Value added tax - VAT
Estonian VAT legislation in its current form became effective from 1 May 2004 when Estonia became a member of European Union.
A taxable person is a person who is engaged in business and is registered or required to register as a taxable person. If the taxable supply of the transactions specified in Vat Act, except the transfer of fixed assets and distance selling to a person of Estonia, carried out by a person exceeds 16,000 euros as calculated from the beginning of a calendar year, an obligation to register as a taxable person arises for the person as of the date on which the supply reaches that amount.
The following shall be taken into account to determine whether the obligation to register as a taxable person has arisen:
1) supply (goods and services) effected in Estonia, except supply which is exempt from tax;
2) provision of certain services the place of supply of which is not Estonia, except supply exempt from tax, to a taxable person registered in another Member State or to a third country person engaged in business.
Transactions not deemed supplies
The transfer of an enterprise or a part thereof within the meaning of the Law of Obligations Act, handing over the assets of a company to another company upon the merger, division or transformation of the company and handing over, in business interests, goods as product samples not for sale or advertising gifts of low value (up to 10 euros).
If a taxable person of another Member State is engaged in distance selling to a person of Estonia (excluding distance selling of excise goods) and the taxable value of the supply of the distance selling exceeds 35,000 euros as calculated from the beginning of a calendar year, the registration obligation arises for the person as of the date on which the supply reaches the specified amount.
A person is required to submit an application for registration as a taxable person to the tax authority within 3 working days as of the date on which the registration obligation arises. The tax authority shall register a person as a taxable person as on the date on which the registration obligation arose, within 5 working days as of the receipt of the application. A person may submit an application for registration even if the registration obligation has not yet arisen.
Taxable amount (general rule)
The taxable value of supply or the taxable value of the intra-Community acquisition of goods and services received is comprised of the sales price of the goods or services and anything else which is deemed to be fee that the transferor of the goods or the provider of the services receives from the purchaser of the goods, the recipient of the services or a third party for the goods or services.
Exemptions (without a right of deduction)
VAT is not imposed on certain goods and services of social nature. Other VAT exempt goods and services include insurance services, leasing or letting of immovables, sale of immovables or parts thereof before their first use, securities and financial services.
A taxable person has an option to add VAT to the taxable value of certain goods and services if the person has notified tax authorities thereof in writing before the supply is effected. The option is mainly exercised in respect of leasing or letting immovables and sale of immovables.
The standard VAT rate is 20% on the price excluding the tax itself. A reduced 9% rate applies to books and workbooks used as learning materials, particular medicinal products, particular periodic publications, accommodation services or accommodation services with breakfast. Exportation is zero rated.
The taxable period is one calendar month. Value added tax returns shall be submitted to the tax authority by the 20th day of the month following the taxable period. On the basis of a reasoned request made by a taxable person, the head of the tax authority may establish a taxable period longer than one calendar month for the taxable person.
A value added tax return is submitted electronically if the person has been a taxable person for at least 12 months. On the basis of a reasoned request made by a taxable person, the tax authority may allow the submission of a value added tax return on paper.
Payment of VAT
A taxable person shall pay the amount of value added tax due by the date of submission of the value added tax return - 20th day of the month following the taxable period.
Refund of input VAT
If value added tax calculated during a taxable period is less than the amount of input value added tax deductible by the taxable person during the same period, the overpaid amount of value added tax shall be refunded to the taxable person pursuant to the procedure provided for in the Taxation Act (normally within 30 days).
Refund of input VAT to a taxable person of another Member State
VAT paid by a taxable person of another Member State in Estonia upon the acquisition of goods or services used for the purpose of business being carried out in the country of location of the person shall be refunded to the taxable person of another Member State if:
1) the taxable person is required to pay VAT as an undertaking in the country of location of the person;
2) in its country of location the taxable person has the right to deduct input VAT paid upon the import or acquisition of goods or services under the same conditions from its calculated VAT;
3) taxable persons of Estonia have the right to deduct input VAT paid upon the import or acquisition of goods or services under the same conditions from their calculated VAT;
4) the amount of VAT to be refunded is at least 50 euros per calendar year or at least 400 euros in the case where the application is submitted concerning a period shorter than a calendar year but covering at least three months;
5) the application has been submitted electronically to the Estonian tax authority through the tax authority of the country of location of the taxable person of another Member State not later than by 30 September of the calendar year following the period of refund.
Refund of input VAT to a third country taxable person
Value added tax paid by a third country taxable person in Estonia upon the import or acquisition of goods, except immovables, or receipt of services used for business purposes shall be refunded to the third country taxable person on the basis of a written application from the taxable person and pursuant to the procedure established by a regulation of the Minister of Finance if:
1) the taxable person is required to pay value added tax as an undertaking in the country of location the person;
2) the amount of value added tax to be refunded per calendar year is at least 320 euros;
3) taxable persons of Estonia have the right to deduct, pursuant to this Act, input value added tax paid upon the import or acquisition of goods or receipt of services under the same conditions from their calculated value added tax;
4) in the country of location of the third country taxable person, Estonian residents have the right to the refund of value added tax.
Restrictions on deduction of VAT
Input VAT on goods or services relating to the entertainment of guests or the provision of meals or accommodation for employees shall not be deducted from calculated value added tax.
Upon acquiring of an automobile for business purposes or using under the contract for use and purchasing of goods and receiving of services for such an automobile 50 percent of the input value added tax shall be deducted from the calculated value added tax. The restriction is not applied if:
1) an automobile is acquired for selling on condition that the taxable person is engaged in selling of automobiles;
2) an automobile is acquired for the granting of use under the contract for use on condition that the taxable person is engaged in the granting of use of automobiles;
3) an automobile is mainly used for the carriage of passengers for a charge (taxi service);
4) an automobile is mainly used for driving lessons;
5) an automobile is exclusively used for business purposes only.
Domestic reverse charge
If a taxable person transfers the immovable or part thereof, scrap metal, precious metal or metal products, to another taxable person, the acquirer of the goods shall pay the sales price exclusive of value added tax to the transferor. The acquirer of the goods shall calculate the amount of the value added tax mentioned on the invoice issued for the transaction as the amount of value added tax to be paid by the acquirer instead of the transferor.
The tax authority shall register a parent undertaking and its subsidiaries within the meaning of the Commercial Code as a single taxable person on the basis of a joint application by such taxable persons. Taxable persons who are economically and organisationally related shall also be registered as a value added tax group on the basis of a joint application if more than 50 per cent of the shares, holding or votes of each company to be registered within the composition of a value added tax group are owned by one and the same person or if the persons are related on the basis of a franchise contract. Estonian taxable persons engaged in business in Estonia shall be registered as a value added tax group.
If a foreign person engaged in business with no permanent establishment in Estonia carries out taxable supply in Estonia and such supply is not taxed in Estonia upon the acquisition of goods or receipt of services by a taxable person, the registration obligation shall arise for the person as of the date on which the taxable supply is performed. The registration obligation does not arise upon distance selling to a person of Estonia (threshold of 35,000 euros applies), or if all the taxable supply of the person is supply taxable at the 0% VAT, unless it is intra-Community supply of goods.