Income earned through the platforms (including the use of applications) is subject to taxation in Estonia. There are several ways to fulfill tax obligations, depending on the type of income. Let’s look at Tax on income in more detail.
Active income
This type of income arises as a result of work activities such as working as a courier, driver, and other types of services. It is subject to the following taxes:
- Income tax;
- social tax;
- Unemployment insurance payments;
- funded pension.
These taxes must be paid regardless of the form of business (individual entrepreneur, LLC, etc.).
Passive income
These are income generated from renting out or renting property (for example, renting out housing). They are subject only to income tax.
How is the labor tax paid?
Let’s consider a detailed action plan:
- Payment by the customer. An individual orders a service and makes a payment.
- Receipt of payment by the contractor. The person providing the service (business account holder, sole proprietor, legal entity) receives payment for the work performed.
- Payment of taxes. The contractor independently pays all necessary taxes: income tax, social contributions, unemployment insurance and pension contributions. These payments depend on the chosen form of business activity.
- Registration as a VAT obligee. If the contractor is registered as a VAT payer, he is obliged to charge VAT on the cost of the services provided and provide the corresponding invoice.
If the contractor uses a simplified taxation regime (business income tax), registration as a VAT payer is optional and VAT is not charged. In this case, the contractor is not obliged to issue an invoice.
Turnover tax (VAT)
Platforms and applications can also act as subjects of taxation when it comes to turnover tax. Let’s consider the main cases.
Turnover when using the app
When the platform transfers the right to use its application to other users, there is a turnover that is subject to taxation. If the Estonian owner of the app provides access to his product to another entrepreneur in Estonia, this turnover is subject to VAT at the standard rate of 20%.
If the foreign owner of the application provides his services to an Estonian entrepreneur, the turnover is subject to a zero VAT rate in the country of registration of the owner of the application. However, the Estonian user is required to declare the VAT refund.
Intermediary services of the platforms
Many platforms provide intermediary services between suppliers and consumers. The following rules apply here. If the Estonian owner of the platform provides intermediary services to another entrepreneur in Estonia, these services are subject to VAT at the usual rate of 20%.
If a foreign owner of the platform provides intermediary services to an Estonian entrepreneur, he applies a 0% rate in his country, and the Estonian entrepreneur must declare a VAT refund.
Summarizing
Taxation of income earned through platforms in Estonia is a complex system that includes many aspects and exceptions. To avoid problems with the tax authorities, it is important to closely monitor changes in legislation and fulfill all tax obligations in a timely manner.
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