Value added tax

Value added tax (VAT) is a tax imposed by the state and is paid by persons registered as VAT liable either in case the liability arises or voluntarily. The obligation to pay VAT also arises when a person has mistakenly added VAT on issued invoices.

Changes in the Estonian Value Added Tax Act

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On 18 May, the Riigikogu passed an Act amending the Value Added Tax Act, which will establish the rate of VAT on press publications, both on a physical and electronic medium, at 5% instead of 9% as of 1 August 2022.

The 20% VAT rate will continue to apply to press publications containing mainly advertising or private advertisements or mainly erotic or pornographic content or video or music content.

On 1 August 2022, only the VAT rate for press publications changed, not their definition. When deciding whether a publication is a press publication, the tax authority will first proceed on whether the publication has been assigned the International Standard Serial Number ISSN. If the International Standard Book Number ISBN has been assigned to the publication or both standard numbers, the ISSN and ISBN, which serial publications with a special title receive, then the publication is considered a book with a VAT rate of 9%.

If a publication only has the ISSN standard number, it is not considered a book for the purposes of the Value Added Tax Act. However, on the basis of the ISSN standard number alone, it cannot be decided whether it is a press publication. In addition to newspapers and magazines, the standard number ISSN is given to yearbooks, series of studies and editorials, periodic statistical collections, monograph series, etc. In a situation where it is not clear whether a publication with the standard ISSN number qualifies as a press publication, the tax authority decides it on a case-by-case basis in cooperation with the interested taxpayer.


Exclusion of collector coins from VAT exemption

Under the EU VAT Directive, only coins and banknotes normally used as means of payment are exempt from VAT.

The exemption does not apply to coins and notes which, although they are legal means of payment in the issuing country, are not intended to be used as a means of payment and are not normally used as means of payment (so-called collector coins and investment coins which, for tax purposes, are not treated as means of payment, the transactions of which are not taxed, but they are taxed as goods). Investment gold within the meaning of subsection 10 of § 2 of the VAT Act will remain exempt from VAT even after 1 July 2022.

The European Commission drew Estonia’s attention to the fact that the Estonian VAT Act is not in conformity with the VAT Directive with regard to the exemption of collector coins and informed Estonia of the possibility of initiating infringement proceedings.

Therefore, from 1 July 2022, import, intra-Community acquisition and domestic supply of collector coins will be excluded from the VAT exemption and transactions in collector coins from the exemption for payment services.

The term ‘collector coin’ is defined in Article 5 of Regulation (EU) No 651/2012 of the European Parliament and of the Council of 4 July 2012 on the issuance of euro coins. Collector coins meet the following criteria:

  1. their face value must be different from the face values of circulation coins;
  2. their images must not be similar to the common sides of circulation coins, and if their images are similar to any national side of circulation coins, their overall appearance can still be easily differentiated;
  3. their colour, diameter and weight must differ significantly from circulation coins for at least two of these three characteristics; the difference shall be regarded as significant if the values including tolerances are outside the tolerance ranges fixed for circulation coins;
  4. they must not have a shaped edge with fine scallops or a “Spanish flower” shape.


Amendments related to cash-based VAT accounting and deduction of input VAT upon purchase from user of cash-based VAT accounting

In its judgment in Case C-169/12, the Court of Justice held that a Member State which, in accordance with Article 66(b) of the VAT Directive, allows to establish the time when domestic supply is effected on a cash basis based on the receipt of the payment for the goods or services, may not, in certain exceptional cases (for example, where the payment has not been received by a given date or is paid in instalments in accordance with a contract), set any other date for the VAT to become chargeable.

Subsection 5 of § 44 and clause 5 of subsection 11 of § 44 of the Estonian VAT Act are in conflict with that judgement and will therefore be declared invalid with effect from 1 July 2022.

Under the VAT Directive, the right to deduct input VAT arises at the time when the tax becomes chargeable. Therefore, a new subsection 10 of § 31 of the VAT Act is added, according to which a taxable person has the right to deduct input VAT on the purchase of goods or services from a taxable person applying the special arrangement for cash accounting for VAT in accordance with the payment for the goods or services, in the extent of the amount of input VAT calculated on the amount paid.

Clause 10 is added to subsection 8 of § 37 of the VAT Act in such a way that a person applying the special arrangements for cash accounting is required to indicate “Cash accounting” on the sales invoice. The obligation to mention it on the invoice arises from Article 226 (7a) of the VAT Directive, which provides that such an indication must be added to an invoice where VAT becomes chargeable at the time when the payment is received and the right of deduction arises at the time the deductible tax becomes chargeable.


Clarification of the composition of the taxable value of imported goods

According to the current regulation of the Estonian VAT Act, the costs related to the transport of goods imported in Estonia which have been incurred in connection with the transport of goods from Estonia to another destination in the European Union, if that place is known at the time of import, are not included in the taxable value of the imported goods.

This is not in line with the VAT Directive and therefore the Estonian law is amended, as a result of which these costs must be added to the taxable value of the imported goods.


Specification of the list of goods exempt from VAT upon import in § 17 of the VAT Act

The wording of clause 7 of subsection 1 of § 17 is specified by references to the maximum limits and conditions for exemption from excise duty on alcohol and tobacco products provided for in the Alcohol, Tobacco, Fuel and Electricity Excise Duty Act (ATKEAS). In this case, the VAT exemption is also applied on the grounds set out in ATKEAS. Clause 12 of subsection 1 is also added and provides tax exemption for fuel delivered by a traveller from a third country and in the course of international transport to Estonia to the extent and on the conditions provided for in ATKEAS.

The amendment to clause 10 of subsection 1 of § 17 specifies VAT exemptions for consignments of a non-commercial nature sent from one natural person to another natural person from a third country to a Member State.

As a result of the amendments to subsection 1 of § 17, the references in subsection 2 of § 17 to the articles of Council Regulation No 1186/2009 in which the import of the goods referred to is not exempt from VAT are clarified (subsection 2 excludes the exemptions listed in subsection 1).

In subsection 2 of section 17, the word “customs preferences” is deleted as such a term is no longer used in customs legislation.


Changes to the list of transport services subject to a 0% VAT rate

The amendments provide that the following services are taxable at a rate of 0% only if the services are supplied directly to the consignor or consignee:

  1. a transport service for the conveyance of goods out of the customs territory of the EU or to a third country which is part of the customs territory of the EU;
  2. a transport service for the import of goods;
  3. transport service for the conveyance of non-Union goods into the customs territory of the Union where the goods are placed under a customs warehousing procedure, a free zone, an inward processing procedure, a transit procedure or a temporary admission procedure with total relief from import duties or under temporary storage;
  4. organisation of transport services referred to in the preceding points and ancillary services relating to such conveyance of goods.

The reason for the amendment is the position of the Court of Justice in Case C-288/16.


Extension of tax exemptions for goods sold to the armed forces

According to the amendment, as of 1 July 2022, the VAT exemption on the import of goods and a 0% VAT rate on the transfer of goods can also be applied to goods necessary for the performance of the duties of the armed forces of other Member States or the civilian staff accompanying them, provided that those forces participate in defence activities implementing Union measures under the common security and defence policy.

Prior to 1 July 2022, the tax exemption on imports and the 0% VAT rate on transfers can be applied only to goods necessary for the performance of the duties of the armed forces of NATO member countries or the civilian staff accompanying them within the framework of NATO’s common defence effort.


Specification of the procedure for the payment of VAT on excise goods and goods placed in a tax warehouse

If a person who is not registered as a taxable person acquires excise goods from another Member State or removes goods from a tax warehouse or from an excise warehouse under an excise duty suspension arrangement without a transfer transaction, the person does not have the option to declare it in the e-services environment of the tax authority and it is unclear to whom and how to submit the data.

The purpose of the amendment is to specify the procedure for declaring and paying VAT in respect of such operations. The amendment of the VAT Act gives the Minister of Finance the power to establish, in such a case, the composition of the data to be declared on goods and the procedure for payment of VAT.

Although it has not yet occurred in practice that a person who is not a taxable person discharges tax warehousing or that excise goods under an excise duty suspension arrangement are removed from the excise warehouse without the transfer of the goods, it is important to lay down the rules of procedure in order to comply with the tax liability and prevent fraud.


Seller's right to reduce tax liability in the case of irrecoverable debt

There are provisions in the Estonian Value Added Tax Act since 1 January 2022 which make possible, if certain conditions are met, to reduce the taxpayer’s value added tax (VAT) obligation in the case of hopeless monetary claim.

Until the end of 2021, the insolvency of the purchaser has no influence on the amount of VAT payable on the goods or services, if the goods were actually transferred or the services were actually provided, but the purchaser has not paid for goods or services partially or in full. Change of the VAT calculation related to invoices which are partially or in full unpaid arises from the judgment of the European Court in case C-246/16. By this judgment, the European Court changed its earlier treatment of Article 90 (2) of the EU VAT Directive 2006/112/EC.

Taking into consideration this judgment, Article 291 is added to the Estonian VAT Act since 01.01.2022. Since this date, the taxable person can reduce his/her VAT obligation in the following circumstances:

  1. the invoice is issued for the transfer of goods or provision of services in accordance with the requirements of Article 37 of the VAT Act;
  2. the amount of VAT from the sales transaction is calculated and declared in the VAT return concerning the taxable period during which the supply of the goods or services was created;
  3. the monetary claim is not transferred;
  4. no less than 12 months and no more than three years has passed from the due date of the payment of the invoice, except in case described in clause 6;
  5. the monetary claim is written off in accounting because there was impossible to collect the claim although the taxable person made all feasible efforts to collect the claim – or if the estimated reasonable costs of collecting the monetary claim exceed the claimed amount;
  6. if the monetary claim includes more than 30 000 euros of VAT, the monetary claim is certified by the judgment which has entered into force;
  7. the acquirer of the goods or the recipient of the services is not an associated person for the purposes of the Estonian Income Tax Act;
  8. the taxable person has, during the month when the monetary claim was written off in accounting, notified the acquirer of the goods or the recipient of the services thereof in writing, denoting the amount of VAT related to the monetary claim which was written off.

If all these conditions are met, the seller can reduce his or her VAT obligation in the amount of unpaid sum in the VAT return submitted concerning the taxable period during which the monetary claim was written off in his or her accounting (deleted from balance sheet). If the VAT obligation is reduced like this, but at some other time the claim, however, is paid partially or in full – in such case this claim is included in the taxable supply in the amount of paid sum in the VAT return submitted concerning the taxable period during which the claim was paid partially or in full.

The purchaser who did not pay for the goods or services because of insolvency must take into consideration that if he or she is also a taxable person and has deducted the input VAT according to the invoice which he or she did not pay partially or in full – if he or she receives a notice from the seller that the monetary claim was written off in the seller’s accounting, he or she must increase his or her VAT obligation (reduce the deductible input VAT) by the amount of VAT related to this claim in the taxable period during which he or she received such noticef he or she receives a notice from the seller that the monetary claim was written off in the seller’s accounting, he or she must increase his or her VAT obligation (reduce the deductible input VAT) by the amount of VAT related to this claim in the taxable period during which he or she received such notice. In the case of write-off of irrecoverable claim in the accounts, no credit invoice is issued to the debtor.

This provision can be applied in case of irrecoverable debts written off as from  1 January 2022. If the claim was written off at a time when the new provision of the VAT Act was not yet in force (before 01.01.2022), the seller cannot apply section 291 and reduce the tax liability on the basis of this new provision.

If, after 1 January 2022, the taxable person reduces his VAT liability under section 291 of the VAT Act, the reduction in the taxable amount should be reflected in line 1 of the VAT return for the corresponding taxable period, which in turn reduces the amount of VAT in line 4. A purchaser subject to VAT should record the reduction of input VAT in line 5 of the VAT return.

If the VAT liability is reduced under section 291 of the VAT Act and the invoices relating to the respective transaction partner must be recorded in the Annex KMD INF to the VAT return, the seller should declare in Part A of KMD INF and the purchaser subject to VAT should declare in Part B of KMD INF either for the first time or again (if the corresponding invoice was declared in KMD INF in the taxable period when the supply was generated) also the fully or partially unpaid invoice relating to which the irrecoverable claim had been written off in the accounts. In both cases, the usual details of the invoice (invoice date, number, details of transaction partner) and the figures for the unpaid part of the invoice with a minus sign should be declared.

A person who has already been deleted from the VAT register will be able to submit a corresponding VAT return with parts A and B of form INF from May retroactively for periods starting from January 2022.

Extension of tax exemption to the payment of work ability allowance by post

The Work Ability Allowance Act has established a new type of allowance — work ability allowance. Percentage of loss of capacity for work and work incapacity pensions are no longer granted under the State Pension Insurance Act. Therefore, the VAT Act is supplemented in such a way that the payment of state pensions, monetary compensations, allowances and benefits by postal service in accordance with the procedures laid down in both the State Pension Insurance Act and the Work Ability Allowance Act is exempt from VAT.

Amendments to VAT rules on reusable packaging

Until the end of 2021:

  1. the turnover of reusable packaging to which a deposit has been assigned on the basis of the Packaging Act and which has not been included in the taxable amount of the goods and not been returned to the producer that is a taxable person during the calendar year shall be deemed to have arisen on 31 December of a calendar year; 
  2. the value of the reusable packaging shall not be included in the taxable amount of the turnover of the goods if the taxable producer does not transfer the reusable packaging.

The amendment omits the word “producer” from the wording of the provision. The reuse of packaging and the use of reusable packaging have expanded and are no longer limited to beverage producers. In addition to beverage producers, also operators who are not engaged in production, such as retail traders who use reusable packaging with deposit under the Packaging Act when selling goods, can use reusable packaging with deposit set out in the Packaging Act.

Amendment of the special arrangements for second-hand goods, works of art, collectors' items and antiques

Pursuant to subsection 41 (3) of the Value Added Tax Act, in the case of the resale of second-hand goods, original works of art, collectors’ items or antiques, the taxable value of supply shall be the difference between the sales price and purchase price of the goods, which means that under the rules in force, when using the special arrangement, the taxable amount must be determined on a transaction-by-transaction basis according to the difference between the selling price and the purchase price of each individual good.

The VAT Directive 2006/112/EC of the European Union authorises a Member State, after consulting the VAT Committee of the European Union, to determine the taxable amount on the basis of a taxable period when implementing the special arrangements for taxable dealers for certain transactions or, for certain categories of taxable persons.

The Ministry of Finance consulted the VAT Committee in the second half of 2021. As a result of the consultation, section 41(3) is amended to include the possibility for the person applying the special scheme provided for in that section to calculate, with the consent of the tax authority, the taxable amount to be declared for the resale of the second-hand goods during the whole taxable period, on the basis of the difference between the selling price and the purchase price of the second-hand goods which are subject to the special arrangement. Therefore, with the consent of the tax authority, as from 1 January 2022, the taxable person applying the special arrangement is not required to determine the taxable amount separately for each item. Instead, the taxable amount may be determined on the basis of all the sales and purchase transactions during the entire taxable period. Such a calculation of the taxable amount is justified in cases where normal accounting is too complex.

Specification of the place of importation of the goods

The amendment to section 6 (3) of the Value Added Tax Act specifies that the import of goods takes place in Estonia if a customs debt has been incurred in other cases than the placing of non-Union goods under the customs procedure of release for free circulation or the temporary importation customs procedure with partial relief from import customs duties and the goods have been delivered to Estonia. If a customs debt has been incurred differently from the cases provided for in section 6(1) of the VAT Act, and the goods have been delivered to another Member State or to a non-Community country, the import of the goods does not take place in Estonia and no VAT liability arises in Estonia if the customs debt is incurred.

New VAT exemptions related to the COVID-19 pandemic

As from 1 January 2022, no VAT shall be charged on:

  1. the importation of goods to the European Commission or to an agency or body established under Union law for the purpose of carrying out the tasks conferred on it by Union law in response to the COVID-19 pandemic, unless those goods are imported for resale against payment;
  2. goods transferred to the European Commission or to an agency or body established under Union law for the purpose of carrying out the tasks conferred on it by Union law in response to the COVID-19 pandemic, unless those goods are acquired for resale against payment (the VAT rate applicable to such a transfer is 0%);
  3. services provided to the European Commission or to an agency or body established under Union law for the purpose of carrying out the tasks conferred on it by Union law in response to the COVID-19 pandemic, unless the services are received for further provision against payment (the provision of such services is subject to a 0% VAT rate). 

If the conditions for the application of the exemption or the 0% rate of VAT no longer apply, the European Commission, the agency or body which imported goods exempt from VAT or acquired goods or services subject to a 0% rate of VAT shall notify the tax authority thereof and shall pay VAT upon the importation if the conditions for the application of the exemption or the conditions for charging the 0% rate of VAT on the goods or services cease to apply in accordance with the procedure and conditions established in section 39 (3) of the VAT Act.

VAT paid in Estonia by the European Commission or an agency or body established under Union law to perform tasks assigned to it by Union law in response to the COVID-19 pandemic on goods acquired or services provided or goods imported in 2021 shall be refunded unless those goods have been acquired or imported for resale or the service have been provided for further provision against payment. VAT shall be refunded in accordance with the procedure and under the conditions established in section 39 (3) of the VAT Act. If the conditions for the refund of VAT no longer apply, such goods or services shall be subject to VAT.

Application of value added tax incentives to agencies and bodies established under European Union law

As from 1 January 2022, the VAT Act specifies that the VAT incentives granted to the institutions of the European Union also apply to agencies and bodies established under European Union (EU) law. Agencies and bodies established under EU law are bodies other than the EU institutions, which are separate legal entities set up to carry out specific tasks under EU law. EU agencies and bodies are international organisations to which the EU Protocol on Privileges and Immunities applies. They must benefit from tax incentives to the same extent and on the same basis as the EU institutions.

Appointment of a tax representative for the registration of a non-resident as a taxable person

The amendment clarifies that, when registering for VAT purposes in Estonia, there is no obligation to appoint a tax representative for a non-Community economic operator who does not have a permanent establishment in Estonia and with whose country of establishment the European Union has concluded a mutual assistance agreement on administrative cooperation, combating fraud and recovery of claims in relation to VAT.

Clarification of the conditions for refunding VAT paid in Estonia to a non-EU entrepreneur

In general, VAT paid by a non-Community trader on the acquisition of goods and services in the European Union is refunded to the trader of a non-Community country on the basis of the principle of reciprocity — that is to say, if an Estonian trader has also the right to obtain a refund of VAT in the country of establishment of the person of a non-Community country.

When applying the special scheme for imposing VAT on the transfer of goods through services, intra-Community distance sales and online marketplaces (OSS special scheme) a person from a non-Community country creates supply in the European Union. The amendment clarifies that persons from a non-Community country are entitled to a refund of input VAT relating to such supply, whether or not Estonian persons in their country of establishment are entitled to a refund of VAT and whether they are liable to VAT in the country where they are established.
 

Clarification of the list of persons who can apply the IOSS special scheme in Estonia

The amendment clarifies that through an intermediary, taxable persons from other Member States can also apply the special scheme for VAT imposed on distance sales of goods imported from a non-Community country (IOSS scheme) in Estonia.

Thorough reforms will be carried out in the European Union (EU) in the area of value added tax (VAT) obligations concerning cross-border services provided to a person who is not registered as a taxable person or taxable person with limited liability (hereinafter end user), distance selling of goods and e-commerce. The correspondent amendments in the EU VAT Directive 2006/112/EC are already introduced and enter into force on 1 July 2021, all EU Member States must change their domestic VAT acts for the same time. Necessary amendments in the Estonian Value Added Tax Act were passed by Parliament in 10 February 2021 and were published in the Estonian State Gazette on 23 February 2021. The purpose of the changes is to reduce VAT fraud and to guarantee the equal competition conditions for EU businesses in comparison with the businesses of so-called third countries (i.e. non-EU countries or non-Community countries).

According to the EU VAT package for e-commerce which entered into force on 01.07.2021:

  1. special scheme for imposing VAT on telecommunications, broadcasting and electronic services (hereinafter digital services) which is in force today (mini One Stop Shop, MOSS) is extended also to other services where the place of supply is in the other EU Member State, as well as to intra-Community distance selling of goods and in certain cases also to the transfer of goods through the electronic interface (hereinafter e-shop). The extended special scheme is called OSS (One Stop Shop).
  2. new special scheme called IOSS (Import One Stop Shop) is imposed on distance selling of goods imported from third country.

Distance selling of goods (both intra-Community distance selling and distance selling of goods imported from third country) is cross-border transfer of goods to the end user. Intra-Community distance selling is the transfer of such kind of goods, located in EU, which are transported in the course of transfer to the end user from the Member State of location to any other EU Member State. Distance selling of goods imported from third country is the transfer of such kind of goods, located in a third country, which are transported in the course of transfer to the end user from third country to EU Member State.

The implementation of the special schemes (both the OSS special scheme and the IOSS special scheme) is voluntary, not mandatory. If the seller of the goods does not wish to apply the special scheme, such person must register for VAT liability in all Member States where the end users are located (if he/she does not use the OSS special scheme) and must complete regular customs formalities for imported goods (if he/she does not use the IOSS special scheme).

The special schemes make possible to declare VAT for cross-border B2C (business to consumer) sales to all Member States in one single return and pay the whole VAT for these transactions in his/her own Member State without the obligation to register for VAT liability in the Member States where the end users are located.

The VAT return concerning the special scheme shall be submitted to the tax authority of the Member State of registration electronically. The information is possible to enter in the user interface or download from the file, in future the possibility to submit the declaration through X-tee (X-road) will be added. The return shall be submitted and VAT shall be paid according to the return by the end of the calendar month directly following the declared taxable period – even the due date is a day of rest or public holiday. The taxable period of the OSS special scheme is a quarter and the taxable period of the IOSS special scheme is a calendar month. The return shall be submitted even there were no transactions, covered by the special scheme, during the declared period. If a user of the special scheme doesn't create any transaction, covered by the special scheme, during the particular taxable period and has no corrections to make in respect of any previous return, a nil-VAT return shall be submitted. The amount of VAT shall be indicated in the return and shall be paid to the tax authority with one euro-cent accuracy, the amount shall not be rounded up or down to full euros to the nearest whole number. If the purchaser pays for the goods or services, covered by the special scheme, in any other currency but euro – the exchange rate of the euro as determined by the European Central Bank and applicable on the last date of the declared period applies.

The principles of amendments in the VAT returns concerning new special schemes are different from the principles of amendments in the MOSS VAT return which the taxpayers submitted until 30 June 2021. If the business who apply the OSS or IOSS special scheme has to amend the information in any previous OSS or IOSS VAT return, he/she must do it in the next submitted return – he/she does not amend the return which was submitted for the taxable period when the correspondent supply was created. It’s not possible to make amendments in a confirmed return – if the return is already confirmed, the taxpayer can amend the declared information only in the next return. Because of this we recommend to keep the return as “saved” until the due date of submission. If the taxpayer has to amend the declared information, he/she can do it in the running period. For example – if the IOSS VAT return for July 2021 was submitted on 21 August 2021 (although the due date is 31 August) and on 23 August the taxpayer finds out that some necessary information was not declared, he/she can make necessary amendments only in the return submitted for August 2021.

If the taxpayer or the intermediary who represents the taxpayer (if the taxpayer is a third country business who applies the IOSS special scheme) has not submitted the VAT return concerning the special scheme by the due date, the Member State of registration sends to the taxpayer or to the intermediary reminder about the submission of the return. The tax authority shall issue the reminder electronically on the tenth day after the due date of the submission of the return. Possible further reminders will be sent by Member States of consumption. The assessment of fines and other payments related to the belated submission of the return is in jurisdiction of the Member State of consumption according to its legislation and proceeding rules. If the tax authority has issued reminders to the taxpayer for three immediately preceding taxable periods, but the correspondent returns have not been submitted with regard to any relevant taxable period within ten days as of the sending of each reminder – the tax authority treats that non-compliance with the requirements established for the implementation of the special scheme is repeated, deletes the tax payer from the register of users of the special scheme and the taxpayer has no right to submit a new application for implementation of the special scheme within two years.

  • When an Estonian VAT payer provides services to a UK person engaged in business, it is not important any more whether the recipient of the service is registered in the UK for VAT liability or not – upon the provision of the service, when a so-called basic rule is applicable (the place of supply is the country of the recipient, irrespective of the country where the service was actually provided), to any third country person engaged in business it is always the service with 0% VAT for the Estonian VAT payer.
    The difference in comparison with today’s situation – zero-rated service which is provided to a third country person shall be declared only in line 3 of the VAT return (Form KMD), such supply shall not be declared in line 3.1 of Form KMD and also shall not be declared in the report on intra-Community supply (Form VD).

  • When an Estonian VAT payer or VAT payer with limited liability receives from a UK person engaged in business any service, taxable in Estonia through reverse charge, after Brexit the taxable value of the service shall be declared in the informative line 7 of Form KMD, not in line 6.
  • When an Estonian VAT payer provides services to a UK person not engaged in business, there will be a change in relation to immaterial services, listed in subsection 10 (5) of the Estonian VAT Act – the provision of such services (including electronic communication services and electronically supplied services – hereinafter digital services) to a third country person not engaged in business is the supply with 0% VAT which shall be declared in line 3 of Form KMD. When the recipient of such kind of service is an EU person not engaged in business – any other immaterial service shall be taxed with 20% VAT and shall be declared in line 1 of Form KMD and upon the provision of digital services the special arrangements for imposing VAT are applicable.

    In connection with the end of the Brexit transition period, one should have in mind that from the MOSS declaration for the 1st quarter of 2021, this declaration can no longer reflect digital services provided to the UK end-users and the United Kingdom cannot be identified as a country of consumption.

    For the 4th quarter of 2020, the MOSS declaration shall be submitted and VAT shall be paid as usual (by 20 January 2021 at the latest), and this declaration can still include any digital service provided to non-taxable persons in the United Kingdom.

    If you continue to provide digital services after the end of the transition period to the UK customers, you should be guided by the relevant rules which can be read on the website "VAT rules for supplies of digital services to consumers". Any service for which VAT should be calculated and paid in the country of origin by an Estonian taxable person who provided the service shall not be declared in the VAT return submitted in Estonia.

  • When an Estonian VAT payer transfers the goods to a UK person together with the transport of goods from Estonia to the UK (excl. to Northern Ireland), after Brexit it’s always the export of goods which is taxable with 0% VAT and shall be declared in lines 3 and 3.2 of Form KMD.
    The transfer of the goods to a UK private person together with the transport of the goods from Estonia to the UK (excl. to Northern Ireland) by or on behalf of the seller is not distance selling any more then but also the export of goods, taxable with 0% VAT.
    The transfer of the goods to a UK natural person in Estonia is treated as the export, if all requirements listed in subsection 5 (2) of the Estonian VAT Act are met (so-called tax-free sales).
     

    According to the exception, layed down for Northern Ireland, after the end of year 2020 the transfer of goods from Estonia to a VAT payer of Northern Ireland together with the transport of the goods to Northern Ireland is still treated as intra-Community supply of goods (not as export) and the transfer of goods from Estonia to Northern Ireland to a non-taxable person is still treated as intra-Community distance selling (not as export).

    This specificity applies to goods only – any service provided to persons in the United Kingdom (including Northern Ireland) from 1 January 2021 shall be taxed and declared according to the rules for the taxation and declaration of services provided to non-Community persons.

  • When an Estonian person purchases the goods in the UK together with the transport of goods from the UK (excl. from Northern Ireland) to Estonia, after Brexit it is the import of goods, not intra-Community acquisition, and the provisions of the VAT Act related to import of goods are applicable. See also "Brexit".
     

    According to the exception, layed down for Northern Ireland, after the end of year 2020 the acquisition of goods by the Estonian VAT payer from Northern Ireland from a VAT payer together with the transport of the goods from Northern Ireland to Estonia is still treated as intra-Community acquisition of goods (not as import) and the transfer of goods from Northern Ireland to Estonia to a non-taxable person is still treated as intra-Community distance selling (not as import).

    This specificity applies to goods only – the taxable value of a service received from any person engaging in enterprise in the United Kingdom (including Northern Ireland) and subject to reverse charge in Estonia shall be declared on the form KMD from 1 January 2021 as the taxable value of the service received from a non-Community trader, i.e. using the information line 7, not 6.

  • If an Estonian VAT payer purchases the goods or services from a UK VAT payer after Brexit and VAT with the UK VAT rate is added to the price according to the UK VAT legislation, it is not possible any more to lay claim for refund of VAT, paid in the UK, through the EC cross-border VAT refund system, excluding upon the purchase of the goods with the UK VAT rate from a VAT payer of Northern Ireland (but not upon the receipt of a service with the UK VAT rate from a VAT payer of Northern Ireland).

    VAT paid in third countries can be refunded to the Estonian entrepreneurs according to the reciprocal principle and it depends on whether the authorities of the correspondent third country have decided to start to refund the VAT to the Estonian entrepreneurs or not.
    By now, we have received official confirmation from the UK tax authority that the UK will continue to refund VAT to taxable persons in the Member States of the European Union on the basis of reciprocity. When applying for a refund of VAT paid in the United Kingdom, an Estonian taxable person has to rely on the instructions of the United Kingdom tax authority. The deadline for submitting a VAT refund application relating to the UK for 2020 is 31 March 2021. By virtue of the decision of the UK tax authority, Estonia also will continue to refund VAT to the UK taxable personsGuidelines of refund to foreign businesses of VAT, paid in Estonia

    The exception is Northern Ireland, where the provisions of the EU Directive are applied for a further four years after the end of the transition period to the refund of VAT paid on the acquisition of goods. The applications involving the VAT identification number of Northern Ireland (with the letter combination "XI") are subject to the same deadlines as for VAT refunds to other Member States: the deadline for applications for 2020 is 30 September 2021, and applications for 2021 can be submitted starting from 1 April 2021.
  • If a UK person engaged in business will be registered in Estonia for VAT liability after Brexit, according to subsection 20 (6) of the Estonian VAT Act, a person of a third country engaged in business with no permanent establishment in Estonia shall appoint, upon registration as a VAT payer, a tax representative specified in the Estonian Taxation Act, who has been approved by the tax authority.
    A UK person engaged in business who already has a VAT number in Estonia as of 1 January 2021, who wishes to continue in Estonia his/her business activities and retain his/her Estonian VAT number and who has not a permanent establishment in Estonia – such UK person shall appoint a tax representative approved by the tax authority by 1 February 2021 and also by that date shall notify the Estonian Tax and Customs Board about his/her choice and shall send the contract with the chosen tax representative by e-mail to address emta@emta.ee.
  • If a UK person engaged in business provides the digital services to the EU persons not engaged in business (incl. Estonian persons not engaged in business) after Brexit and wishes to follow the special arrangements for imposing VAT, the person must follow the provisions concerning the registration for VAT liability of third country entrepreneurs (it means, if the person wishes to follow the special arrangements, he or she registers for VAT liability in any freely chosen EU Member State).

General principles of VAT Act

The Value Added Tax Act regulates the essence of supply, time of supply and principles of calculating taxable value on which VAT is calculated.

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Registration as a VAT payer

The obligation to register for VAT purposes arises when economic operator's taxable supply exceeds 40,000 euros as calculated from the beginning of a year. An economic operator whose intra-Community acquisition of goods exceeds 10,000 euros as calculated from the beginning of a year is registered as liable to value added tax with limited liability. A parent undertaking and its subsidiaries are registered as a value added tax group. For both registration and deletion from the register, an application must be submitted to the Estonian Tax and Customs Board.

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VAT accounting and invoices

This page gives you an overview of the obligations of taxable persons and taxable persons with limited liability in keeping records and issuing invoices and simplified invoices.

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VAT rates and supply exempt from tax

According to the VAT Act, VAT rates in Estonia are 20%, 9%, 5% and 0%. The supply of certain goods and services of a social nature is exempt from VAT. Pursuant to the VAT Act, a taxable person has the option to add value added tax to the taxable value of goods and services exempt from tax, and the Estonian Tax and Customs Board must be notified of the addition of VAT in writing before the supply is effected.

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Filing VAT returns and reports

The taxable period is one calendar month. The deadline for submitting both a VAT return and a report on intra-Community supply is the 20th day of the month following the taxable period. It is most convenient to submit VAT returns and reports on intra-Community supply in the e-services environment e-MTA, where data can be entered manually or uploaded from a file in XML or CSV format. VAT returns can also be submitted via data exchange layer X-tee.

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Calculation and refund of VAT

Here you can read about the calculation of VAT, the recalculation of partially deducted VAT and the refund of VAT paid in Estonia to both Estonian taxable persons and foreign economic operators.

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Taxation of goods

Here we give an overview of the place of supply of goods and the taxation of domestic transactions and acts, export and import of goods, and intra-Community supply and acquisition. Under the VAT Act, there are also a number of differences in the taxation of supply of goods, e.g. the supply of goods to be installed or assembled, new means of transport, etc. are taxed differently from the supply of other goods.

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Taxation of services

Here we provide an overview of the place of supply of services, and taxation of domestic transactions and acts, export and import of services, and intra-Community supply and acquisition.

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Special schemes of e-commerce and services

Implementation of the special scheme for the taxation of e-commerce and services will make it easier for an economic operator to comply with VAT obligations arising in another Member State. An economic operator who has chosen to apply the special scheme can declare supply generated in another Member State and pay VAT to the Estonian Tax and Customs Board. In order to use the special scheme, an application must be submitted to the Estonian Tax and Customs Board in the e-services environment e-MTA.

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Special VAT provisions

Specific provisions concerning taxation in the meaning of Value Added Tax Act are value added tax incentives applicable to diplomats, foreign missions, international organisations, EU institutions and armed forces of foreign states; special arrangements for taxation of travel services; special arrangements for imposing tax on immovables, scrap metal, precious metal and metal products; special value added tax accounting arrangements for second-hand goods; special arrangements for cash accounting for VAT and special regulations for tax warehousing.

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Enquiries

Here you will find enquiries that will help you carry out daily transactions, for example, you can check the validity of the VAT number of a transaction partner, and see who has declared cross-border sales to your business.

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Last updated: 26.10.2022

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