
    2. it was a reseller in a triangular transaction.
  • Generally, an intra-Community purchase of goods is taxed in the Member State to which the buyer has delivered the goods. Where goods have been purchased for business, the taxable person is entitled to declare any value-added tax payable on the goods purchased as deductible input value-added tax.

Triangular transaction

A triangular transaction is a transaction for the sale of goods between business operators in three Member States, all of whom are registered as taxable persons in their states. A triangular transaction is a transaction where goods are sold via two consecutive sale transactions, and all three parties are located in different Member States. According to the sale transaction, a taxable person from the first Member State A (seller in a triangular transaction) sells goods to a taxable person from the second Member State B (reseller in a triangular transaction), and from B the goods move on to the third Member State C (purchaser in a triangular transaction), with the goods delivered from the first Member State (A) to the third Member State (C).
Under the special rule, a buyer B who has no place of residence or permanent establishment in the country of destination for the goods (C) does not have to register as a taxable person in the event of a triangular transaction in the country of destination (C). The simplified scheme is applied such that the second buyer (C) has to pay value-added tax on the sale of goods of the first buyer (B) if the second buyer (C) is registered as a business operator and a person liable to value-added tax in the country where the transport of the goods ends, that is, in a Member State (C). Purchase of goods by the first buyer (B) via a triangular transaction is not supply provided that it has included on the invoice a comment about a sale via a triangular transaction as well as the number of a person liable to value-added tax for itself and for the buyer (C).

Obligations related placing packaging on the market

Excise duty on packaging is imposed on all packaging brought to the Estonian market, acquired in another Member State of the European Union or imported.

Undertakings, who place packaging on the market, shall keep records on packaging and packaging waste. Undertakings shall collect and recover the packaging of packaged goods placed on the market and the packaging waste resulting therefrom in such a way that the recovery targets provided in Packaging Act (§ 36) are complied with.
Placing of packaged goods on the market means making the goods packaged in Estonia or imported packaged goods available for distribution or use in Estonia for the first time. If goods are re-packaged, the making of re-packaged goods available in Estonia for the first time is also considered as placing of packaged goods on the market.
If packaging target recovery indicators are unfulfilled, an excise duty return must be filed with the Tax and Customs Board by the fifteenth day of the month following the period of taxation.

Taxation of services

Definition of a service

Under the Value-Added Tax Act, goods are either immovables or movables, animals, gas or electricity, heat or cooling energy. Provision of services is any other transaction that is not the sale of goods during the course of business.

Under clause 2 (3) 3) of the Value-Added Tax Act, a service is the provision, in the course of business activities, of a benefit or refraining from economic activity, giving up the exercise of a right or tolerating a situation in return for a right (including for the sale of securities that are not goods) or a fee. A service is also an electronically provided software or information and a data medium with custom-made or adapted software or information based on an order from a buyer.

For example, customer service, construction, rental of goods, patents, an obligation to do something, an obligation to omit to do something and the intermediation of goods on behalf of or on the account of another should be treated as a service. Generally, packaging of goods is treated as a service also when the service provider itself makes the necessary packaging. Rental of goods is the sale of a service. If under the contract the lessee becomes the owner of the rented object at the end of the rental period, this constitutes the sale of goods.

Place of supply of a service

Under the basic rule, the place of supply of a service is defined based on who is the recipient of the service. If the recipient of a service is a taxable person in Estonia or another Member State or a party from a non-Community state engaged in business, supply arises in the state of the recipient of the service. This is the so-called B2B (business to business) basic rule. If a service is provided for a private individual or another party not liable to value-added tax, the place of supply of service is determined based on the location of the service provider. This is an applicable basic rule in the case of so-called B2C (business to consumer).

If a service provider has been registered as a person liable to value-added tax in Estonia and provides a service under the number of an Estonian person liable to value-added tax, the place of supply in relation to these services is defined according to the Estonian Value-Added Tax Act.

In this respect, it should be emphasised that the place of supply of service is determined based on the basic rule only when there apply no special rules provided for in subsections 10 (2) and (4) of the Value-Added Tax Act.

Services for the provision of which the place of supply is Estonia and which are taxed in Estonia

The place of supply for a service is Estonia if the service is provided for a taxable person or limited taxable person registered in Estonia or if the service is provided through a location or permanent establishment in Estonia for a party that is not a party registered as a taxable person or limited taxable person in any of the Member States or a party from a non-Community state engaged in business.

Subsection 10 (2) of the Value-Added Tax Act sets out a list of when the place of supply for a service is Estonia:

  1. a service is connected to an immovable property located in Estonia, including construction, appraisal or maintenance or a service or accommodation service provided for the sale of an immovable property or for the preparation or organisation of its construction;
  2. in Estonia, there is provided a cultural, art, sport, education, research or entertainment service or a service related to a fair or exhibition for a party that is not a party registered as a taxable person or limited taxable person in any of the Member States or a party from a non-Community state engaged in business. A service is considered to include also the organisation of a relevant event and the provision of an ancillary service;
    1. in Estonia, there is provided a service of access to a cultural, art, sport, education, research or entertainment event or fair or an ancillary service related to the access service for a taxable person or a limited taxable person from another Member State or a party from a non-Community state engaged in business;
  3. in Estonia, a the carriage of passengers service, including the carriage of passengers’ personal luggage or personal means of transport, is provided;
  4. restaurant or catering services are provided in Estonia, except in the instances specified in clause 10 (2) 5) and 10 (4) 5);
  5. during the carriage of passengers within the territory of the Community, a restaurant or catering service is provided aboard a water craft or aircraft that departs on an international journey from Estonia;
  6. the means of transport is briefly chartered out, rented out or subjected to usufruct in Estonia;
    1. a means of transport is chartered out, rented out or subjected to usufruct for a party which is not a party registered as a taxable person or limited taxable person in any of the Member States or a party from a non-Community state engaged in business and whose location or place of residence is in Estonia, except in the instances provided for in clauses 10 (2) 6) and 62) and in clause 10 (4) 41) of the Value-Added Tax Act;(Under the above clause, where a means of transport is chartered out, rented out or subjected to usufruct, the place of supply of service for the above party is the place of location or residence of the recipient of the service. If the location or place of residence of the above recipient of a service is in Estonia, the place of supply of service is also in Estonia.)
    2. a pleasure or recreational craft is chartered out, rented out or subjected to usufruct in Estonia for a party that is not a party registered as a taxable person or limited taxable person in any of the Member States or a party from a non-Community state engaged in business, and the location or permanent establishment of the service provider is in Estonia, except in the instances provided for in clause 10 (2) 6);(An exception is the provision of the service of the long-term rental of pleasure and recreational craft, where the place of supply is the service provider’s location or permanent establishment if the craft is actually placed at the disposal of the lessee from this location or permanent establishment. Accordingly, the place of supply of the service is Estonia if pleasure or recreational craft is chartered out, rented out or subjected to usufruct for the above party long-term in Estonia, and the service provider’s location or permanent establishment is Estonia.)
  7. work is done on a movable property located in Estonia or a movable property located in Estonia is appraised, and a service is provided for a party that is not a party registered as a taxable person or limited taxable person in any of the Member States or a party from a non-Community state engaged in business;
  8. in Estonia, there is provided a service of the carriage of goods, including the carriage of a means of transport related to the carriage of goods, or there is organised such carriage of goods for a party that is not a party registered as a taxable person or limited taxable person in any of the Member States or a party from a non-Community state engaged in business.
  9. there is provided a service of the carriage of goods from Estonia to another Member State, including the carriage of a means of transport related to the carriage of goods, or there is organised such carriage of goods for a party that is not a party registered as a taxable person or limited taxable person in any of the Member States or a party from a non-Community state engaged in business;(Under the provisions in clause 10 (2) 9) of the Value-Added Tax Act, the place of supply is Estonia if a service of carriage from Estonia to another Member State is provided, and under the provisions in clause 10 (4) 6) of the Value-Added Tax Act, the place of supply is not Estonia if a service of the carriage of goods from another Member State to Estonia or outside Estonia is provided. If the recipient of service is a party that is not a party registered as a taxable person or limited taxable person in any of the Member States or a party from a non-Community state engaged in business, the place of supply is the country where carriage commences.)
  10. if an ancillary service connected to the carriage of goods is provided in Estonia for a party that is not a party registered as a taxable person or limited taxable person in any of the Member States or a party from a non-Community state engaged in business;
  11. there is intermediated a service or another operation whose place of supply is Estonia or a brokerage service is provided for a party that is not a party registered as a taxable person or limited taxable person in any of the Member States or a party from a non-Community state engaged in business.PLEASE NOTE: In the case of the services specified in clauses 2 and 7 to 11 of the list, the place of supply is Estonia:
  • if a service is provided in Estonia for a party not registered as a taxable person or limited taxable person in any of the Member States and is not a party from a non-Community state engaged in business;
  • if a service is provided in Estonia for a party registered as a person liable to value-added tax or a limited person liable to value-added tax (in accordance with the provisions in subsection 10 (1) of the Value-Added Tax Act).

A taxable person in Estonia that provides the above services in Estonia is obliged to also pay and declare tax in Estonia. If a service provider is a party from a foreign state with no permanent establishment in Estonia, taxable supply arises when a service is provided in Estonia, and if it is not taxed by a taxable person or limited taxable person when receiving the service, the party from a foreign state has to register as a taxable person from the day when taxable supply arises (subsection 19 (3) of the Value-Added Tax Act).

12. an electronic communications service for the purposes of the Electronic Communications Act or an electronically provided service is provided for a party with a location or place of residence in Estonia not registered as a taxable person or limited taxable person in any of the Member States.

Services for the provision of which the place of supply is not Estonia

In subsection 10 (4) of the Value-Added Tax Act, there is a list of services in the case of which the place of supply is not Estonia, and their provision by a taxable person in Estonia may result in the obligation to register in the country of the provision of the service.

The place of supply is not Estonia if:

  1. there is provided a service connected to an immovable property located in a foreign state, including construction, appraisal or maintenance or a service or accommodation service provided for the sale of an immovable property or for the preparation or organisation of its construction;
  2. in a foreign state, there is provided a cultural, art, sport, education, research or entertainment service or a service related to a fair or exhibition for a party that is not a party registered as a taxable person or limited taxable person in any of the Member States or a party from a non-Community state engaged in business. A service is considered to include also the organisation of a relevant event and the provision of an ancillary service.
    1. in a foreign state, there is provided a service of access to a cultural, art, sport, education, research or entertainment event or fair or an ancillary service related to the access service for a taxable person or limited taxable person or a party from a non-Community state engaged in business.
  3. work is done on a movable property located in a foreign state or a movable property located in a foreign state is appraised, and the services specified in this clause are provided for a party that is not a party registered as a taxable person or limited taxable person in any of the Member States or a party from a non-Community state engaged in business;
  4. outside Estonia, a the carriage of passengers service, including the carriage of passengers’ personal luggage or personal means of transport, is provided;
    1. the means of transport is briefly chartered out, rented out or subjected to usufruct in a foreign state;
    2. a means of transport is chartered out, rented out or subjected to usufruct for a party which is not a party registered as a taxable person or limited taxable person in any of the Member States or a party from a non-Community state engaged in business and whose location or place of residence is in a foreign state, except in the instances provided for in clauses 10 (4) 41) and 43) and in clause 10 (2) 6);(Under the above clause, where a means of transport is chartered out, rented out or subjected to usufruct, the place of supply of service for the above party is the place of location or residence of the recipient of the service. Hence, if the location or place of residence of the recipient of a service is in a foreign state, the place of supply of service is also in that foreign state.
    3. a pleasure or recreational craft is chartered out, rented out or subjected to usufruct in a foreign state for a party that is not a party registered as a taxable person or limited taxable person in any of the Member States or a party from a non-Community state engaged in business, and the location or permanent establishment of the service provider is in a foreign state, except in the instances provided for in clause 10 (4) 41);(An exception is the provision of the service of the long-term rental of pleasure and recreational craft, where the place of supply is the service provider’s location or permanent establishment if the craft is actually placed at the disposal of the lessee from this location or permanent establishment. Accordingly, if pleasure or recreational craft is chartered out, rented out or subjected to usufruct for the above party long-term in a foreign state and the lessor’s location or permanent establishment is in a foreign state, also the place of supply of service is in that foreign state.)
  5. during the carriage of passengers within the territory of the Community, a restaurant or catering service is provided aboard a water craft or aircraft that departs on an international journey from another Member State;
    1. a restaurant or catering service is provided in a foreign state, except where during the carriage of passengers within the territory of the Community, a restaurant or catering service is provided aboard a water craft or aircraft that has departed on an international journey from Estonia or another Member State;
  6. there is provided a service of the carriage of goods from another Member State to Estonia or outside Estonia, including the carriage of a means of transport related to the carriage of goods, or there is organised such carriage of goods for a party that is not a party registered as a taxable person or limited taxable person in any of the Member States or a party from a non-Community state engaged in business;
  7. if an ancillary service connected to the carriage of goods is provided outside Estonia for a party that is not a party registered as a taxable person or limited taxable person in any of the Member States or a party from a non-Community state engaged in business;
  8. there is intermediated a service or operation whose place of supply is not Estonia or a brokerage service is provided for a party that is not a party registered as a taxable person or limited taxable person in any of the Member States or a party from a non-Community state engaged in business.

PLEASE NOTE: In the case of the services specified in clauses 2, 3 and 6 to 8 of the list, the place of supply is not Estonia:

  • if a service is provided for a party that is not a party registered as a taxable person or limited taxable person in any of the Member States or a party from a non-Community state engaged in business;
  • if a service is provided for a party registered as a person liable to value-added tax or limited person liable to value-added tax in another Member State (under the provisions in subsection 10 (1) of the Value-Added Tax Act), i.e. the place of supply is a country where the recipient of the service has registered as a taxable person.

9. The place of supply for a service is not Estonia if, through a location or permanent establishment in Estonia, in instances not specified in clauses 1 to 8 or in subclause 10 (2) a service is provided a party registered as a taxable person or limited taxable person in another Member State or a party from a non-Community state engaged in business.

Accordingly, the place of supply is not Estonia, and a service is taxed in the state of location of the recipient of the service if:

  1. work is done on a movable property located in Estonia or a movable property located in Estonia is appraised, and a service is provided for a taxable person or a limited taxable person from another Member State or a party from a non-Community state engaged in business;
  2. in Estonia, the service of the carriage of goods, including the carriage of a means of transport related to the carriage of goods, is provided, or such carriage of goods is organised, and the service is provided for a taxable person or a limited taxable person from another Member State or a party from a non-Community state engaged in business;
  3. the service of the carriage of goods from Estonia to another Member State, including the carriage of a means of transport related to the carriage of goods, is provided, or such carriage of goods is organised for a taxable person or a limited taxable person from another Member State or a party from a non-Community state engaged in business;
  4. an ancillary service connected to the carriage of goods is provided in Estonia for a taxable person or a limited taxable person from another Member State or a party from a non-Community state engaged in business;
  5. there is intermediated a transaction or other operation whose place of supply is Estonia, and the brokerage service is provided for a taxable person or limited taxable person from another Member State or a party from a non-Community state engaged in business.

The service provider in Estonia taxes the supply at a tax rate of 0 per cent.

10. an electronic communications service or an electronically provided service is provided for a party with a location or place of residence in another Member State not registered as a taxable person or limited taxable person in any of the Member States.

Time of supply

Time of supply under the general rule

Supply has arisen (except for intra-Community supply or an intra-Community purchase of goods) or a service has been received on the date when any of the actions below was completed first (subsection 11 (1) of the Value-Added Tax Act):

  1. shipping or making goods available to a buyer or providing a service;
  2. receipt of a partial or full payment for goods or services, partial or full payment a service is received;
  3. in the case of use for self-consumption, the sale of goods or the provision of a service or the taking of the goods of a company into use by the taxable person itself, its employee, public servant or a member of its management or control body or for some other purpose unrelated to business.

Therefore, time of supply is not defined based on the issuing of an invoice. This, however, does not mean that the issuing of an invoice may in fact be omitted. For the buyer, an invoice remains relevant for the deduction of input value-added tax.

Under the above general rule, the time of supply is determined for the following transactions:

  1. national sale of goods and provision of services
  2. provision of services for a party in a foreign state or the receipt of services from a party in a foreign state
  3. export of goods

Based on a general rule, the time of supply is defined also in the conditions of a financial leasing contract or when goods or services are sold. Hence, an obligation to impose value-added tax under financial leasing contracts is created on the sale price of goods at the time of the delivery of the goods not on periodic payments.

Where under subsection 11 (1) supply arises is when goods or services are paid for, supply has arisen to the extent of the portion paid. The receipt of targeted support for the sale of goods or services at a price below their normal value is not treated as the receipt of payment for the goods or services.

Value-added tax is calculated on the amount received, with the value-added tax amount in the case of a transaction taxed at a 20% value-added tax rate established by dividing the amount received by 1.20 and by multiplying the product obtained by 0.20. In the case of a transaction taxed at a 9% value-added tax rate, the amount received is divided by 1.09 and the product obtained is multiplied by 0.09.

Supply overall is considered to have arisen on the date when goods are shipped or made available or a service is provided to the buyer. In this case, the amount established as the difference between the value-added tax amount calculated on the taxable value of the goods or service and the value-added tax amount calculated upon receipt of funds is declared as value-added tax.

Timing of the provision and receipt of long-term and regular services

A service whose provision lasts longer than the period of taxation is considered to have been provided and received during the period of taxation when the provision of the service ends. The time of the provision of a service provided regularly (for example, operational leasing) is determined based on the period for which an invoice is presented or concerning which payment has been agreed. A service is considered to have been provided in the last month of the period stated on an invoice or an agreed payment period. This means that if an invoice is presented for a quarter, the service is considered to have been provided in the last month of the quarter.

The same principles apply also to the regular sale of goods – goods are considered to have been sold during the period for which an invoice is presented or concerning which payment has been agreed.

The same principles are applied also to the taxation of the receipt of long-term and regular services with a reverse charge, since the receipt of a service is taxed with a reverse charge at the same time that supply arises for the service provider.

Intra-Community supply of goods and time of purchase thereof

Both the intra-Community supply and purchase of goods are considered to have arisen on the 15th day of the month following the shipment of the goods or their being made available or on the date of the issuing of an invoice if it predates the above 15th day.

It is also important to note that in the case of intra-Community supply of goods, supply is not created by payment. Therefore, whereas supply is also created by prepayment in the case of national supply, supply arises only once goods have been actually shipped or an invoice has been issued in the case of intra-Community supply.

Exceptional provisions in the case of new taxable persons

If a party registers as a taxable person and effects transactions also before its registration as a taxable person, as a rule it incurs tax liability from registration and has no tax liability with respect to any supply that arises before its registration. From the above principles, there should be distinguished the definition of the time of supply in the case of parties registered as taxable persons during the occurrence of a transaction initiated before their registration as taxable persons.

Thus, if prepayment is made before registration and goods are shipped or a service is provided on the date on which it had been registered as a taxable person already, the taxable person nevertheless incurs the liability to pay value-added tax. If, however, goods have been shipped or a service has been provided before registration, no taxable supply arises even if payment occurs after registration as a taxable person.

Tax-exempt supply

Section 16 of the Value-Added Tax Act sets out the goods and services whose supply is tax-exempt. The treatment of a transaction as tax-exempt supply means that no value-added tax is added to the price of the goods or services and that the taxable person is not entitled to deduct the input value-added tax linked to tax-exempt supply. Therefore, the cost of the transaction treated as tax-exempt supply also includes concealed undeducted input value-added tax. A party whose entire supply is tax-exempt does not have to register has a taxable person and is also not required to file a value-added tax return or perform any other obligations of a taxable person. A party which is registered as a taxable person and whose supply is (partially) tax-exempt has to declare its tax-exempt supply also on a value-added tax return.

Tax accounting related to vehicles

Creation of a fringe benefit on an employer’s vehicles (except for passenger cars)

Under subsection 48 (4) of the Income Tax Act, a fringe benefit is considered to include any kind of goods, services, remuneration in kind or monetarily appraisable benefits provided for employees in connection with working for an employer. Among other things, making a vehicle available for use for free or at preferential price is also a fringe benefit.

The purpose of the taxation of a fringe benefit is to tax equally benefits provided for an employee both monetarily and non-monetarily. It is important to note that it is the employee’s financial income, not the employer’s cost, that is taxed as a fringe benefit. Accordingly, it may sometimes happen that an employer has not actually incurred a (direct) cost, yet a fringe benefit has been provided and tax liability has been incurred.

An employer’s vehicle is considered to be a vehicle in the employer’s possession – be it owned by the employer, purchased under a leasing contract, rented, used (for free) under a usufruct contract or the like. Also important is the fact that when a vehicle is placed the disposal of an employee, it is owned by or in the possession of the employer.

Since the Income Tax Act does not address separately what is treated as a vehicle, the conceptualisation of the definition of a vehicle is based on legislation where the definition is set out. Under the Traffic Act, a vehicle is a means of transport which is intended to be driven on a road or which is driven on a road, and which is power-driven or propelled in some other manner. Thus, the specific type/category of a vehicle is not relevant to the creation of a fringe benefit. Whether it is a passenger car, lorry, bus, ATV, motorcycle, tractor etc. – if the employer permits a vehicle owned by it or in its possession to be used by its employee for free or at a preferential price for the employee’s private trips, a fringe benefit and also tax liability arise.

Furthermore, making an employer’s assets that are not a vehicle for the purposes of the Traffic Act (e.g. boats, launches etc.) available for an employee’s personal use for free or at a preferential price may create a fringe benefit. In the event of the use of these assets, the fringe benefit is calculated the same way as in the case of the use of vehicles.

Where a vehicle (except for a passenger car) owned by or in the possession of an employer is made available for use for free or at a preferential price for activities not connected to work, official or service duties or the employer’s business, the fringe benefit price is considered to be the market price of the rental of the assets or the difference between the market price and the preferential price of rental. The market price is the price used by independent parties in reciprocal transactions on similar conditions, for example, in the case of vehicles, the price and the conditions on which vehicles are rented to their customers by companies engaged in the rental of vehicles. The price of the entire fringe benefit is taxed.

The regulation of the Minister of Finance does not specify how an employer should document making or not making vehicles owned by it available for its employees for personal trips. This is subject to general documentation requirements, that is, an employer has to be able to prove with sufficient documents whether and how trips completed with the vehicle are/were linked to its business or not. If there are enough documents to make sure that all the trips completed with the vehicle were related to business and no personal trips of employees were undertaken (for free or at a preferential price), no tax liability arises.

An employer owns a category N1 van used by its employee to also for personal trips. Since, however, the employer does not charge the employee for these trips, the employee has received a fringe benefit – an opportunity to use a car for free. For the calculation of the fringe benefit price and tax liability, the employer selected the market price of renting out the van. For example, if the rental conditions and price of such a van in the case of long-term rental at vehicle rental companies is 32 euros per day regardless of actual mileage, the employer can calculate the fringe benefit price based on this. If the employee used the van for a whole month, that is, 30 days, the fringe benefit prices works out to be 32 × 30 = 960 euros. Income tax liability works out to be 960 × 20/80 = 240 euros, and social tax liability comes to 960 + 240 × 33% = 396 euros. Hence, in the event of such a van being made available for an employee’s use for a month, the employer has to allow for an income tax and social tax liability of 636 euros.

Of course, the rental conditions and prices of rental companies are not always identical, and the market price has to be ascertained in particular on the basis of those conditions that are similar to the employer’s own.

Procedure for the taxation of an employer’s passenger car fringe benefit

From 1 January 2018, a fringe benefit applies to the provision of an employer’s passenger car for private trips. This means that the use of an employer’s passenger car for private trips is not irrelevant any more but rather making the passenger car available for use. Furthermore, reimbursement of private trips during the use of an employer’s passenger car is no longer relevant, since it does not alter the taxation of a fringe benefit.

In the case of an employers passenger cars (category M1 and M1G vehicles), the legislator has set special rules for the deduction of tax liability. The reason is the fact that the provision of an employer’s passenger car for an employee’s use is very common and that the calculation of tax liability under the general rules for making assets available for use would be too burdensome for the taxpayer.

From 1 January 2018, a new passenger car has a fringe benefit price of 1.96 euros per kW per month and a passenger car over 5 five years old 1.47 euros per kW per month. The engine power (kW) of a passenger car may be looked up in the Traffic Register of the Road Administration or the registration certificate (technical passport) of the passenger car.

Furthermore, the fringe benefit price may be calculated on kilowatt basis in the case of a van (category N1 vehicle) made by an employer available for private trips.

From 1 January 2018, private trips can be no longer reimbursed based on a calculation. As a result, keeping a travel log is not necessary either. However, if an employer wants to prove the use of a passenger car in business and for business trips only, a travel log may be kept (e.g. an electronic GPS travel log or the like). If it has been proven that the employer makes the passenger car available for business trips only, no fringe benefit is created.

Since the taxation of a fringe benefit does not depend on the use of a passenger car for private trips any more, and private trips can no longer be reimbursed based on records, if an employer rents a passenger car to its employee at a preferential or market price, tax liability for the fringe benefit still arises on the basis of a kilowatt-based calculation.

If the employer’s passenger car cannot be used for private trips, the employer has to notify the Road Administration thereof. In this case, fringe benefit tax also does not have to be paid.

Where a company rents a passenger car to another company, a notation has to be entered into the Traffic Register of the Road Administration. The lessor cannot assure that the lessee completes only business trips with the car. If a lessee enables its employees to use a passenger car also for private trips, the lessee has to declare and pay taxes on a passenger car fringe benefit regardless of the notation in the Traffic Register of the Road Administration.

The Road Administration has to be notified about the provision of category M1 vehicles, i.e. passenger cars, solely for business trips. The Road Administration does not have to be notified about the use of a category N1 vehicle (van).

Calculation and declaration of fringe benefit tax liability

From 1 January 2018, the fringe benefit price became lower for cars with lower engine power (up to 130 kW) and higher for cars with higher engine power (over 130 kW). In the case of a new car, fringe benefit tax liability works out to be 1.30 euros per kW per month (income tax and social tax on 1.96 euros, income tax liability of 1.96 × 20/80 = 0.49 euros and a social tax liability of (1.96 + 0.49) × 33% = 0.81 euros, thus a total tax liability of 0.49 + 0.81 = 1.30 euros), and in the case of a car over 5 years old, it works out to be 0.97 euros per kW per month (income tax and social tax on 1.47 euros).

The cost of a fringe benefit is calculated based on the power of a passenger car (1.96 euros per kW, or, if a passenger car is older than 5 years, 1.47 euros per kW). Accordingly, in the case of a new 190 kW power passenger car the fringe benefit price is 1.96 × 190 = 372.40 euros, and the tax liability calculated on it is 246.72 euros (income tax liability 372.40 × 20/80 = 93.10 euros and social tax (372.40 + 93.10) × 33% = 153.62 euros, thus a total tax liability of 93.10 + 153.62 = 246.72 euros). In the case of a new passenger car with 90 kW power, the fringe benefit price is 1.96 × 90 = 176.40 euros, and the tax liability calculated on it is 116.87 euros (income tax and social tax).

There is no change in the declaration of a fringe benefit, and an employer’s passenger car fringe benefit is declared in Annex 4 to the TSD tax return form on the 10th day of each following month. Usually, fringe benefit tax liability is paid based on TSD.

Value-added tax accounting related to passenger cars

From 1 December 2014, a new procedure applies to a passenger car and to any goods or services bought for it. Under the new procedure, instead of the taxation of passenger cars for self-consumption, the deduction of value-added tax paid on the purchase (including rental or leasing) of a passenger car or of goods or services for it is being limited. The general limit on input value-added tax deduction is 50%. Thus, when a passenger car used in business is purchased or used under a contract for use and goods or services are received for this passenger car, generally 50% input value-added tax is deducted from the value-added tax calculated. Effectively, the proportion of the use of a passenger car in business is considered 50%.

The limit on input value-added tax deduction applies to a category M1 (including M1G) vehicle whose gross vehicle weight does not exceed 3500 kilograms and which does not have more than eight seats in addition to the driver’s seat.

If a taxable person also has a tax-exempt supply or activity not considered business, these facts also have to be considered when input value-added tax is deducted.

Costs related to a passenger car are, for example, fuel, spare parts, maintenance, repairs, parking fees or costs (ferry tickets) incurred for the transport of a passenger car. The costs of the placement of advertising on a vehicle are not treated as the costs of a passenger car. These costs are not connected to the use of the vehicle but rather to advertising. Furthermore, the purchase or rental of a trailer is not treated as the cost of a passenger car.

If a passenger car bought for a company is used for making private trips in addition to business trips, a procedure applies whereby if a passenger car used in business is bought or used under a contract for use or if goods or services are received for it, 50% (or less if, for example, a portion of the company’s supply is tax-exempt) of input value-added tax is deducted from value-added tax.

Thus, regardless of the extent to which a vehicle used in business is being used in private consumption, input value-added tax may be deducted to the extent of 50%.

The costs of transport of employees between their places of residence and places of work are not treated as the use of a passenger car for private purposes if by public transport the journey cannot be completed in a reasonable time or at reasonable cost or if a disabled employee is unable to use public transport or if the use public transport causes a significant decline in their mobility or work ability.

Examples of the deduction of input value-added tax:

Example:

A passenger car is used in both business and private consumption. This passenger car is being used 60% for the purposes of taxable supply and 40% for the purposes of tax-exempt supply. Fuel was bought for 50 euros + value-added tax of 10 euros. There may be deducted 3 euros in input value-added tax (10 × 0.5 × 0.6).

Example:

A passenger car is used exclusively for business. This passenger car is being used 60% for the purposes of taxable supply and 40% for the purposes of tax-exempt supply. Fuel was bought for 50 euros + value-added tax of 10 euros. There may be deducted 6 euros in input value-added tax (10 × 0.6).

Subsection 30 (4) of the Value-Added Tax Act sets out the exceptions where there is no limit on the deduction of value-added tax paid on a passenger car or on the receipt of any goods or services for it.

The exception is applied if:

  • A passenger car is purchased for sale or for being rented out.
    It is important for passenger cars purchased for being sold or rented out not to be taken into own use.
    Where a passenger car acquired for sale is taken into use for some other purpose, any input value-added tax deducted at the time of its purchase should be adjusted. Adjustment has to be done during the taxable period when the taxable person takes the passenger car purchased for sale into use for their own purposes. If a taxable person engages in making vehicles available for use, and a passenger car purchased for sale is, for example, rented out, the two-year period begins to be counted from when the passenger car is rented out.
  • A passenger car is used mainly for passenger transport or driver training for a fee.
    A taxable person is entitled to deduct input value-added tax on a vehicle used for business or on goods or services purchased for it in full also if the passenger car is used mainly for the for-fee carriage of passengers provided that the taxable person has a Community licence or a certified true copy of the Community licence. For a taxi service, a taxi licence and a licence card.
    Private consumption is taxed as use for self-consumption according to subsection 2 (71) of the Value-Added Tax Act. Under subsection 12 (71) of the Value-Added Tax Act, in the case of the use of these passenger cars the taxable value of self-consumption is the fringe benefit price calculated based on the Income tax Act divided by 1.2.

Hence, the provision of one’s employee with a passenger car used mainly for the provision of a for-fee passenger transport service or with a driver training car is taxed. Unlike other passenger cars, in the case of these vehicles input value-added tax may be deducted 100% also when a car is being used in private consumption. It is important for the vehicle to meet the conditions in clauses 30 (4) 3) or 4) of the Value-Added Tax Act.

The taxable value of self-consumption created by the use for private trips of a passenger car used mainly for the carriage of passengers or driver training or of a category N1 lorry (van) with a total effective vehicle mass of up to 3500 kilograms, inclusive of value-added tax, is the fringe benefit price calculated under the Income Tax Act. Under the Value-Added Tax Act, self-consumption cannot actually be created by the use of other passenger cars for private trips.

  • A passenger car is used exclusively for business.
    The exception is only applied if a passenger car is directly needed for business, and this passenger car is used for business exclusively.

A taxable person that applies the above exceptions and has deducted input value-added tax on the passenger car and related costs in full has to ensure that the use of the relevant passenger car for trips not related to business is prevented; it may continue to keep records as to the use of the passenger car. The manner in which records are kept is decided by the business operator itself – the objective is to ensure the use of the business operator’s passenger car solely for the purposes of business. For example, among other things a business operator may keep detailed records, that is, a travel log, or use a GPS service provided by a third party. Generally, a passenger car used exclusively in business should be parked in the location of the company outside business hours. Hence, the company decides how the passenger care is going to be used and then how this use is going to be assured and how the use of the passenger car may be checked by both its management and the tax authority.

If a passenger car used for business is in private consumption, the use of such a passenger car is not considered use for business exclusively, regardless of whether the employee indemnifies the costs related to the use of the passenger car or not. This scheme applies also to a company whose industry is making cars available for use and which provide their employees with cars for their use for a fee. In order to avoid double taxation, the private consumption of a passenger car is not taxed as self-consumption, and the provision of a passenger car, for a fee, for the use of a taxable person’s employee, a public servant or a member of a management or control body is not considered supply. The use of a company car for personal trips is taxed by fringe benefit based on the power of the vehicle.

Declaration of passenger cars on value-added tax returns

Subsection 30 (6) of the Value-Added Tax Act provides for the obligation of a taxable person to notify the tax authority about the use of the passenger cars of the company on the value-added tax return form (cells 5.3 and 5.4 on the KMD form of the value-added tax return).

In cell 5.3, there is indicated the number of passenger cars meeting the conditions set out in clauses 30 (4) 3) to 5) of the Value-Added Tax Act, that is, the number of passenger cars used exclusively for business or mainly for the for-fee carriage of passengers or driver training. Any value-added tax deducted at the time of the purchase of such a passenger car or when goods or services are received for such a passenger car should be also specified separately. Generally, there is entitlement to deduct input value-added tax 100%. If a taxable person also has tax-exempt supply in addition to taxable supply, calculation of input value-added tax has to take into account the proportion of the taxable supply in the entire supply.

The number of passenger cars used both within and outside business is indicated in cell 5.4. This means that there are indicated the number of vehicles not meeting the conditions set out in subsection 30 (4) of the Value-Added Tax Act and the input value-added tax amount calculated on costs related to such a passenger car. Generally, there is entitlement to deduct 50% of input value-added tax in connection with passenger cars used both within and outside business. Exceptionally, the deductible portion may be also less than 50%. This in the event that business accounts for a share less than 50% of the overall activities of a party (e.g. non-profit associations). If a taxable person also has tax-exempt supply in addition to taxable supply, the portion of deductible input value-added tax is reduced according to the proportions of taxable and tax-exempt supply.

In the relevant cell, there should be declared also passenger cars not used in that taxable period, for example when a passenger car was being repaired. A passenger car has to be declared in the cell that corresponds to the purpose of the use of the passenger car. Where a passenger car is effectively used in both business and private consumption, the information related to this passenger car is indicated in cell 5.4.

In cells 5.3 and 5.4, passenger cars are not declared if they have been purchased for sale or for being made available for use under contracts for use unless the passenger cars are taken into use.

Recalculation of input value-added tax deducted in full at the time of the purchase of a passenger car

If, at the time of its purchase, a passenger car was considered as being used only in business, and input value-added tax was deducted on its purchase price in full, yet during two years since its purchase, or since a passenger car acquired for sale has been taken into use in own business, it begins to be used also for personal trips, then:

if a passenger car is acquired in 2018 or later, the input value-added tax deducted at the time of the purchase of the passenger car has to be reduced on the value-added tax return for the month of the purchase;

if a passenger car has been acquired before 2018, the input value-added tax deducted at the time of the purchase of the passenger car has to be reduced on the value-added tax return for January 2018.

When input value-added tax deducted at the time of the purchase is adjusted, such a passenger car is considered to be used in business in part during the entire two years of its use regardless of the actual proportion of its use in business in individual months during the first two years.

If the intended use of a passenger car used solely in business changes, and the passenger car begins to be used also for a purpose other than business, this passenger car is subject to a 50% limit on the deduction of input value-added tax on such a passenger car. The limit has to be adhered to for at least one year (12 months) from the beginning of the taxable period of the modification of the intended use of a passenger car regardless of whether the vehicle been used during all these months in part in private consumption or during some months also exclusively for business.

For example, if a party has initially provided notification that it is using a vehicle for business only, and, for example, in June 2017 it takes this passenger car into use also for private purposes, it can deduct input value-added tax on costs related to the passenger car to the extent of 50% until May 2018 (inclusive) irrespective of whether it is using the passenger car for business only or not. The annual limit on the deduction of input value-added tax also applies regardless of what notation is made in the vehicle database in the Traffic Register.

Input value-added tax on running costs is not reduced retroactively, and the so-called two-year rule is not applied to running costs.

Example:

A passenger car is acquired in December 2017 without value-added tax at the price of 20 000 euros, and 100% of input value-added tax (4000 euros) is deducted at the time of the purchase. In July 2018, also private trips begin to be made with the passenger car – thus, the requirement to use the passenger car in business exclusively for at least two years has not been met.

Since the amendment to the Value-Added Tax Act entered into force on 1 January 2018, input value-added tax is recalculated on the January 2018 value-added tax return, by reducing the deductible input value-added tax declared in cells 5, 5.2 (if stated as fixed assets) and 5.3 by 2000 euros (50% of 4000 is 2000).

Since input value-added tax on running costs is not recalculated retroactively, the passenger car and the input value-added tax on the costs related to it, including input value-added tax deducted at the time of its purchase (regardless of any adjustment) remain in cell 5.3. of the value-added tax return until June 2018.

Example:

A passenger car is acquired in December 2018 without value-added tax at the price of 20 000 euros, and 100% of input value-added tax (4000 euros) is deducted at the time of the purchase. In June 2019, also private trips begin to be made with the passenger car – thus, the requirement to use the passenger car in business exclusively for at least two years has not been met.

Input value-added tax has to be recalculated on the December 2018 value-added tax return, by reducing the deductible input value-added tax declared in cells 5, 5.2 (if stated as fixed assets) and 5.3 by 2000 euros (50% of 4000 is 2000).

Since input value-added tax on running costs is not recalculated retroactively, the passenger car and the input value-added tax on the costs related to it, including input value-added tax deducted at the time of its purchase (regardless of any adjustment) remain in cell 5.3. of the value-added tax return until May 2019.

If the new so-called two-year rule is applied to a passenger car whose use for private trips for self-consumption has been taxed (a car mainly used for the carriage of passengers or driver training), the value-added tax amount subject to repayment is reduced by the amount of the value-added tax already paid on the self-consumption of the passenger car. This means that within two years from the purchase of a passenger car either its use for passenger transport or driver training ends altogether or it is no longer used mainly for passenger transport or driver training (and is used also for trips not related to business among other things).

Restriction on the deduction of input value-added tax on running costs related to a passenger car

If a passenger car is going to be used for private trips, from 01.01.2018, for one year from the month when it is taken into use for private trips, input value-added tax may be deducted on current costs related to the passenger car at not more than 50% regardless of whether private trips are made with the passenger car in the subsequent months of the one-year period or not; tax-exempt supply and non-business activities (for example, in the case of a non-profit association or a self-employed person) may reduce the percentage of deduction even further.

This so-called one-year rule applies regardless of the timing of the purchase of a passenger car – also in the case of passenger cars for which the period for the adjustment of input value-added tax deducted at the time of purchase has already ended. If the adjustment period has not ended yet, the adjustment at the end of a given calendar year of any input value-added tax deducted at the time of purchase has to allow for the fact that for at least one year from the month when it is taken into use for private trips this passenger car has to be considered as being used in part in business. From 01.01.2018, a sentence has been inserted into subsection 32 (4) of the Value-Added Tax Act to clarify that the proportion of the use in business of a passenger car used in business is calculated according to the provisions in subsection 29 (4) and section 30.

Running costs also include operational leasing payments on a passenger car, and in the case of a passenger car under operational leasing the so-called two-year rule explained above is not applied.

Example:

A passenger car is purchased in December 2018. A vehicle is used at first 100% in business (for taxable supply only), but private trips are also completed from July to September 2019.

Because private trips began in July 2019, now the new so-called one-year rule applies – from July 2019 to June 2020, input value-added tax on the running costs related to the passenger car may be deducted 50% regardless of the fact that from October 2019 to June 2020 no private trips are actually made with the car.

In July and August 2020, also only trips related to business are completed – since over a year already has now passed since being taken into use for private trips, in these months input value-added tax may be deducted on running costs 100%. From September 2020, private trips begin to be made again, and from that month the extent of the deduction of input value-added tax on running costs related to the passenger car is once more 50% until at least August 2021.

Adjustment of input value-added tax in the event of removal from the register of persons liable to value-added tax

If a business operator is removed from the register of persons liable to value-added tax and it has fixed assets not yet sold for which the input value-added tax adjustment period has not ended – on the value-added tax return for the month of removal from the register, it has to carry out the last adjustment of input value-added tax for the fixed assets, taking into account the entire period remaining until the end of the adjustment period. An adjustment is made based on the actual proportion of the use of the fixed assets for taxable supply from the beginning of the calendar year until removal from the register with respect to the year of removal from the register, and only the period from the month of removal from the register until the end of the adjustment period is considered a period during which the fixed assets are not used for taxable supply.

Recalculation of input value-added tax deducted at the time of the purchase of fixed assets

Subsection 32 (4) of the Value-Added Tax Act sets out the procedure for the recalculation of input value-added tax deducted at the time of the purchase of fixed assets if the proportion of the use of fixed assets for taxable supply changes during the course of five calendar years. Recalculation is done at the end of every calendar year at 1/5, allowing for the use of the fixed assets for business and for the ratio of taxable supply to overall supply. The procedure for the recalculation of fixed assets also applies to passenger cars. The proportion is calculated based on a proportion of 50% of the use of a passenger car in business.

The proportion of use in business is not 50% if:

taxable person’s business in all their activities is less than 50% (e.g. agencies, non-profit associations, subsection 29 (4) of the Value-Added Tax Act);

Input value-added tax should be adjusted in the case of both a passenger car and any goods or services acquired for it that increase the purchase cost of the fixed assets (generally, purchases of goods or services for a passenger car do not increase the acquisition cost of a passenger car). The first calendar year is considered to be the period from when the passenger car is classed as fixed assets until the end of the calendar year.

If a passenger car is sold before the lapse of five calendar years, input value-added tax is adjusted in the month of the sale of the passenger car allowing for the fact that the passenger car is used in the year of its sale and in the subsequent years only for taxable supply.

If a taxable person (e.g. non-profit association, agency), in deducting input value-added tax, uses the proportion under subsection 29 (4) of the Value-Added Tax Act, that is, the proportion of business with respect to all its activities, input value-added tax on a passenger car or any goods or services received for it are deducted to the extent of the relevant proportion but not more than 50%. For example, if the business of a non-profit association is 30% in all its activities, input value-added tax may be deducted 30% when a passenger car or goods or services for it are bought. If, however, the proportion of business were 70%, input value-added tax could be deducted 50% (see also comments on subsection 29 (4) of the Value-Added Tax Act).

the taxable person applies the exceptions specified in subsection 30 (4) of the Value-Added Tax Act.

Subsection 30 (7) of the Value-Added Tax Act only pertains to a situation where at the time of the purchase of a passenger car input value-added tax has been deducted based on the exception specified in clauses 30 (4) 2) to 5) of the Value-Added Tax Act, yet during two years (24 months) the use of the vehicle no longer corresponds to the provisions in subsection 30 (4) of the Value-Added Tax Act (i.e. subsection (7) is not adhered to in instances where at the time of the purchase of a passenger car input value-added tax has been deducted 50% in accordance with subsection (3)). This subsection (i.e. 2-year rule) pertains to the value-added tax paid at the time of the purchase of a passenger car, rather than the running costs of a passenger car.

For example, the intended use of a passenger car used for a taxi service over two years changes, and this passenger car is not used any more according to the conditions of a single clause of the exception. if within 2 years from its purchase a vehicle begins to be used for a purpose other than what is specified in the exceptions, any input value-added tax deducted at the time of the purchase of the passenger car has to be recalculated. Recalculation has to be done during the taxable period when input value-added tax has been deducted, and 50% of input value-added tax has to be paid back into state revenue. Since correction is done in the taxable period during which input value-added tax has been deducted previously, this results also in the obligation to pay interest if the taxable person had no prepayment with respect to this amount.

Since in the case of passenger cars used mainly for the carriage of passengers or driver training there is an entitlement to deduct input value-added tax 100%, whereas the use of such a passenger car for private purposes has to be taxed as self-consumption, in order to avoid double taxation any tax liability arising under subsection (7) is reduced accordingly by the value-added tax amount calculated on the use of such a passenger car for self-consumption.

If a passenger car purchased for sale is taken into use in one’s own business but not for business exclusively, input value-added tax is recalculated in the taxable period when the passenger car has been taken into use. If a passenger car purchased for sale is taken into use for the purposes specified in clauses 2 to 5 in subsection 4, the said two-year period is counted from when it is taken into use for the purposes specified in the above clauses.

Example:

A passenger car was purchased in January 2018, and input value-added tax was deducted 100% at 4000 euros, since the vehicle is used on the conditions specified in the exception. From October 2018, the use of this vehicle no longer meets the conditions specified in subsection 30 (4) Value-Added Tax Act. In terms of input value-added tax, a correction of 50%, that is, of 2000 euros, has to be made on the January 2018 value-added tax return.

Examples of the recalculation of input value-added tax at the time of the purchase of a passenger car

At the time of the purchase of a passenger car, input value-added tax has been deducted 50%.

Example:

A passenger car was purchased in March 2017. For a passenger car, 20 000 euros + 4000 euros in value-added tax was paid. There was deducted 2000 euros in input value-added tax (i.e. 50% 4000). A vehicle is used in both business and private consumption up to 1 January 2022. Therefore, over the course of five years the intended use did not change, and accordingly input value-added tax is not recalculated.

Example:

A passenger car is purchased in December 2018 at the price of 20 000 euros + 4000 euros in value-added tax. At the time of the purchase, 50% of input value-added tax (2000 euros) is deducted. A car is sold in February 2021.

For the first three calendar years (2018, 2019, 2020) of the adjustment period, there is entitlement to deduct input value-added tax on a passenger car 50%, or 3 × 400 = 1200 euros.

For 2021 and 2022, there is entitlement to deduct input value-added tax 100%, or 2 × 800 = 1600 euros.

Accordingly, adjustment results in a total deductible portion of input value-added tax of 2800 euros.

Given that 2000 euros in input value-added tax was deducted at the time of the purchase of the passenger car, an additional 800 euros (2800 – 2000) is deducted in February 2021 as a result of an adjustment, stated in cell 11 on the February 2021 return. The same result is obtained also by considering that for 2 years it was used, as it were, for business only and that for every year 50%, 400 euros, was not deducted; thus, additionally 2 × 400, or 800 euros, may be deducted.

Example:

A passenger car was purchased in March 2018. For a passenger car, 20 000 euros + 4000 euros in value-added tax was paid, and 50% of input value-added tax is deducted at the time of the purchase (2000 euros). A vehicle begins to be used exclusively for business from 1 January 2019 to 3 March 2020, when the vehicle is sold. Input value-added tax is recalculated as follows:

In the first year, value-added tax is not recalculated. The first recalculation is done in December 2019.

Recalculation is based on the fact that in 2019 the vehicle was used exclusively for taxable supply (corresponds to subsection 30 (4) of the Value-Added Tax Act); therefore, 800 euros (4000/5) may be deducted for 2019. At the time of the purchase of a passenger car, 400 euros (2000/5) has been deducted for one year. Hence, the adjustment in December 2019 results in an additional deduction of 400 euros, declared in cell 11 on the December value-added tax return.

Another recalculation is done in March 2020.

Recalculation is done based on the fact that in the year of the sale of the fixed assets and in the subsequent years (allowing for a five-year adjustment period) the fixed assets are used for taxable supply only. Hence, 2400 euros (3 × 800) may be deducted for three years, and 1200 euros (3 × 400) has been deducted for three years at the time of the purchase of the passenger car. Thus, 1200 euros (2400 – 1200) in input value-added tax is additionally deducted, declared in cell 11 on the March value-added tax return.

Example:

A passenger car is acquired in January 2018 at the price of 20 000 euros + 4000 euros in value-added tax, and 50% of input value-added tax (2000 euros) is deducted at the time of the purchase. A vehicle is used in both business and private consumption. A car begins to be used for tax-exempt supply in February 2023.

The period for the recalculation of fixed assets ended in 2022. Input value-added tax is not recalculated.

At the time of the purchase of a passenger car, input value-added tax has been deducted 100% under subsection 30 (4) of the Value-Added Tax Act, and the passenger car is used for its intended purpose for two years.

Example:

A passenger car is acquired in January 2018 at the price of 20 000 euros + 4000 euros in value-added tax, and 100% of input value-added tax (4000 euros) is deducted at the time of the purchase. A car is used 100% in business until 31 December 2020, during the period from January 2021 to December 2022 the passenger car is also used for private purposes.

Since the car was used exclusively for business for the first two years, input value-added tax is not recalculated under subsection 30 (7) of the Value-Added Tax Act. Recalculation is done as per subsection 32 (4) of the Value-Added Tax Act.

For the first three calendar years (2018 to 2020) of the adjustment period, there is entitlement to deduct input value-added tax on a passenger car 100%.

In 2021, a passenger car was used both in business and for private purposes, and as a result a recalculation is done in December 2021. During this period, 50% of 800 (4000/5), i.e. 400 euros, may be deducted, whereas 800 euros (4000/5) has been deducted for that year. Thus, additionally payable value-added tax should be calculated at 400 euros (800 – 400), stated in cell 10 on the 2021 December value-added tax return.

The same kind of calculation is done also for the fifth calendar year, and the result of 400 euros is stated on the value-added tax return for December 2022.

Example:

A passenger car is acquired in January 2018 at the price of 20 000 euros + 4000 euros in value-added tax, and 100% of input value-added tax (4000 euros) is deducted at the time of the purchase. A car is used 100% in business until 31 December 2020, during the period from January 2021 to September 2021 the passenger car is also used for private purposes. From October 2021, a passenger car is used only for business, until March 2022, when the vehicle is sold.

Since the car was used exclusively for business for the first two years, input value-added tax is not recalculated under subsection 30 (7) of the Value-Added Tax Act. The first recalculation is done in December 2021 under subsection 32 (4), allowing for the one-year condition set out in subsection 30 (8). Accordingly, regardless of the fact that in 2021 the passenger car was used in both business and private consumption for 9 months and for business only for 3 months, the limit on input value-added tax deduction is 12 months.

Therefore, in December 2021 a recalculation has to be done, 50% of 800 (4000/5), i.e. 400, euros may be deducted in 2021, whereas 800 euros (4000/5) has been deducted for that year. Thus, additionally payable value-added tax should be calculated at 400 euros (800 – 400), stated in cell 10 on the 2021 December value-added tax return.

No recalculation is done for 2022.

at the time of the purchase of a passenger car, input value-added tax has been deducted 100% as per subsection 30 (4) of the Value-Added Tax Act, and the passenger car is going to be used for the purposes not specified in clauses 30 (4) 2) to 5) of the Value-Added Tax Act.

Example:

A passenger car is acquired in January 2018 at the price of 20 000 euros + 4000 euros in value-added tax, and 100% of input value-added tax (4000 euros) is deducted at the time of the purchase. A car is used 100% in business until June 2019, from July 2019 it is also used in part for private purposes, and the car is sold in February 2020.

Under subsection 30 (7) of the Value-Added Tax Act, if within two years a passenger car is put to use in private consumption, any input value-added tax deducted has to be recalculated. Accordingly, if the vehicle is taken into private consumption, a correction has to be made on the January 2018 value-added tax return and 50% of the deducted value-added tax (2000 euros) has to be declared again for state revenue (cells 5, 5.2, 5.3).

In the case of this example, under subsection 32 (4) of the Value-Added Tax Act, a new recalculation will have to be done in February 2020, when the vehicle is sold. Recalculation is based on the fact that input value-added tax may be deducted 50% for the first 2 years and 100% for the subsequent three years. Hence, 2400 euros (3 × 800) may be deducted for three years, and 1200 euros (3 × 400) has been deducted for three years at the time of the purchase of the passenger car. Thus, 1200 euros (2400 – 1200) in input value-added tax is additionally deducted, declared in cell 11 on the February value-added tax return.

Procedure for the use of a personal passenger car for business trips

A benefit for the use of a personal passenger car for business trips may be paid:

for an official;

for an employee (for the purposes of the Contract Act);

a member of a management or control body (for the purposes of section 9 of the Income Tax Act).

Thus, for example, no tax-exempt benefit may be paid to the owner of a company or to a party providing a service under a contract under the law of obligations under the cited regulation. However, they may be reimbursed for costs incurred on behalf of a legal person under subsection 12 (3) if there is documented evidence for it.

A benefit may be paid for the use of a passenger car not owned by or in the possession of an employer. Hence, a passenger car does not have to be in the user’s personal possession; however, its right of use has to be proven. The right of use is stated either on the registration certificate of the vehicle or in a power of attorney prepared by the owner. Category M1 and M1G vehicles are considered passenger cars. Where a benefit is paid to a disabled person, exceptionally the costs of the use of any motor vehicle may be reimbursed. Under the Traffic Act (section 12), a vehicle powered by an engine is considered a motor vehicle. A vehicle is a means of transport powered by an engine or in another way, designated for road traffic or driving on the road.

For the payment of a benefit, a written decision, directive or order of the employer has to be formalised, showing the details of the person receiving the benefit, the amount of the benefit and the date of the trip or the period during which trips completed will be reimbursed. A copy of a document proving the right to use a passenger car is attached to the written decision. A decision may be made also in relation to a period longer than one calendar month.

A tax-exempt benefit may be paid only when records, that is, a travel log, are kept for business trips. A travel log has to include the details of the person using the passenger car, the details of the registration plate of the passenger car, the start and end readouts of the odometer for every business trip and the date of the trip and the purpose for every trip. The format in which a travel log is kept, e.g. either on paper or electronically, is irrelevant – it is important for it to include the above information. As a result, a tax-exempt benefit cannot be paid for future trips but rather only for trips already completed.

If a benefit for the use of a personal passenger car is paid without keeping records, the disbursement is income from employment that has to be declared in a personalised manner in Annex 1 (Annex 2 in the case of a non-resident) to TSD.

Based on a travel log, business trips may be reimbursed up to 30 cents per kilometre but not more than 335 euros for trips completed in a calendar month. This means that an employer may also set a lower kilometre price, e.g. 20 cents; however neither limit may be exceeded in order for the condition of the tax exemption to be met. Hence, if the kilometre price of a benefit has been set at, for example, 1 euro, the portion exceeding the kilometre price cap, or 70 cents, is taxable, irrespective of how great the benefit amount is in total.

A benefit may be paid to an employee also on an aggregate basis, that is, more than 335 euros on accruals basis in a calendar month; however, it is important that a benefit calculated for any single month does not exceed the stipulated limit.

Any benefit amount exceeding limits is considered a fringe benefit. If the calculated benefit amount for the calendar month works out to be greater than the limit, the fringe benefit is calculated separately for each month, and the fringe benefit has to be declared in the month when the benefit has been disbursed.

If accounting are kept, a natural person may receive tax-exempt benefits also from multiple employers, with the cap of 335 euros applied to each employer separately. A benefit includes all the costs related to the normal use of a car (including fuel, parking etc.).

The kilometre price and tax-exempt limit set in the regulation are not linked to actual costs (documents detailing the costs). Whilst subsection 12 (3) of the Income Tax Act does state that the income of a natural person is not a documented cost reimbursement provided for the benefit of another party, it also adds that this subsection is not applied to a benefit the taxation of which is subject to separate conditions and limits. Since separate conditions and limits have been set for a benefit paid for the use of a personal passenger car, reimbursement of the use of a passenger car (e.g. payment of a parking fee, tyre replacement, running costs of repairs or the like) on the basis of documents detailing the costs is a fringe benefit.

Exceptionally, the costs of a personal passenger car may be reimbursed based on a document detailing the costs if travel on secondment is completed using a personal passenger car, and these costs are reimbursed based on the so-called regulations concerning missions.

Specific provisions on taxation

Special scheme for imposing value-added tax on electronic communications and electronically supplied services – MOSS

The special scheme for imposing value-added tax on a service provided electronically applies solely to a party from a non-Community state engaged in business which is not a registered taxable person in any of the Member States. Hence, the special scheme does not pertain to taxable persons registered in Estonia. The definition of an electronically provided service is set out in subsection 2 (4) of the Value-Added Tax Act.

Under the principles of the place of supply of a service, an electronically provided service creates supply in the state of the recipient of the service. In the case of this special scheme, the principle of the place of supply of the service is applied also to a service provided by a business operator in a non-Community state, provided for the personal use of a natural person in a Member State. The special scheme requires a party from a non-Community state providing services electronically for natural persons in a Member State of the Community to register, at its discretion, as a taxable person in a Member State and declare in that Member State all the services provided electronically for natural persons in all the Member States of the Community. For every Member State, services have to be indicated on an electronic return separately, and value-added tax has to be calculated on services according to the value-added tax rate of every relevant Member State. The entire calculated value-added tax on services provided in all the Member States is paid in the Member State of registration. The Member State where the service provider is registered as a taxable person transmits value-added tax based on the return to the relevant Member States.

https://www.emta.ee/eng/business-client/income-expenses-supply-profits/overview-charging-value-added-tax/special-scheme

Special scheme for accruals-based value-added tax accounting

The special scheme for accruals-based value-added tax accounting may be selected by any taxable persons whose annual turnover does not exceed 200 000 euros (the limit does not include the sale of fixed assets or their occasional sale as goods). If, according to the general procedure, value-added tax is calculated under the principle of the earliest moment, either at the time of the shipment of goods or of the provision of a service or of the receipt of funds for either, under the procedure of accruals-based value-added tax accounting generally supply arises upon receipt of funds. At the same time, a taxable person applying the accruals-based special scheme also calculates input value-added tax on an accruals basis. The accruals-based value-added tax accounting procedure does not alter accounting rules but rather solely pertains to value-added tax accounting.

A taxable person wishing to keep value-added tax accounting on an accruals basis and meeting the conditions has to notify the tax authority in writing. The tax authority has to be notified before the special scheme begins to be applied. A taxable person provides notification about it not later than during the taxable period before when the special scheme begins to be applied. It has to indicate in its notification from which taxable period it is going to start maintaining a special scheme.

A party registering as a taxable person only now and wishing to begin to apply the special scheme provides notification thereof when submitting a registration application to the tax authority. Parties wishing to register as taxable persons and to start keeping value-added tax accounting on an accruals basis also calculate when the limit for registering as a person liable to value-added tax is reached on an accruals basis.

The special scheme cannot be applied in the case of the import of goods, the intra-Community supply or purchase of goods or the provision of a service for a taxable person or limited taxable person in another Member State if it has to be declared in an intra-Community supply report. Calculation of value-added tax when services are received is not subject to the special scheme regardless of whether the service are received from a taxable person in a Member State or from a business operator in a non-Community state or of what kind of service are received. Thus, if a service is received from a party in a foreign state and the place of supply is Estonia, value-added tax accounting have to be kept according to the general procedure.

In addition to certain cross-border transactions, accruals-based accounting cannot be kept also for transactions where payment for goods or a service has been agreed to occur over a period longer than three calendar months, for example, in the case of hire purchase or leasing contracts.

Special scheme for imposing value-added tax on an immovable, waste metal, metal products or precious metals

In the case of immovables, a national reverse charge is applied only if the tax-exempt immovable specified in clause 16 (2) 3) of the Value-Added Tax Act is sold, yet the seller of the immovable wishes to tax the transaction and notifies the tax authority thereof according to subsection 16 (3) of the Value-Added Tax Act. Thus, this does not pertain to new structures (i.e. the supply of those immovables not exempt from tax) or residential premises (i.e. the supply of those immovables where supply cannot be taxed).

Under the special scheme for metal waste, metal products and precious metals, goods are taxed by the recipient – a so-called national reverse charge. In the event of an internal reverse charge, supply lies with the seller, yet the obligation to pay value-added tax lies with the buyer. Accordingly, the accounting procedure does not affect the magnitude of the supply taxed, which is relevant if value-added tax is deducted in part for a person.

An internal reverse charge is applied only if both the seller and the buyer are persons liable to value-added tax registered in Estonia. Therefore, during the sale of goods the special scheme is not applied to a limited person liable to value-added tax, a person liable to value-added tax in a foreign state or persons who are not persons liable to value-added tax. Furthermore, a buyer does not have to calculate value-added tax if it purchases the above goods from a party that is not a taxable person.

Grants for starting a business

Enterprise Estonia’s start-up grant is intended for companies or sole proprietors (füüsilisest isikust ettevõtja – FIE) that have been registered within the last two years. The start-up grant aims to support the creation of enterprises that have a lot of development potential, and thereby expand regional entrepreneurship and number of exporters. Companies that receive the grant have the obligation to meet certain goals, such as creating new jobs and increasing sales revenue. The maximum amount of start-up grant that can be applied for is 15,000 euros. The maximum grant percentage from the entire cost of the project is 80% and the own contribution must account for at least 20%.

Information hotlines and email addresses of the Tax Registry