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Taxation of Gifts

In Estonia, when companies are providing gifts to their business partners, companies must in most cases fulfil tax obligations, which must be treated properly in their monthly corporate tax and VAT accounting.
Under the corporate income tax rules, these gifts to business partners must be generally taxed at 20/80 corporate tax and declared in the appendix 5 of the form TSD by the 10th day of the following month, at the latest.
As an exception from above, no corporate tax is imposed to the gift provided for advertising purposes, the value of which, excluding VAT, is up to the amount of EUR 10. In addition, the supply of such goods for advertising purposes will be deemed to be outside the scope of VAT supply, if the taxable value of such goods will not exceed EUR 10. This value limit of EUR 10 applies only when the gift is delivered for advertising purposes and it applies to single unit of goods. The explanations published on the webpage of the Tax and Customs Board refer that under the Advertising Act, the content, design and presentation of advertising must ensure, given ordinary attention of the public, that it is recognised as advertising (e.g. the company logo inserted to any goods of consumption). Also, the following examples are provided by the Tax and Customs Board in respect of corporate tax treatment of gifts for advertising:
Example 1
Company purchases mugs for advertising purposes to its customers and purchases also a service to insert its company logo on these mugs. The price of the mug excluding VAT is EUR 9.46 and the cost of the advertising service is EUR 0.80. Regardless that the total cost incurred by the company on the mug is EUR 10.26, such gift for advertising is not subject to corporate taxation. The value of the mug excluding VAT was less than 10 euros and the advertising cost was 0.80 euros and these costs are not summarized. Inserting the company logo to the mug will not increase the monetary value of the mug for the customer.

Example 2
Company purchases mugs for advertising purposes to its customers and purchases also a service to insert its company logo on these mugs. The price of the mug excluding VAT is EUR 10.06 and the cost of the advertising service is EUR 0.80. The fair market value of that gift (including VAT) must be declared in the appendix 5. The advertising cost EUR 0.80 is a business related cost and is not subject to corporate taxation.

However, in the VAT accounting, if the input VAT was deducted by the company upon purchase, in both above-described cases the company will have taxable supplies, which must be generally subject to 20% VAT and declared in its monthly VAT return.
Also, it should be noted that under certain conditions the gifts provided to customers may be treated in the tax accounting of the company as an expenses not related to business or as fringe benefits furnished to employees, upon which the company will have different declaration and tax obligations.