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Estonian VAT changes from 2022

Estonian Parliament adopted several VAT changes on 24 November 2021, which will become effective on different dates during year 2022. In addition to bad debt relief adjustment described in one of our previous news items, the most significant VAT changes effective from 1 January 2022 will be the following:

  • Upon VAT registration, the fiscal representative is no longer required from all non-EU persons, who do not have a permanent establishment in Estonia ( 20 (6) of VAT Act). The respective requirement to appoint a fiscal representative will be valid only upon the VAT registration of non-EU persons from such countries, with whom EU has not concluded an agreement on administrative cooperation, combating fraud and recovery of claims in the field of VAT. Currently, EU has concluded such agreement with Norway, due to which from 2022 Norwegian companies (who do not have a permanent establishment in Estonia) will be no longer required to appoint a fiscal representative upon their VAT registration in Estonia.
  • The import of goods is deemed to have taken place in Estonia ( 6 (3) of VAT Act), if the customs debt has arisen upon other cases than under customs procedures referred to in § 6 (1) of VAT Act and the goods have been delivered to Estonia.
  • With respect to VAT treatment of deposit subjected packaging there will be prescribed ( 11 (7) and § 12 (11) of the VAT Act), that in addition to producers it will be applicable also to any other business entities (e.g. retail shops), who are using in the sale of goods any recyclable packages which under the law are liable to deposit subject packaging rules.
  • Upon the sale of second-hand goods (by applying a special margin scheme), the taxable value may be calculated on a tax period basis, not on a transactional basis, provided that the substantiated application will be submitted to the tax authorities ( 41 (3) of the VAT Act).
  • The Estonian VAT refund opportunities to non-EU persons will be extended to cases, when by applying OSS special scheme they have taxable supplies in the EU upon providing services, having intra-EU distance sales or deemed supplier e-shops ( 35 (13) of the VAT Act). In such a case, the non-EU person will be entitled to apply for the VAT refund from Estonia, regardless whether its home country provides VAT refund to any Estonian taxable person or not. Also, it will not be required for the VAT refund that such non-EU person should be VAT registered taxable person in its home country.
  • The VAT exemption upon import of goods and 0% VAT rate upon goods or services acquired in relation to COVID-19 pandemics will be extended under certain conditions to services or institutions established under the EU law ( 15 (4) 16) and § 15 (5)1 of the VAT Act). This will be applicable retroactively from 1 January 2021.

In addition, the following VAT changes will be effective from 1 July 2022:

  • New restriction is introduced to the application of 0% VAT rate upon transportation services rendered for export or import of goods ( 15 (4) 8)-10)1 of the VAT Act), as a result of which 0% VAT rate can be applied only when such services are rendered directly to the supplier or consignee of goods. Up till then, 0% VAT rate is applicable also to services rendered to other transportation companies.
  • The costs, which are related to the delivery of goods to the destination in the EU, are to be accounted in the value of the imported goods, if such destination is known during the importation of goods ( 13 (1) of the VAT Act). Up till then, in the value of the imported goods are accounted only costs, which are related to the delivery of goods to the first destination in the territory of Estonia.
  • If the invoice is received from the supplier of goods or services, who is following the cash-basis VAT accounting, then for the buyer the deduction of that input VAT changes also to cash-basis ( 31 (10) of the VAT Act). Thus, the buyer who is normally applying the standard VAT accounting principles, cannot deduct the input VAT on such invoice (to which the supplier has marked “cash-basis VAT accounting”) before it has actually paid that invoice to the supplier. Therefore, for the buyer the time of input VAT deduction is changed.
  • The VAT exemption of collector coins, including investment purpose silver coins, will be abolished ( 16 (2)1 4) and § 17 (1) 3) of the VAT Act). As a result of the law amendment, the VAT exemption applies only to coins and banknotes, which are customarily used as a means of payment. Investment gold remains to be VAT exempt.
  • Also, the option for applying the 0% VAT will be extended to persons participating in the EU defence initiative activities ( 15 (5)2 of the VAT Act), similarly to so far existing 0% VAT rate for NATO forces.

Additional information on 2022 VAT changes can be found at the web page of the tax authorities (in Estonian only): https://www.emta.ee/ariklient/maksud-ja-tasumine/kaibemaks#alates-01012022