Taxation of goods and services in Estonia

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.