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  • Service: Tax, Global Indirect Tax
  • Type: Regulatory update
  • Date: 8/1/2013

Estonia: VAT essentials 

Essential information regarding VAT as it applies in Estonia.


Scope and Rates

What supplies are liable to VAT?


Value-added tax (VAT) is due on any supply of goods or services made in Estonia, where it is a taxable supply made by a taxable person in the course or furtherance of a business carried on by said person. Supply includes all forms of supply. It is not restricted to the provision of goods and services by way of sale but can equally apply to other forms of transaction, including the leasing or hire of goods, the transfer of rights, and obligations to refrain from economic activity, to waive the exercise of a right, or to tolerate a situation for a charge.


Supply does not include anything done otherwise than for a consideration. However, certain actions carried out for no consideration are deemed to be supplies; for example, giving business gifts and private use of business assets.


What is the standard rate of VAT?


The standard rate of VAT is 20 percent.


Are there any reduced rates, zero rates, or exemptions?


Yes. There is a reduced rate of 9 percent for certain goods and services, including:


  • books and certain printed periodicals
  • certain medicines and medical equipment for disabled persons
  • accommodation services

There is an extensive list of zero-rate supplies, including:


  • cross-border services
  • international transport services and international passenger services
  • exports of goods
  • supply of aircraft operating on international routes
  • supply of sea-going vessels for navigation on high seas
  • goods placed in free zone or free warehouse or certain goods listed in Annex V of the Directive 2006/112 and placed to VAT warehouse
  • provision of services onboard vessels or aircrafts during the international transport.

The list of exemptions includes:


  • immovable property or parts thereof (there is an option to tax the sale of certain immovable property if the tax authorities are notified beforehand)
  • the leasing or letting of, or establishment of a usufruct on certain immovable property or parts thereof. (There is an option to tax those transactions if the tax authorities are notified beforehand.)
  • insurance
  • postal services
  • betting, gaming, and lotteries
  • securities and financial services. (There is an option to tax those transactions if the tax authorities are notified beforehand.)
  • education
  • health and welfare.

Note: it is not possible to recover VAT incurred in making exempt supplies.


What are the other local indirect taxes beside VAT


Gambling tax which is state tax excise duties.

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Registration

Who is required to register for Estonian VAT?


Estonian Entities


If a business makes taxable supplies in Estonia over the VAT registration threshold (EUR 16,000 as from the beginning of the calendar year) it will be required to register and account for Estonian VAT. If it trades below the registration threshold it can still choose to register for VAT as a Voluntary Trader.


The VAT registration obligation for foreign traders with fixed establishment in Estonia is similar to that of the local companies. As the concept of a fixed establishment is not stated in the Estonian VAT Act, the provisions of the Council Implementing Regulation No 282/2011 are applied.


Non-Estonian Entities


When a trader, with no fixed establishment in Estonia makes a taxable supply in Estonia that is not taxed by the Estonian taxable person upon acquiring the goods or services, the foreign trader must register for VAT from the date the taxable supply was made. No registration threshold applies for such traders. Note that different rules apply in case of transfer of fixed assets, distance sales and e-commerce.


The VAT registration is not required if a trader effects only zero-rated supplies (except IC supplies of goods or services) in Estonia, for example if a trader effects all its supplies through the free zone or a customs warehouse in Estonia.


The appointment of a tax representative is obligatory for non-EU entities which have no permanent establishment in Estonia. EU entities with no permanent establishment in Estonia may appoint a tax representative. A tax representative may not be used when a third-country taxable person provides electronically supplied services.


If a business is not registered for VAT in Estonia but sells and delivers goods from another European Union (EU) Member State to customers in Estonia who are not VAT registered (distance sales), where the value of those sales exceeds a threshold of EUR 35,000, the supplier is required to register and account for VAT in Estonia.


Access the VAT registration form on the Estonian tax authority's web site (PDF 116 KB).


Unofficial translation of the VAT registration form on the Estonian tax authority’s web site: http://emta.ee/doc.php?29567 (PDF 18.6 KB)


Please consider the VAT registration form in English as informative. The form in Estonian must be submitted to the tax authorities.


Are there penalties for not registering or late registration?


The penalty for failing to register for VAT promptly may be up to EUR 3,200.


Is voluntary VAT registration possible for an overseas company?


Yes.


Are there any simplifications that could avoid the need for an overseas company to register for VAT?


According to the Estonian VAT Act, a reverse charge is applied in case of the acquisition of goods or receipt of services from a non-Estonian entity that is not registered for VAT in Estonia. In general if a foreign trader supplies goods or services to an Estonian VAT payer then a VAT registration is not mandatory in Estonia.


If the activities of a foreign company constitute the fixed establishment in Estonia, the company is required to register and charge Estonian VAT on the supplies that are considered to be supplied in Estonia.


In the following examples the obligation to account for the VAT due can be shifted to your customer provided that your customer is registered for VAT in Estonia.


Triangulation


If a business is an intermediate supplier to an Estonian buyer of goods purchased from a business in another EU Member State and are delivered from there to Estonia, VAT due can be accounted for by the Estonian customer.


Call-Off Stock


There is a possibility to avoid VAT registration if the stocks are brought into Estonia for customer(s) who is (are) VAT registered in Estonia. The Estonian customer accounts for VAT on the supply as an acquisition.


Supply and Install


A reverse charge is applied in case of the acquisition of goods installed or assembled in Estonia from a taxable person of another EU Member State. The definition for the goods installed or assembled is stated in the Estonian VAT Act.


Reverse Charge Services


These services are covered in more detail at chapter International Supplies of Goods and Services.


These provisions are subject to particular requirements.


Does an overseas company need to appoint a fiscal representative?


The appointment of a tax representative is obligatory for non-EU entities with no permanent establishment in Estonia. EU entities with no permanent establishment in Estonia may appoint a tax representative.

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VAT grouping

Is VAT grouping possible?


Yes, provided various criteria are met. Primarily there must be an element of common control over the members of the group.


Can an overseas company be included in a VAT group?


Yes, if it has been registered as an Estonian VAT payer beforehand and it belongs in the same group of companies with the Estonian companies.


You can access the VAT group registration forms on the Estonian tax authority's web site: http://www.emta.ee/doc.php

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Returns

How frequently are VAT returns submitted?


Most registered businesses are required to submit VAT returns on a monthly basis. It is possible to apply for a taxable period in excess of one month; however, in practice this is uncommon.


Failure to furnish VAT returns on time may result in a penalty of up to EUR 13,000.


Late payments may result in interest assessed at 0.06 percent of VAT due for each day of the delay. Additionally, tax interests are subject to income tax.


Are there any other returns that need to be submitted?


European Sales List (Recapitulative Statements)


If a business has performed intra-Community supply of goods, transferred goods as a reseller in a triangular transaction or has provided a services to a taxable person of another Member State the place of supply of which is not Estonia and which is subject to taxation by the recipient of the services in another Member State, it is required to complete recapitulative statements. Recapitulative statements are completed on a monthly basis.


Intrastat Supplementary Declarations

Intrastat reports must be submitted by companies whose trade with EU Member States and cumulative amount of dispatches exceeded EUR 120,000 lion or acquisitions exceeded EUR 190,000 during the previous year. In addition, reports have to be submitted by companies whose dispatches or acquisitions to/from other EU Member States did not exceed the above-mentioned threshold in the previous year exceeded during the current year. The reports have to be submitted until the end of the year starting from the month the threshold was exceeded.


Tax Reporting and Payment


Failure to furnish European Sales List on time may result in a penalty of up to EUR 3,200. Failure to submit data collected through official statistical surveys, or submission of distorted data, is punishable by a fine of up to 200 fine units (up to EUR 800). The same act, if committed by a legal person, is punishable by a fine of up to EUR 320.


Access recapitulative/intrastat reporting forms on the Estonian Statistical Department web site: VAT Recapitulative Statement



If a business receives a purchase invoice in foreign currency, which exchange rate should be used for VAT reporting purposes? (e.g. central bank’s exchange rate applicable on the date of the invoice)


European Central Bank’s foreign exchange rate should be used.

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VAT recovery

Can a business recover VAT if it is not registered?


Yes. Provided the Estonian companies are entitled to recover input VAT on similar goods and services.


Companies established in another EU Member State should make a claim under Council Directive 2008/9/EC.


The VAT paid by a foreign taxable person in Estonia upon the import or acquisition of goods, except immovable's, or receipt of services used for business purposes is refunded to the foreign taxable person on the basis of a written or electronic application. As of 1st January 2010 all cross-border EU VAT refund applications are submitted electronically only, new electronic filing system does not affect applications submitted by non-EU companies. The Tax Authorities has four months from the receipt of application to make and notify its decision. Tax Authorities may extend the decision deadline up to eight months in case it requests for additional information. Minimum refundable VAT amount on the application for a calendar year may not be less than EUR 50 and minimum refundable VAT amount on application for less than a calendar year but not less than three months may not be less than EUR 400.The payment must be made within 10 working days after the decision is made by the Tax Authorities. The claims must be submitted by the 30 September of the following year.


Thirteenth Directive type claims are also possible for non-EU companies if in the home country of the foreign VAT payer, Estonian residents have the right to the refund of VAT. The claim period covers the calendar year and claims can be submitted in the beginning of the year following the claim period. The VAT amount to be refunded must be at least EUR 320. The claims must be submitted by the 30 September of the year following the claim period.


Access the 13th Directive claim forms on the Estonian tax authority's web site: http://www.emta.ee/public/vormid/avaldused/Vorm_KMT_2013_taidetav.pdf (PDF 81.8 KB).


Does your country apply reciprocity rules for reclaims submitted by non-established businesses?


For EU member states reciprocity rules does not apply as according to the Council Directive 2008/9/EC directive it is compulsory to refund the VAT to a foreign taxable person on its request. VAT refund for a foreign taxable person is possible only where Estonian taxable persons have the right to deduct input VAT paid from their calculated VAT under the same conditions.


Estonia does apply reciprocity rules for reclaims submitted by non-established businesses from third countries. VAT paid upon the import or acquisition of goods, except immovable's, or receipt of services for business purposes is refundable in Estonia to a third country taxable person, provided that Estonian residents have the right to the VAT refund on similar conditions. In addition the requirements described above apply.


Currently Estonia has mutual agreements for VAT refund with Norway, Iceland, Israel, Switzerland, and Croatia (with limitations).


Are there any items that businesses cannot recover VAT on?


Yes. There are certain items that businesses cannot recover VAT on. For example:


  • Exempt supplies: where VAT relates to both taxable and exempt supplies, you need to make an apportionment.
  • Non-business (including private) activities: where VAT relates to both business and non-business activities, an apportionment is required.
  • Business entertainment: where VAT relates to business entertainment or payment for goods or services relating to the provision of meals or accommodation for the employees, no input VAT deduction is allowed. However, VAT can be recovered on the accommodation during the business trip
  • Purchases falling within the Tour Operators' Margin Scheme. The VAT on goods and services, which fall under this scheme, cannot be reclaimed.
  • Goods sold under one of the margin schemes for second hand goods or original works of art, collectors' items and antiques at public actions. These schemes provide for VAT to be accounted for on the goods' sales margin, but do not allow VAT recovery on the purchase of those goods.

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International Supplies of Goods and Services

How are exports of goods and services treated?


Goods


If a business sells goods to a customer who is registered for VAT in another EU Member State and the sale involves the removal of those goods from Estonia (either by the supplier or the customer) to that Member State, then the supplier does not need to charge VAT and may zero rate the supply as an intra-EU dispatch. It must obtain your customer's VAT number and quote it on its invoice. It should also obtain evidence of the goods' removal from Estonia.


If a business sells goods to a customer who is not registered for VAT in another EU Member State, you will have to charge Estonian VAT. If the sales exceed a certain threshold for that Member State it may have to register in the Member State under what is known as the Distance Selling Scheme.


If the company exports goods to a customer (business or private) outside of the EU then it does not need to charge VAT but, as for intra-Community sales, it should make sure to keep proof of dispatch/delivery to support the zero rating.


Services


If an Estonian established business supplies services to a foreign business customer (B2B), in general the supply of services is taxable in the country of the recipient under the reverse charge mechanism. If the company, however, supplies services to a private consumer (B2C), the services are in general taxable in the country of the supplier and therefore subject to Estonian VAT.


The following exceptions apply to the B2B and B2C main rules as described above:


  • services involving real estate (taxable in the country where the real estate is located)
  • restaurant and catering services (taxable in the country where these services are performed. Other rules apply if these services are performed on board a ship, aircraft, or train)
  • passenger transport (taxable in the country where the transport services are actually performed)
  • services with regard to cultural, artistic, sporting, scientific, educational, entertainment, and similar activities, along with the ancillary services (taxable in the country where those activities are physically carried out). With effect from 1 January, 2011, this exception has applied to services performed for VAT entrepreneurs only with respect to admission to the aforementioned events and the appurtenant admission-related services. Nothing changed as of 1 January, 2011, with regard to services performed for non-taxable persons
  • Short-term hiring of transportation vehicles (for ships maximum 90 days/for other means of transport maximum 30 days; taxable in the country where the vehicle is actually put at the disposal of the customer.

The following exceptions apply to the B2C main rule:


  • intermediary services (taxable in the country where the underlying transaction is taxable)
  • intra-Community transport of goods (taxable in the country of departure). For other types of goods transportation for non-taxable customers, the place of service is the place where the transportation is actually performed.
  • transportation-related services (taxable in the country where the services are physically carried out)
  • services involving movable tangible goods (taxable in the country where the activities are actually carried out)
  • services performed electronically by a VAT entrepreneur not established in the EU to non-taxable customers (taxable in the country where the customer of the service is located).

The following services performed for non-taxable customers that are established or resident outside the EU are taxable in the country where the customer is established:


  • the transfer of licenses and similar rights
  • advertising services
  • services performed by consultants, as well as data-processing and information-provision services
  • the obligation to refrain, in whole or in part, from pursuing a business activity
  • banking and insurance services
  • supply of staff
  • hiring out of movable property, with the exception of means of transport
  • operating natural gas and electricity-distribution systems
  • telecommunications services
  • radio and television broadcast services and
  • services performed electronically.

How are goods dealt with on importation?


When goods are imported into Estonia from outside the EU, import VAT and customs duty may be due. This has, as a general rule, to be paid or secured before the goods will be released from customs' control.


How are services which are brought in from abroad treated for VAT purposes?


If a company buys in certain services from outside Estonia, it will be required to apply the reverse charge. This is intended to take away any VAT advantage of buying those services from outside Estonia.


Under the reverse charge businesses are required to account for a notional amount of VAT as output tax on their VAT return and recover this VAT as input tax.


If the business is able to recover all of its VAT the reverse charge has no cost effect and is a VAT compliance matter only. However, if it is partly exempt there is likely to be a VAT cost depending on the level of recovery allowed under the partial exemption method. The reverse charge applies to a range of services.


The following services are treated as supplied where physically performed and may become subject to the reverse charge where the supplier is not registered for Estonian VAT:


  • cultural, artistic, sporting, scientific, educational, entertainment, or similar activities, including the activities of the organizers of such activities
  • passenger transport within Estonia
  • hiring of means of transport.

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Invoices

Is a business required to issue tax invoices?


Yes.


What do businesses have to show on a tax invoice?


A tax invoice should contain the following data:


  • the date of issue
  • sequential number
  • name, address, and VAT number of a supplier
  • name and address of the customer
  • where the customer is liable to pay tax on goods acquired or services received, the VAT number of the customer under which the goods were acquired or the services received
  • name or a description of the goods or services
  • quantity of the goods or extent of the services
  • date of dispatch of the goods or provision of the services or an earlier date of receipt of full or partial payment for the goods or services if the date can be determined and differs from the date of issue of the invoice
  • price of the goods or services exclusive of VAT and any discounts, if these are not included in the price
  • taxable amount broken down by different rates of VAT together with the applicable rates of VAT or the amount of supply exempt from tax
  • VAT amount payable (EUR)
  • in addition to the information listed above, in certain cases also references to the appropriate clauses of the Estonian VAT Act or the Directive 2006/112/EC or any other unambiguous indication. For example:
    • where the supply is subject to VAT at the rate of zero percent or the supply is exempt from VAT, reference should be made to the appropriate clause of Estonian VAT Act or the appropriate article of the Directive 2006/112/EC, where intra-Community supply is involved
    • where the acquirer of the goods or the recipient of services is liable to pay tax, reference “reverse charge” if the place of supply of goods is not Estonia
    • where the margin scheme for travel agents is applied, the reference ”Margin scheme — Travel agents”
    • where one of the special arrangements applicable to second-hand goods, works of art, collectors’ items and antiques is applied the reference “Margin scheme — Second-hand goods”; “Margin scheme — Works of art” or “Margin scheme — Collector’s items and antiques” respectively
    • where the customer receiving a supply issues the invoice instead of the supplier, the reference “Self-billing”
    • in the case of a triangular transaction, the re-seller has to refer to the article 141 of the Directive 2006/112/EC on the invoice.
    • in some cases it is also allowed to use instead of the above references any other unambiguous indication (such as, intra-Community supply and triangular transaction).

Can businesses issue invoices electronically?


Yes. Electronic invoicing is allowed, subject to the acceptance of the customer. There is no requirement to use Electronic Data Interchange (EDI) or an advanced electronic signature.


Is it possible to operate self-billing?


Yes. If the purchaser of the goods or services issues a credit note (the recipient invoices the supplier by issuing a credit note - self-billing) it is required that the performing party and the receiving party agree in writing about the invoicing of the receiving party before the supply or service is effected. The written agreement must contain the procedure for the acceptance of each invoice by the taxable person.


Can a business issue VAT invoices denominated in a foreign currency?


Business can issue invoice denominated in a foreign currency, but the amount of VAT must be in Euros.

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Transfers of Business

Is there a relief from VAT for the sale of a business as a going concern?


Under the VAT Act the transfer of an enterprise or a part thereof within the meaning of the Law of Obligations Act is not subject to the VAT (section 4 subsection 2(1)) of the Estonian VAT Act). This does not apply in case of a transfer of a single asset.

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Options to Tax

Are there any options to tax transactions?


A taxable person can opt for taxation on the goods and services listed below if the person has, during the same taxable period or earlier, notified tax authorities in writing before the supply is effected:


  • leasing or letting of immovable's or parts thereof, establishment of a usufruct on immovable's or parts thereof, except dwellings
  • immovable's and parts thereof, except dwellings
  • certain financial transactions and securities, except if provided to a VAT registered person in another Member State
  • investment gold.

If a taxable person opts for taxation, such supplies of services shall be taxed for at least two years.

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Head Office and Branch transactions

How are transactions between head office and branch treated?


The transactions with goods that take place between head office and branch are treated in the same way as the transactions between any other entities. The provision of services between a company and its permanent establishment (that is between head office and branch) is not deemed to be a business transaction (supply for VAT purposes).

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Bad Debt

Are businesses able to claim relief for bad debts?


There are no provisions for relief from bad debts in the Estonian legislation.

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Anti-Avoidance

Is there a general anti-avoidance provision under VAT law?


No, but according to the Estonian taxation law, if it is evident from the content of a transaction that it is performed for the purposes of tax evasion, the conditions which correspond to the actual economic content of the transaction may be applied by the tax authorities.


Since 2009 the provisions concerning the revaluation of transactions performed between related parties to the market value have been included in the Estonian VAT Act.

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Penalty Regime

What is the penalty and interest regime like?


Where the tax authorities discover an error the tax authorities are entitled to charge a penalty of up to EUR 13,000 and interest of 0.06 percent per day is also charged.


Tax evasion to large amount is punishable by a pecuniary punishment or up to three years imprisonment. If the same act results in a tax underpayment in the amount of EUR 320,000 or more, it is punishable by up to five years imprisonment.


Major tax fraud is punishable by a pecuniary punishment or up to five years imprisonment. If the same act results in a tax underpayment in the amount of EUR 320,000 or more, it is punishable by one up to seven years imprisonment.

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Tax authorities

Tax audits



How often do tax audits take place?

It is not regulated by law and may depend on several factors.


Are there audits done electronically in your country (e-audit)? If so, what system is in use?


Yes, the tax authorities are doing audits electronically.


Advance rulings and decisions from the tax authority


Is it possible to apply for formal or informal advance rulings from the (indirect) tax authority?


Yes.


Are rulings and decisions issued by the tax authorities publicly available in your country?


Only some of the rulings and decisions are available publicly.

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Miscellaneous

In your country, are there unique specific indirect tax rules (regimes) that differ from standard indirect tax rules in other jurisdictions?


Estonia has been granted a derogation to continue to exempt the transport of passengers and, in so far as the transport of the passengers is exempt, the transport of goods accompanying them, such as luggage or motor vehicles, or the supply of services relating to the transport of passengers.


The following domestic supplies are subject to reverse charge by the purchaser:


  • certain immovable goods
  • scrap metal
  • certain transactions with gold.

Are there indirect tax incentives available in your country (e.g. reduced rates, tax holidays)?


No.

 

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