Overview of charging value added tax
The value added tax rate in Estonia is 20% from 1 July 2009.
Who pay value added tax
A person liable to value added tax
A person liable to value added tax (VAT) shall pay VAT on sales supply, goods and services purchased from an entrepreneur of a foreign country which are subject to reverse charge in Estonia, goods imported into Estonia and goods purchased from another taxable person of Estonia which are subject to internal reverse charge. A person liable to VAT is entitled to the right to deduct input value added tax.
A person liable to value added tax with limited liability
A person liable to value added tax with limited liability is registered or required to register as a taxable person with limited liability, excluding persons registered for VAT according to the standard procedure and natural persons not engaged in business. A person liable to value added tax with limited liability shall pay value added tax only on goods and/or services acquired from an entrepreneur of a foreign country which are subject to reverse charge in Estonia, and goods imported to Estonia. A person taxable with limited liability is not entitled to the right to deduct input value added tax.
Non-taxable person who imports goods, acquires excise goods from another Member State (except for a natural person who acquires excise goods for personal use) or a new means of transport, terminates the tax warehousing of the goods without transfer of the goods, transports excise goods under excise duty suspension arrangement out of the excise warehouse without transfer of goods or has, for any reason, indicated the amount of VAT on the invoice, which was not allowed by law.
What is VAT charged on
VAT is charged on:
- supply, except the supply exempt from tax, the place of which is Estonia;
- import of goods into Estonia, except imports exempt from tax;
- provision of services the place of supply of which is not Estonia, except supply exempt from tax;
- supply of goods or services exempt from tax whereto the taxable person has voluntarily added the amount of value added tax;
- intra-Community acquisition of goods, except intra-Community acquisition of goods which are exempt from tax.
Supply of non-profit organisations and foundations
Non-profit associations and foundations operate on the basis of their articles of association. Usually, the articles of association determine their purpose of activity, which is financed by membership fees/grants and which is not business within the meaning of the Value Added Tax Act.
According to subsection 2 of § 2 of the Value Added Tax Act, “business” means the independent economic activity of a person, in the course of which goods are transferred or services provided, whatever the purpose or results of that activity.
In order to decide whether it could be an economic activity (business), it is important to monitor contracts – whether it is ordering a service or allocating funds to the activities of a foundation or non-profit association. As a general rule, in order to receive a service, a state institution must carry out a procurement indicating that a particular service is being ordered. Works carried out on the basis of contracts concluded as a result of participation in public procurements are regarded as provision of services, i.e. business within the meaning of the Value Added Tax Act. If a procurement is not organised and money is allocated to the activities of the person, e.g. from certain funds without receiving anything in return, it is not considered ordering service and no supply is created.
Advisory service is a regular taxable service even if it is provided with the support of grant funds. A service can be considered exempt from tax if the advisory service is part of a tax-exempt social service (e.g. debt counselling).
What is the time of supply
The time of supply, except intra-Community supply, is:
- the time of delivery of the goods to the acquirer or provision of services or
- the time when full or partial payment is received for the goods or services.
The time of supply is determined proceeding from either of the conditions above which has been met first.
What is the place of supply
The determination of the place of supply is taken into account when deciding on the country of taxation. Generally the supply of goods is created in the country of location of the goods. The determination of the place of supply of services depends on the type of service.
Place of supply of goods is Estonia if:
- the goods are delivered to an acquirer or are otherwise made available to him/her in Estonia, the goods are exported from Estonia, the intra-Community supply has been created or distant selling is carried out from Estonia to a person of another Member State who is not a taxable person or a taxable person with limited liabilities of another Member State except in the cases specified in subsection 9 (2) of the Value Added Tax Act (VAT Act);
- a person of another Member State engaged in business who is registered as a taxable person in Estonia engages in distance selling to a person of Estonia who is not a taxable person or a taxable person with limited liability (clause 9 (1) 2) of VAT Act);
- a person of another Member State engaged in business transfers goods to be installed or assembled, and installs or assembles them in Estonia or such goods are installed or assembled in Estonia on the person's behalf (clause 9 (1) 3) of VAT Act);
- the goods, including goods consumed or sold on board, are transferred on board a vessel or aircraft departing on an international route from Estonia (clause 9 (1) 4) of VAT Act);
- natural gas or electricity, heating and cooling energy is transferred via a network to a reseller who is an Estonian taxable person located in Estonia (clause 9 (1) 5) of VAT Act);
- natural gas or electricity, heating and cooling energy transmitted via a network is transferred to the acquirer of the goods who will use the goods in Estonia. If the acquirer of the goods does not use all or a part of the goods, the unused goods are still deemed to be goods used in Estonia if the acquirer of the goods has a seat or permanent business establishment in Estonia for which the goods were transferred. This provision does not apply in the case specified in clause 9 (1) 5) of VAT Act.
Place of supply of services is Estonia if:
- services are provided to a taxable person or taxable person with limited liability registered in Estonia or if the services are provided through a seat or permanent establishment located in Estonia to a person who is not registered as a taxable person or taxable person with limited liability in any of the Member States or who is not a third country person engaged in business, except in the cases specified in subsections 10 (2), (4) and (5) of VAT Act.
Reference indicated on an invoice
In the case of certain transactions additional reference either to the corresponding provision of VAT Act or VAT Directive shall be indicated on an invoice. This requirement stems from Article 226 of the VAT Directive and is precisely provided in subsection 37 (8) of VAT Act, indicating specific transactions as well as the necessary reference for each transaction. For example, reference is necessary in the case of supply exempt from tax, zero-rated supply, intra-Community transactions and when applying special arrangements.
Last updated: 06.09.2022