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Recent Amendments to the Estonian Tax Laws

Recent Amendments to the Estonian Tax Laws

1. “EUR 1000 invoices”
On 1 November 2014, a much-criticised obligation came into force requiring legal entities to submit data about their purchase and sales invoices to the tax authority in addition to regular VAT returns. According to the new regime, Estonian VAT liable companies shall submit monthly VAT return annex KMD INF to the tax authority (in addition to the regular VAT returns) reporting data on any transactions exceeding EUR 1000. The annex shall include information about transaction partners such as name, registration number, number and date of the invoice, invoice amount, VAT rate and amount. Transactions with natural persons do not need to be reported, unless the transaction is with a natural person who is registered as an entrepreneur (FIE). While the main purpose of this amendment is to combat VAT fraud, it does create remarkable additional administration burden for legal entities. The invoices for services that are confdential under the law (for example legal assistance by a law frm (advokaadibüroo) which is protected by attorney-client privilege) does not need to be reported. In other words, if a law frm issues an invoice to its client for legal assistance, the law frm shall not report this invoice in the annex of its VAT return. And also the client has no obligation to report such invoice in the annex of its VAT return.

2. Credit Invoices
Another amendment to the VAT Act came into force effective from 1 March 2014, legislating the new legal practice which forbids the seller to lower/reduce his respective VAT obligation based upon issuing a credit invoice due to the fact that the buyer has not paid for the goods or services, unless  the  transaction has  been cancelled or the  price  of the  goods or services has been reduced at the request of the buyer.

3. Company’s Passenger Cars
On 1 December 2014 amendments to VAT Act shall enter into force that
regulate the taxation of passenger cars used by companies. The European Commission needs to approve these changes, but it is widely believed that the European Commission will do that. The set of amendments is quite detailed, but generally speaking the amendments restrict the deduction of VAT on purchasing passenger cars and goods and services for cars (like fuel, repairs etc). Until these amendments, the relevant input VAT was deductible 100% but when the amendments shall enter into force, only 50% of the input VAT can be deducted. In case the passenger car is used solely for business purposes and not for private use by company’s employees or directors (and the company proves that) 100% of related input VAT is deductible.

4. Employee Registration
From 1 July 2014, new employee registration rules came into effect, requiring the employers to fle all employees for registration with the tax authority prior to starting of work in Estonia. Besides those working under a labour contract, the obligation to register also applies to short term contracts and other contractual relationships and to pro bono work (consultancy agreements with natural persons etc.). Both residents and non-residents working in Estonia (including EU residents) are subject to registration. For this purpose, non-residents have to have an Estonian identifcation number. The registration can be done in tax authorities’ online website and failure to register can lead to a punishment as a misdemeanour with the fne up to EUR 3200.

5. Black-list of Tax Debtors
As of 1 June 2014, the Estonian tax authority publishes a monthly “black list” of tax debtors who owe at least EUR
1000 of taxes. According to the tax authority, the aim of publishing this list is to motivate the taxpayers to comply with tax obligations in a timely manner and promote equal competition. A new list will be published on the tax authorities’ webpage on a monthly basis.

By Ants Karu

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