Estonian Parliament adopted several VAT changes on 13 November 2024, which generally will become effective from 1 January 2025. The most significant VAT changes can be summarized as follows:
- In order to simplify the administrative burden of small businesses having business activities in another EU member states, from 2025 the special VAT scheme for small businesses will be introduced. Under this special scheme equal VAT treatment should apply to locally established businesses and small businesses of other EU member states, which are engaged in business in the respective member state and which may have a liability to register as a VAT taxable person therein.
- The business is entitled to apply the referred special VAT scheme to its supplies arisen in another member state, provided that its total supplies in all member states during the calendar year will not exceed EUR 100 000 and the supply in the other member state will not exceed the VAT registration threshold of that other member state. If services or goods will be purchased from the small business applying the special VAT scheme in cross-border transactions, which has added to its invoice suffix “EX”, then upon such transaction no reverse charge liability will arise for the purchaser.
- When services related to admission to events (coaching, conference, fair, exhibition, etc.) are rendered by way of streaming or in any other virtual form (e.g. via internet), then from 2025 such services will be treated in substance as electronically rendered services, the place of supply of which is where the recipient of services has a place of residence or a place of location. Currently, until the end of 2024, the place of supply is in the country where that event takes place.
- From 2025, the VAT treatment of new buildings will be extended. Thus, the term new building will also include a building, which is sold for the first time within one-year period from the day when that building was taken into first use. In such a case, from 2025 the seller is liable to add VAT to the sales price of the new building in a mandatory order.
- From 2025, there will be also changes in the principles of calculation of the VAT registration liability. Thus, for calculating the EUR 40 000 registration threshold, there will be taken into account only supplies, the place of which is in Estonia, and in that calculation will be included supplies from insurance and financial services, as well as the supplies from the use and sale of real estate, which is not on an occasional basis. As previously, the supplies of fixed assets are excluded from the threshold calculation. The calculation will therefore also exclude the zero-rated supplies of services rendered to persons of other EU member states and to non-EU persons. However, the VAT registration liability will not arise for the person, whose total supplies represent tax exempt supplies or zero-rated taxable supplies, except the intra-Community supply of goods.
- From 2025, upon the use of special VAT margin schemes, for calculating the VAT registration threshold there will be taken into account all fees received for the sale of goods or services. Currently, until the end of 2024, the respective calculation was based on the taxable value determined on the basis of profit margin.
- From 2025, there will be also changes in the rules of adjustment of input VAT deducted upon the acquisition of real estate or fixed assets. Under these changes, when the real estate or fixed asset is taken into business use, the total adjustment of input VAT should be made in accordance with the purpose for which the respective asset is effectively used. After that adjustment, as under the existing rules year-end adjustments of input VAT will be made, which apply in case of real estate within 10 years and in case of other fixed assets within 5 years from the entry of these assets into the bookkeeping.
- From 2027, the submission of VAT return and its appendixes will be data exchange driven, with which there will be created an opportunity to forward initial data directly from the bookkeeping, based on which the tax authorities will calculate the VAT liability. Also, there will be adopted a joint VAT declaration, which includes the existing VAT return (KMD) with its appendixes (INF A ja B), as well as EC Sales List (VD/VDP). In addition to forwarding data via X-road data exchange, there will remain also an option to submit data manually or from file, by loading it in e-MTA customer application system.
In addition, several VAT rates will be increased during 2025:
- From 1 January 2025, the existing reduced 9% VAT rate to accommodation and hotel services increases to 13%.
- From 1 January 2025, the existing super-reduced 5% VAT rate to press publications is abolished and the reduced 9% VAT rate is applicable to press publications.
- From 1 July 2025, the standard 22% VAT rate will be increased to 24% (as part of security tax which should be effective temporarily until the end of 2028) without any provisions of transition. The validity of provisions of transition introduced for long-term contracts concluded prior to 1 May 2023 will be limited until 30 June 2025 (initially the transitional application of 20% VAT rate should have been valid under certain conditions until 31 December 2025).