Estonia is a member state of the European Union (EU), which imposes certain obligations to comply with the general taxation rules for all member states. However, each country has its own peculiarities in the application of value added tax (VAT) when providing various types of services.
The article will consider the taxation system of services in Estonia, including the place of origin of service turnover, taxation of domestic transactions, export and import of services, as well as taxation of turnover and acquisition of goods and services within the EU.
Place of origin of service turnover
According to Estonian law, the place of provision of a service is the state where the recipient of the service is located. This rule applies to all types of services, with the exception of those related to real estate, services in the field of culture, art, education, sports, scientific research, entertainment, etc., when the location of the object is recognized as the place of provision of the service.
The following criteria are used to determine the place of origin of service turnover in Estonia:
- Location of the customer. If the service is provided to a legal entity or an individual entrepreneur, the location of this person is considered to be the place of its provision.
- Natural person. If the service is provided to an individual, the place of provision is considered to be the location of the service provider.
Some types of services have specific rules for determining the place of provision, such as vehicle rental, telecommunications services, etc.
Domestic taxation of services
When providing services between residents of Estonia, standard VAT rates apply, which are 22% for most types of services. However, there are exceptions, such as reduced rates (9%, 5% and 0%) for certain categories of goods and services, such as books, medicines, transport tickets and other socially significant goods and services.
Export and import of services
Export of services from Estonia is subject to zero VAT rate if they are provided to non-residents located outside the EU. To confirm the right to apply the zero rate, it is necessary to provide documents confirming the fact of providing the service outside the country.
Import of services to Estonia is subject to VAT at a rate of 22% if the services are provided by non-residents of Estonia to individuals or legal entities that are not registered as VAT payers. If services are provided to legal entities registered as VAT payers, the VAT reverse charge mechanism is applied.
Intra-Community Taxation of Turnover and Acquisitions
Within the European Union, there is a single system of taxation of turnover and acquisition of goods and services between member states. The main principles of this system are as follows:
- Place of supply of goods or services. The place of supply of goods or services is the country in which the goods were shipped or the service was provided.
- Reverse charge mechanism. When purchasing goods or services from suppliers from other EU countries, the buyer independently calculates and pays VAT according to the rules of his country.
- Invoicing. Suppliers of goods and services are required to issue invoices indicating the cost of the goods or services and the amount of VAT payable.
Intra-Community taxation of turnover and acquisitions is based on the principles of harmonizing tax legislation and simplifying settlement procedures between EU countries.
In summary
The Estonian service taxation system complies with the general EU requirements and ensures transparency and fairness of tax relations. The use of different VAT rates, reverse charge mechanisms and documentary confirmation makes the taxation process more flexible and convenient for market participants.