Tallinn GMT +2
Ernst & Young Baltic AS Rävala 4 10143 Tallinn Estonia
Indirect tax contacts
Ranno Tingas +372 (6) 114-578 ranno.tingas@ee.ey.com
Hedi Wahtramäe +372 (6) 114-570 hedi.wahtramae@ee.ey.com
Tõnis Elling +372 (6) 114-500 tonis.elling@ee.ey.com
A. At a glance
Name of the tax Value-added tax (VAT)
Local name Käibemaks (KM)
Date introduced 1 January 1991
Trading bloc membership European Union (EU)
Administered by Ministry of Finance (http://www.fin.ee) Estonian Tax and Customs Board (http://www.emta.ee)
VAT rates
Standard 20%
Reduced 9%
Other Zero-rated (0%) and exempt
VAT number format EE123456789
VAT return periods Monthly
Thresholds
Registration
Established EUR40,000
Non-established None Distance selling EUR10,000
Intra-Community acquisitions None
Electronically supplied services EUR10,000
Recovery of VAT by non-established businesses Yes
B. Scope of the tax
VAT applies to the following transactions:
• Supply of goods or services made in Estonia by a taxable person
• Supply of services with a place of supply not in Estonia (that is, services are provided through a seat or fixed establishment located in Estonia to a person who is registered as a taxable person
or taxable person with limited liability in the EU or who is a person from a non-EU country engaged in business)
• Reverse-charge services received by a taxable person in Estonia (that is, services for which the recipient is liable to pay the VAT)
• The intra-Community acquisitions of goods from another European Union (EU) Member State by a taxable person (see the chapter on the EU)
• The importation of goods into Estonia (except for VAT exempt imports), regardless of the status of the importer
Quick Fixes. Pending introduction of a “definitive” system for the VAT treatment of intra-Community supplies of goods to taxable persons, the EU has adopted Quick Fixes for intraCommunity trade in goods. For an overview of the Quick Fixes rules, see the chapter on the EU.
As of 1 January 2020, VAT Quick Fixes were implemented into the Estonian law regarding the Council Directive (EU) 2018/1910. There are no variances from the EU law into the local Estonian law.
Effective use and enjoyment. To avoid instances of nontaxation or double taxation, EU Member States can apply use and enjoyment rules that allow a service that is “used and enjoyed” in the EU to be taxed or prevent a service that is “used and enjoyed” outside the EU from being taxed. If a service is taxed in the EU under the use and enjoyment provisions, a non-EU supplier of the service may be required to register for VAT in every Member State where it has customers that are not taxable persons. For the information regarding the rules relating to VAT registration, see the chapters on the respective countries of the EU.
In Estonia, only telecommunications, broadcasting and electronic services are subject to the “used and enjoyed” provisions.
Transfer of a going concern. In Estonia, a transfer of a going concern (TOGC) is not a taxable transaction, where the transfer of an enterprise or a part thereof falls within the meaning of the Law of Obligations Act and the interpretation of various legal cases. However, this means that there is no clear guidance from the tax authorities on the TOGC rules and as such, each transfer is determined on a case-by-case basis.
C. Who is liable
A taxable person is an individual or a business entity (including a public entity and municipality) that makes taxable supplies of goods or services in the course of a business in Estonia. This rule also applies to a branch or fixed establishment of a foreign business entity.
The VAT registration threshold is annual supplies in excess of EUR40,000, counted from the beginning of a calendar year. A non-established business without a fixed establishment in Estonia that makes a taxable supply must register for VAT in Estonia if the place of supply is Estonia and if the supply is not taxed by the Estonian taxable person (purchaser). The registration obligation arises from the time of the supply, regardless of the threshold of EUR40,000. A business that is liable to register for VAT in Estonia must notify the VAT authorities of its VAT registration liabil ity within three days.
Exemption from registration. The VAT registration obligation does not arise if all the taxable sup plies of the person are zero-rated supplies, except unless it is an intra-Community supply of goods and the supply of services of which the place of supply is not in Estonia and the services are provided to a taxable person or a taxable person with limited liability as registered by the other Member State.
Voluntary registration and small businesses. A business established in Estonia of which the sup plies do not exceed the registration threshold may voluntarily register for VAT.
The tax authorities have the right not to register persons who are unable to prove that they are performing business activities or are about to begin business activities in Estonia.
Group registration. A parent company and its subsidiaries may apply to register as a VAT group. Other persons may apply to register as a VAT group if these persons are economically and orga nizationally related and if more than 50% of the shares, holding company or votes of each company to be registered as a VAT group are owned by one and the same person or if the persons are related on the basis of a franchise contract. One single VAT registration number is provided to all members of the VAT group.
The effect of grouping is that no VAT is charged on supplies between group members if the person that acquired the goods or services as a result of the transaction uses them entirely for the purposes of that person’s taxable supplies.
All members of a VAT group in Estonia are jointly and severally liable for VAT debts and penal ties.
There is no minimum time period required for the duration of a VAT group. A VAT group can only disband once the Estonian Tax and Customs Board makes a decision on the deletion of the VAT group, within 30 days as of the receipt of the application.
Holding companies. In Estonia, a pure holding company cannot be a member of a VAT group. Cost-sharing exemption. The VAT cost-sharing exemption (in accordance with VAT Directive 2006/112/EEC Article 132(1)(f) has been implemented in Estonia. This provides an option to exempt support services that the cost-sharing group supplies to its members, providing certain conditions are met (in accordance with specific requirements laid out in Estonian VAT law).
According to Estonian VAT law, VAT shall not be imposed on the supply of services provided by an independent association of persons to their members, provided that the following conditions are met:
• The service is directly necessary for the main activity of the member, which is exempt from tax or is not subject to value added tax.
• The fee paid for the service does not exceed the costs incurred upon the provision of the service and the tax exemption of the service does not affect competition significantly.
Fixed establishment. There is no definition of a fixed establishment (FE) in Estonian VAT law. In practice, the tax authority instead only applies the permanent establishment (PE) rules. They equate the PE and FE rules. A permanent establishment means a business entity through which the permanent economic activity of a nonresident is carried out in Estonia.
Non-established businesses. A “non-established business” is a business that has no fixed establishment in Estonia. A non-established business is not required to register for Estonian VAT if all of its supplies are covered by the reverse-charge procedure (under which the recipient of the supply must self-assess VAT). A non-established business that has a fixed establishment in Estonia must register for VAT under the same conditions as Estonian business. A fixed establish ment or resident legal person must be registered for VAT if it makes taxable supplies in Estonia totaling more than EUR40,000 from the beginning of the calendar year.
Tax representatives. The appointment of a tax representative is required for non-EU entities that are not established in Estonia. EU entities that are not established in Estonia may appoint a tax representative. A tax representative may not be used by a third-country taxable person that pro vides electronically supplied services and has opted for a special arrangement. A tax representative must be a legal entity established in Estonia or a branch of a foreign entity registered in Estonia and must be accepted by the tax authorities.
Reverse charge. In general, the reverse-charge mechanism is applicable, and the Estonian VAT taxable person is obliged to charge VAT upon the acquisition of goods or the receipt of services from a foreign taxable person who is not registered for VAT purposes in Estonia and does not have a fixed establishment in Estonia. The VAT charged can be deducted as an input tax credit on the declaration if the goods or services are used for the taxable business.
Domestic reverse charge. The domestic reverse-charge VAT applies to supplies of immovable tangible property (which are optionally taxed), waste (scrap) metal, certain metal products and gold if both parties to the transaction are taxable persons and the transaction is considered a tax able supply.
Digital economy. Specific VAT rules apply to cross-border supplies of goods and services sold via the internet (e-commerce) in all EU Member States with effect from 1 July 2021. These new rules apply to all direct sales to nontaxable persons (in practice these are mostly private individuals), but we refer to these rules as e-commerce VAT rules because most of these transactions are con ducted via the internet. In general, the place of supply is in the country of consumption, i.e., where the goods are shipped to or where the buyer of the goods or services resides, subject to any “use and enjoyment” provisions that may override this rule (see Section B, Effective use and enjoyment subsection above). Therefore:
• For supplies of services made by a nonresident supplier to a to a business customer (B2B), the business customer is responsible for accounting for the VAT due, using the reverse charge.
• For supplies of goods made by a nonresident supplier to a business customer (B2B), where the goods are transported from another EU Member State, the business purchasing the goods is responsible for accounting for the VAT due, as an intra-Community acquisition. If the goods come from outside the EU, the purchaser may have to report an importation of goods.
• For supplies of goods or services made by a nonresident supplier to a to a final consumer (B2C), the supplier is generally responsible for charging and accounting for the VAT due at the rate applicable in the customer’s country (unless the supplier’s sales fall beneath the distance selling threshold of EUR10,000 with effect from 1 July 2021). This VAT can be reported using a single VAT registration, using a “One-Stop-Shop” mechanism.
For more details about intra-EU distance sales, please see the chapter on the EU.
Effective 1 July 2021, an e-commerce supplier may have a choice of how to account for VAT on its B2C supplies.
Local VAT registration. A nonresident supplier may choose to register for VAT in each Member State and account for VAT on all supplies made and recover input tax in accordance with local rules (see the Non-established businesses subsection above). Non-EU businesses may be required to appoint a fiscal representative for accounting for the VAT due on these transactions.
In Estonia, upon registration, it is required to attend the procedure in person, i.e., the person seeking registration cannot email or send the registration form by post or fax. However, it is possible to use either an authorized person or a tax representative for the procedure.
To register as a VAT-liable person, an application for registration (form KR), an application for registration as a nonresident taxpayer (form R2), power of attorney and trade register extract of the company are submitted to the Estonian Tax and Customs Board by email (to kmkr@emta.ee). Forms KR and R2 must be signed by an authorized person, i.e., the person on the trade register extract or authorized person in which case the document based on which the authorization has been granted is needed. Power of attorney grants the right to file/receive VAT registration docu mentation and conclude agreement to use the e-tax reporting portal on behalf of the company. Power of attorney must be certified by notary and apostille or legalized.
The fiscal representative of a nonresident is a person to whom a corresponding activity license has been issued by the tax authority and whom a nonresident may authorize to represent them for the performance of the obligations arising in Estonia.
All the rights and obligations of a nonresident extend also to the fiscal representative. The fiscal representative is required to ensure that the nonresident’s monetary and non-monetary obligations arising from tax legislation are performed within the set term and in full.
The appointment of a fiscal representative does not change the obligations of the nonresident, as they are still liable for fulfilling their tax obligations in Estonia.
A nonresident of a third country engaged in business with no permanent establishment in Estonia must appoint, upon registration as a taxable person, a fiscal representative, who has been approved by the tax authority. In addition, the nonresident must also notify the tax authority of the fact by ending a copy of a contract concluded with the chosen fiscal representative by email (to emta@emta.ee).
The tax authority shall register a person as a taxable person by entering the data concerning the person in the register of taxable persons as on the date on which the registration obligation arose, within five working days as of the receipt of the application. Upon registration, the tax authority shall issue one VAT identification number for all purposes and for all taxable persons. The struc ture of the number is always EE and 9 digits (e.g., EE012345678).
One-Stop Shop. Effective 1 July 2021, a supplier can choose to account for the VAT due under the EU One-Stop Shop (OSS), which can be used for intra-EU cross-border supplies of goods and all cross-border supplies of services made to final consumers in the EU. Unlike the previous Mini One-Stop-Shop (MOSS) scheme that applied until 30 June 2021, the OSS is not limited to cross-border supplies of electronic services, telecommunication services and broadcasting ser vices.
The OSS is an electronic portal that allows businesses to:
• Register for VAT electronically in a single Member State for all intra-EU distance sales of goods and for B2C supplies of services
• Declare and pay VAT due on all supplies of goods and services in a single electronic quarterly return.
The OSS can be used by businesses established in the EU and outside the EU. If a supplier or a deemed supplier decides to register for the OSS, it must declare and pay VAT for all supplies (goods as well as services) that fall under the OSS.
An Estonian legal person (taxable person) can submit the application for registration online in the e-services environment of the online portal (e-MTA) by choosing “Registers and inquiries,” –“Registration,” then – “Registering as a user of special schemes for e-commerce and services (OSS/IOSS).” To submit an application, the fiscal representative (i.e., the person with the right to represent a legal person) must grant the necessary access permission to other representative parties (i.e., third-party compliance providers). The access permission for using the service of the special schemes OSS/IOSS is included in the following packages of e-MTA access permissions:
• Packages for legal person’s representative and sole proprietor’s representative, and the accoun tant’s package include the access permission “Managing applications for and declarations of special schemes for e-commerce and services (OSS/IOSS),” which allows full use of the service.
• Package for viewing the data of legal person and package for viewing the data of sole proprietor include the access permission “Viewing applications for and declarations of special schemes for e-commerce and services (OSS/IOSS),” which allows use of the service without the right to amend data.
When a taxable person begins to add the application, the selection with two possible types of application shall be open:
• Union scheme (OSS, goods and services)
• Non-union scheme (OSS, services, EU number)
The users of the MOSS special scheme, registered in Estonia, who wish to continue to apply the dilated special scheme (OSS), have no obligation to submit a new application for registration. Their valid applications are automatically carried over. A person who becomes a deemed sup plier from 1 July 2021 (e-shop, electronic interface or other electronic trading place) shall fill in the field “Electronic interface” in the application (make a checkmark in this field). By default, this field is not filled in.
As a rule, the special scheme shall be applied from the first day of the quarter following the quarter when the taxpayer submitted the application to the tax authority for the implementation of the special scheme. For example, if the application was submitted on 5 July, the special scheme shall be applied automatically from 1 October.
For more details about the operation of the OSS, please see the chapter on the EU Import OneStop Shop. Effective 1 July 2021, the Import One-Stop-Shop (IOSS) scheme applies for B2C distance sales of goods from outside the EU.
Effective 1 July 2021, VAT is due on all commercial goods imported into the EU regardless of their value. The actual supply is subject to VAT in the country where the goods are imported (the country of destination). The IOSS facilitates the declaration and payment of VAT due on the sale of low-value goods (i.e., consignments valued at less than EUR150 per consignment). It allows suppliers selling low-value goods dispatched or transported from a non-EU country to customers in the EU to collect, declare and pay the VAT due. If the IOSS is used, the importation into the EU is exempt VAT.
An Estonian legal person (taxable person) can submit the application for registration online in the e-services environment of the online portal (e-MTA) by choosing “Registers and inquiries,” –“Registration,” then – “Registering as a user of special schemes for e-commerce and services (OSS/IOSS).” To submit an application, the fiscal representative (i.e., the person with the right to represent a legal person) must grant the necessary access permission to other representative parties (i.e., third-party compliance providers).
When a taxable person begins to add the application, the selection with three possible types of application shall be open:
• Application for import scheme (IOSS, goods, IM number)
• Application of an intermediary (IOSS, goods, IN number)
• Application of a taxable person intermediated (IOSS, goods, IM number, the intermediary shall submit the application in the name of the person intermediated).
The taxable persons who are engaged in distance selling of goods, imported from third countries to end users whose place of residence is in the EU, can use the IOSS special scheme.
The special scheme shall be applied from the day when the user of the special scheme receives the registration number for the IOSS special scheme. For more details about the IOSS, please see the chapter on the EU.
The use of the IOSS special scheme is not mandatory. If VAT is not collected via the IOSS scheme, the importation of goods into the EU is subject to import VAT in the country of final destination, and the Member State can decide freely who is liable to pay the import VAT, which could be the customer or the seller (or an electronic interface).
Postal Services and Couriers Scheme. If the IOSS is not used and the customer is liable for the import VAT due on the supply (and importation) of consignments with a small intrinsic value (i.e., less than EUR150), the VAT can be collected using the special scheme for postal services and couriers.
In Estonia, upon the implementation of this special scheme, the end user pays VAT to the person who presents goods in customs (usually to the provider of the postal service, to the express com pany or to the customs agency) – therefore, in contradistinction to the IOSS special scheme, the end user does not pay VAT in e-shop at the moment of the sales transaction.
This special scheme can apply to a business that:
• Presents in customs the import declaration of the goods on behalf of the actual purchaser as indirect representative
• Is the holder of the goods
• Transports the goods to the consignee whose place of residence is in Estonia
This special scheme is targeted, first of all, to postal operators and providers of express services who usually declare the import of goods with a small value on behalf of the consignee and are the holders of the goods within the meaning of the Customs Code (holder of the goods is the person who is the owner of the goods or who has a similar right of disposal over the goods as the owner; or who has physical control over the goods).
Upon the implementation of this special scheme, the imported goods are always taxable at the standard VAT rate (20% in Estonia).
A business applying this special scheme that presents the goods in customs pays VAT collected from the end users to the tax authority once a month. VAT shall be paid by the 16th day of the month following the month when VAT was collected. For more details about the special scheme for postal services and couriers, please see the chapter on the EU.
Online marketplaces and platforms. Under the new EU VAT e-commerce rules, effective 1 July 2021, taxable persons that “facilitate” certain B2C sales of goods are deemed to have purchased and then supplied those goods themselves. This means that the single supply from the “underlying” supplier to the final consumer is split into two deemed supplies:
• A supply from the supplier to the facilitator (deemed B2B supply)
• A supply from the facilitator to the final customer (deemed B2C supply). Any intermediation service provided by the facilitator is disregarded for VAT purposes
This provision does not cover all sales facilitated via the facilitator. It only covers distance sales of goods imported from non-EU jurisdictions in consignments with an intrinsic value not exceed ing EUR150. The jurisdiction of residence of the supplier using the facilitator is irrelevant. The supply to the facilitating platform is VAT exempt and the supplies made by that platform follow the e-commerce VAT rules as described above. In addition, the provision also covers sales within the EU, if the supplier is not established within the EU. This applies to both local shipments within one Member State as well as intra-Community shipments. In both cases, the final customer must be a nontaxable person.
In Estonia, if the intrinsic value of the goods, imported from a third country and resold to the end user whose place of residence is in the EU, exceeds EUR150 or if the actual seller of the goods is a person located in the EU – in such case the e-shop is not responsible for the taxation of the goods with VAT.
The obligation to register in Estonia for VAT liability (and also the right to get back from the tax authority the amount of VAT paid upon the import of goods) shall arise for a third-country
business whose company has a registered office in a third country and who has no permanent establishment in the EU if:
• It transfers through the e-shop, owned by any other business, to the end user its goods that are located in Estonia, and this e-shop, according to new rules, is treated as the purchaser and reseller of the goods (although the transfer of the goods to e-shop is the supply taxable at 0% VAT rate in such case).
• It owns the e-shop itself, sells as deemed supplier through its e-shop to the end user the goods located in Estonia of the other third-country business and has not registered for the OSS special scheme.
For more details about the rules for online marketplaces, please see the chapter on the EU.
Vouchers. The VAT Act in Estonia differentiates a single-purpose voucher (SPV) and a multipurpose voucher (MPV). The voucher is an SPV if the voucher-related place of supply of the goods or services and the amount of VAT due are known at the time of the issue of the voucher.
A VAT obligation on the transfer of an SPV arises on the date when the full or partial payment for the voucher has been received. The voucher is an MPV if, at the time of the issue, the place of supply of the transferred goods or provision of service or the collectible VAT is not known.
For an MPV, the VAT obligation arises on the date when the goods have been handed over or services have been provided.
Registration procedures. Taxable persons must submit an application for registration (form KR) to the Tax and Customs Board at a service bureau of the Tax and Customs Board, online via the self-service environment e-Tax Board or by email. The application can be submitted in PDF format by email (to kmkr@emta.ee), completed in Estonian, digitally signed, and submitted by a legal representative (who has to identify themselves) or an authorized person (authorization required) or a notary or via e-maksuamet/e-toll (e-Tax Board/e-Customs). To submit the applica tion for registration as a person liable to VAT in the e-Tax/e-Customs, the user has to have the power (authorization) “KMKR avalduste esitamine” (submission of VAT applications) given by a legal representative of a taxable person.
Non-established businesses must register in person, i.e., the person seeking registration cannot email or send the registration form by post, fax or through the e-Tax/e-Customs. However, an authorized person may act for the taxable person. The authorization must be digitally signed or proved by notary and apostilled (apostille is not needed for specific countries).
The tax authority shall register a person as a taxable person within five working days as of the receipt of the application or additional documentary (if required).
Deregistration. A taxable person that ceases to be eligible for VAT registration must deregister. That is, it must notify the VAT authorities that it must cease to be registered. A taxable person may also request deregistration if its taxable turnover drops below the annual registration threshold. However, deregistration is not compulsory in these circumstances. Tax authorities can remove a taxable person, that is not performing business activities, from the VAT register.
Changes to VAT registration details. The Estonian Company Registration Portal is an environment that allows companies to amend registry data. The portal allows electronic submitting of chang ing the company name and address. The Company Registration Portal entry is automatically sent to the Tax and Customs Board.
The Company Registration Portal can be used for notifying the registrar about changes in the primary field of activities by only self-employed persons and general and limited partnerships who are not required to submit annual reports to the registrar. Business associations can submit their field of activities and changes thereof only with their annual reports.
Non-established businesses must submit application for nonresident taxable person on changes in register entries concerning the termination of activities, liquidation of the permanent establish ment and changes in other information (form R4) by post, fax or through the e-Tax/e-Customs. However, an authorized person may act for the taxable person.
D. Rates
The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of VAT, including the zero rate.
The VAT rates are:
• Standard rate: 20%
• Reduced rate: 9%
• Zero-rate: 0%
The standard rate of VAT applies to all supplies of goods or services, unless a specific measure provides for a reduced rate, the zero rate or an exemption.
Due to COVID-19, a VAT exemption was granted for the importation (by way of customs duty relief) of goods needed to combat the effects of the COVID-19 outbreak during 2020 and 2021. This was in place from 30 January 2020 to 31 December 2021. VAT was not imposed on the intraCommunity acquisition of such goods, and the zero-rate (0%) applied to the taxable value of the goods supplied domestically within Estonia. The 0% rate also applies in Estonia to COVID-19 vaccines.
Examples of goods and services taxable at 0%
• Exports of goods
• Listed exported services
• Intra-Community supplies of goods
• Seagoing vessels, equipment, spare parts and fuel for seagoing vessels
• Aircraft operating on international routes, equipment, spare parts and fuel for named aircraft
• Goods supplied and services provided to international military headquarters located in Estonia if the tax incentives are laid down in an international agreement, or for the performance of the duties to the armed forces of a NATO Member State participating in the common defense effort, except Estonia, and the civilian staff accompanying them
Examples of goods and services taxable at 9%
• Medical equipment and products for handicapped people
• Books and e-books (excluding textbooks and workbooks related to the national curriculum)
• Periodicals and e-periodicals
• Accommodation and accommodation services with breakfast, excluding any goods or services accompanying such services
The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT and that do not qualify for input tax deduction.
Examples of exempt supplies of goods and services
• Health care services
• Real estate transactions
• Financial services
• Insurance and reinsurance services
• Insurance mediation
• Educational services (only noncommercial basic education)
• Lotteries and gaming
• Postal services
• Learning materials related to education
Option to tax exempt supplies. A taxable person may opt to apply VAT to certain transactions that would otherwise be exempt from VAT if the taxable person has correctly and promptly notified the tax authority in writing. The tax authority must have been notified during the same tax period as the taxed supply or in an earlier period. The option to tax must be applied continuously for at least two years.
The following supplies are eligible for the option to tax:
• The leasing or letting of immovable property (or parts thereof), except private dwellings
• Immovable property and parts thereof, except private dwellings
• Investment gold under certain conditions
• Financial services, including the following: The supply of securities
Deposit transactions for the receipt of deposits and other repayable funds from the public
Borrowing and lending operations, including consumer credit, mortgage credit, leasing transactions, settlement, cash transfer and other money transmission transactions
Issuance and administration of noncash means of payment (for example, electronic payment instruments, traveler’s checks and bills of exchange)
Guarantees and commitments and other transactions creating binding obligations to persons
Transactions carried out for their own account or for the account of clients in traded securi ties provided in the Securities Market Act and in foreign exchange and other money market instruments, including transactions in checks, exchange instruments, certificates of deposit and other such instruments
Transactions and acts related to the issuance and sale of securities
Money brokerage and management of investment funds
Other financial transactions that are not exempt from VAT, as well as factoring, are taxable at a rate of 0% or 20%, depending on the status of the customer.
The transfers of greenhouse gas emission allowances are treated as securities and thus excluded together with any related transactions from the list of exempt from VAT supplies and they are subject to VAT at a rate of 20%.
The supply of insurance services, including insurance services provided by insurance brokers and insurance agents and reinsurance, are exempt services with no option to tax.
The VAT Act provides a new definition of “building land,” which is an unimproved immovable that is planned for building or for which a building notice has been submitted or the intended purpose of the cadastral unit of which is over 50% residential land or commercial land or these jointly. Any land that is destined for building is subject to VAT.
E. Time of supply
The time when VAT becomes due is called the “time of supply” or “tax point.” The basic time of supply for goods and services is the earliest of the following events:
• The delivery of goods
• The performance of services
• Receipt of full or partial payment
Deposits and prepayments. The time of supply for deposits and prepayments is deemed to be the date on which full or partial payment is received for the goods or services or, in the case of the receipt of services, full or partial payment is made.
Continuous supplies of services. If the provision of services continues for longer than a period of taxation, the services are deemed to have been provided and received during the taxable period in which the provision of the services terminates. In the case of the provision of regular services to the same purchaser, the time at which the services are provided and received is deemed to be
the taxable period overlapping with the end of the period of time for which an invoice is submit ted or during which payment for services received is to be made as agreed, but not later than after 12 calendar months. Upon the regular provision of service, in the case of which a tax liability arises for the recipient of the service, within a longer period of time than one year, the supply of the service shall be deemed to have been rendered as of the commencement of the provision of the service on 31 December of each calendar year if the services have not been paid for and the provision of the services has not been completed within the period.
Goods sent on approval for sale or return. There are no special time of supply rules in Estonia for the supply of goods sent on approval for sale or return. As such, the general time of supply rules apply (as outlined above).
Reverse-charge services. The time of supply for supplies of reverse-charge services is the earliest of the following events:
• When the Estonian buyer receives the service
• When the Estonian buyer makes a payment
Leased assets. In case of operational leases, the time of supply rule for services applies (as outlined above). In the case of capital leases, the time of supply rule for goods rules applies (as outlined above).
Imported goods. The time of supply for imports is when the goods clear customs.
Intra-Community acquisitions. The intra-Community acquisition of goods takes place on the 15th day of the month following the month in which the goods are dispatched or made available or on the date on which an invoice is issued for the goods if the invoice is issued prior to the 15th day of the month following the month in which the goods are dispatched or made available to the purchaser. This is different in the case of a transaction that was originally not treated as intraCommunity turnover, but then the grounds for a transaction cease to exist and the transaction shall be deemed to constitute an intra-Community supply of goods. In such cases, the intraCommunity acquisition of goods shall be deemed to have been affected on the date on which those grounds ceased to exist.
Intra-Community supplies of goods. An intra-Community supply takes place on the 15th day of the month following the month in which the goods obtained via an intra-Community acquisition, and are dispatched or made available or on the date on which an invoice is issued for the goods if the invoice is issued prior to the 15th day of the month following the month in which the goods are dispatched or made available to the purchaser. This is different in the case of a transaction that was originally not treated as intra-Community turnover, but then the grounds for a transac tion cease to exist and the transaction shall be deemed to constitute an intra-Community supply of goods. Then intra-Community supply of goods shall be deemed to have been created on the date on which the grounds ceased to exist.
Distance sales. There are no special time of supply rules in Estonia for supplies of distance sales. As such, the general time of supply rules apply (as outlined above).
Call-off-stock. As of 1 January 2020, a call-off-stock definition will be implemented into the Estonian law regarding the Council Directive (EU) 2018/1910. Under the new definition, calloff-stocks is considered as goods that are delivered to a stock in another Member State for the purpose of transferring the goods to another Member State’s taxable person. The transport of call-off-stock to another Member State is no longer deemed an intra-Community supply if the goods are transferred within 12 months after the arrival to another Member State’s taxable per son, if the new acquirer is found during the 12 months or if the goods are returned to Estonia.
Chain transactions. From 1 January 2020, a chain transaction will be considered as intra-Com munity supply in case goods are transferred to a taxable person of another Member State and if
the same goods are transferred successively. The goods must be transferred directly from the first transferor to the final acquirer in another Member State.
If the goods are delivered to another Member State by the reseller upon notifying the transferor of its VAT registration number in the Member State of departure (same as the transferor), then the supply of goods between the transferor and reseller is a domestic supply of goods and the transaction by the reseller is regarded as the intra-Community supply. If the reseller is registered as a taxable person in the other Member State, the supply of goods between the transferor and reseller is intra-Community supply.
F. Recovery of VAT by taxable persons
A taxable person may recover input tax (which is VAT charged on supplies of goods and ser vices) where it is used for business purposes. Input tax is generally recovered as an offset against output tax, which is VAT charged on supplies made. Input tax includes VAT charged on goods and services supplied in Estonia, VAT paid or payable on imported goods and VAT self-assessed for reverse-charge services and/or goods received from outside Estonia.
The time limit for a taxable person to reclaim input tax in Estonia is three years. However, 60 days is the time period during which the tax authorities can check the corrected VAT return.
A valid tax invoice or customs document must generally support a claim for input tax. Invoice or customs documents are not needed if the reverse-charge mechanism is applied and other evi dence is presented.
Input tax is deductible if an invoice has been issued and the goods or services have been supplied or if full or partial payment is made.
For imported goods, input tax is deducted on the basis of a customs declaration.
An invoice may be issued on paper or, subject to acceptance by the acquirer of goods or the recipient of services, by electronic means.
Nondeductible input tax. Input tax may not be recovered on purchases of goods and services that are not used for business purposes (for example, goods acquired for private use by an entrepreneur). In addition, input tax may not be recovered for some items of business expenditure.
The following lists provide some examples of items of expenditure for which input tax is not deductible and examples of items for which input tax is deductible if the expenditure is related to a taxable business use.
Examples of items for which input tax is nondeductible
• Business and employee entertainment
• Business use of home telephone
• For company cars only 50% input deduction is allowed
Examples of items for which input tax is deductible (if related to a taxable business use)
• Hotel accommodation for a business trip
• Business gifts valued at less than EUR10
• Parking
• Mobile phones
• Travel expenses – company cars (passenger cars purchased, hired or leased and related mainte nance costs, including fuel and repair):
Full (100%) deduction if exclusively used for business purposes on a continuous basis for at least two years. In this case, within two years, the company car is used also for nonbusiness purposes, 50% of the input tax deducted, except from maintenance costs, shall be paid back to the tax authority. When the purpose of use of the company car changes, the taxable
person must apply the tax treatment for partly business use of the car continuously for at least one year.
If personal use of such a car is carried out, input tax up to 50% can be deducted and such status must be maintained for a year, i.e., full business use can be claimed only after a year.
Partial exemption. Input tax directly related to making exempt supplies is generally not recover able. If an Estonian taxable person makes both exempt supplies and taxable supplies, it may not deduct input tax in full. This situation is referred to as “partial exemption.”
In Estonia, the amount of input tax that a partially exempt business recovers may be calculated using either of the following methods:
• General pro rata
• A two-stage method, which includes a direct attribution of input tax
The general pro rata method is based on the percentage of taxable and total supplies in the pre ceding calendar year. The recovery percentage is used provisionally during the current year and is adjusted at the end of the year based on the actual value of taxable and total supplies made.
The two-stage calculation consists of the following stages:
• The first stage identifies input tax that may be allocated directly to both taxable and exempt supplies. Input tax allocated directly to taxable supplies is deductible, whereas input tax directly related to exempt supplies is not deductible.
• The second stage identifies the amount of the remaining input tax (for example, input tax on general business overhead) that may be allocated to taxable supplies and recovered. The calculation is performed using the general pro rata method based on the value of supplies made.
A partial deduction is based on the proportion of taxable supplies for which input tax deduction is allowed, made during a calendar year in Estonia and abroad, compared with the total amount of supplies made by the person during a calendar year in Estonia and abroad.
Approval from the tax authorities is not required to use the partial exemption standard methods (i.e., either the general pro rata or the two-stage method, as outlined above).
Special methods are allowed in Estonia, but only with written permission from the tax authori ties.
Capital goods. Capital goods are items of capital expenditure that are used in a business over several years. Input tax is deducted in the VAT year in which the goods are acquired. The amount of input tax recovered depends on the taxable person’s partial exemption recovery position in the VAT year of acquisition. However, the amount of input tax recovered for capital goods must be adjusted over time if the taxable person’s partial exemption recovery percentage changes during the adjustment period.
In Estonia, the capital goods adjustment applies to immovable property for a period of 10 years and to other fixed assets for a period of 5 years. The adjustment may result in either an increase or a decrease of deductible input tax, depending on whether the ratio of taxable supplies made by the business has increased or decreased compared with the year in which the capital goods were acquired.
A capital goods adjustment is also required if a taxable person transfers immovable property used for less than 10 years and if the supply is exempt from VAT. In these circumstances, the taxable person must recalculate its entitlement to input tax paid on acquisition of the immovable property and for related goods and services. A taxable person may opt to charge VAT on the sale or leasing of immovable property (the option may not be applied to the sale or lease of living space). If the transfer is subject to tax, no capital goods adjustment is required.
In Estonia, the capital goods adjustment also applies to immaterial fixed assets, for example, software development expenses.
Refunds. If the amount of input tax that is deductible for a VAT period exceeds the amount of output tax that is chargeable in the same period, the taxable person has a VAT credit. The taxable person may choose to use the VAT credit to offset other tax obligations or penalties, or it may request a refund. Refunds are made within 60 days after the due date for payment. However, this period may be extended for up to 120 days if the tax authorities have just reasons to check the circumstances of the VAT refund application further.
Pre-registration costs. If a taxable person has, prior to the person’s date of registration as a taxable person, acquired goods, except for fixed assets, intended for transfer or for the manufacture of goods to be transferred, the taxable person shall have the right to deduct the input tax on such goods in the taxable period during which the goods were transferred as taxable supply.
A taxable person that has received services prior to the person’s date of registration as a taxable person shall have the right to deduct the input tax on such services in the taxable period during which such services were provided as taxable supply.
The input tax on fixed assets acquired before registration of a person as a taxable person may be deducted if the person has not used the fixed assets prior to the registration.
Bad debts. From 1 January 2022, output tax accounted for on supplies that do not get paid by the recipient (i.e., a bad debt) can be recovered in Estonia. The supplier can claim relief from VAT on bad debts incurred, provided that all the following conditions are met:
• The VAT invoice, which is wholly or partially unpaid, has been issued by the taxable person for the goods supplied or services provided.
• The VAT amount calculated on this supply has been declared in the respective monthly VAT return.
• The debt claim has not been alienated.
• At least 12 months (this will not be applicable if the claim exceeds EUR30,000, when there must be also a court settlement that has entered into force), but not more than three years, has elapsed from the due date of payment of that VAT invoice.
• The claim has been written off in the accounting of the taxable person, as it was unable to col lect that claim, regardless of its efforts to make the utmost for collecting that claim, or the costs for recovering that claim will exceed the estimated income to be accrued.
• If the claim exceeds EUR30,000, then such claim must be proved with the court settlement that has entered into force.
• The recipient of the goods supplied or services provided, is not a related person in the meaning of the Income Tax Act.
• At the month of write-off of the claim, the taxable person has informed in writing the recipient of the goods or services about the write-off of the claim in its accounting and has specified therein the VAT amount related to the written-off claim.
Noneconomic activities. Input tax incurred on purchases that are used for noneconomic activities is not recoverable in Estonia. If in the accounts of the taxable person it is not possible to separate input tax paid on goods or services used for business-related purposes from input tax paid on goods or services used for noneconomic activities, i.e., purposes not business related, the taxable person must request that the tax authority determines the amount deductible.
G. Recovery of VAT by non-established businesses
The Estonian tax authorities refund VAT incurred by businesses that are neither established nor registered for VAT in Estonia. Non-established businesses may claim Estonian VAT to the same extent as VAT-registered businesses. VAT is refunded if the following conditions are satisfied:
• The taxable person is required to pay VAT as a business in its country of residence.
• An Estonian taxable person may deduct VAT under the same circumstances on the import of goods, the acquisition of goods or the receipt of services.
EU businesses. For businesses established in the EU, refunds are made under the terms of EU Directive 2008/9/EC. The VAT refund procedure under the EU Directive 2008/9 may be used only if the business did not perform any taxable supplies in Estonia during the refund period (excluding supplies covered by the reverse charge). For full details please see the chapter on the EU.
Please find below specific rules for Estonia:
• The application must be submitted electronically through the tax authorities of the country of residence to the Estonian tax authorities by 30 September of the year following the period of refund.
• VAT paid in Estonia is refunded to an EU taxable person on the basis of an electronic refund application submitted to the Estonian tax authorities by the tax authorities of the other EU Member State.
Non-EU businesses. For businesses established outside the EU, refunds are made under the terms of the EU 13th Directive. For full details please see the chapter on the EU.
Estonia applies the principle of reciprocity; that is, the country where the claimant is established must also provide VAT refunds to Estonian businesses. Estonian VAT is only refunded on the condition of reciprocity to taxable persons of Norway, Iceland, Israel, Switzerland and the UK.
Please find below specific rules for Estonia:
• A non-established business from a non-EU state may request a refund of VAT by filing the application form KMT
• The application may be completed in Estonian or in English
• It may be submitted by the non-established business or by an authorized representative to the following address:
Estonian Tax and Customs Board Lõõtsa 8a 15176 Tallinn Estonia
• The application for a refund of tax must be accompanied by the following documents:
Original invoices to support the claim for VAT refund
For an authorized representative, a power of attorney
A certificate issued within the preceding 12 months by the tax authorities in the country where the claimant is established, indicating that the claimant was a taxable person when it made the purchases
• For non-EU taxable persons, the following conditions must be met:
The amount requested must be at least EUR320 for the year
The country where the applicant business is resident must refund VAT to Estonian residents under the same conditions
• The VAT authorities refund VAT claimed within six months after the date on which the applica tion is filed
• The minimum claim amount is EUR320 and there is no maximum claim amount
• The deadline to submit the refund is 30 September
Late payment interest. In Estonia, the tax authorities may be liable for late payment interest of 0.06% per day (for both EU and non-EU non-established businesses) if the refund is not pro cessed in a timely manner.