The Value Added Tax Act (VAT) is one of the key legal acts regulating taxation in Estonia. It defines the procedure for calculating VAT, establishes the circle of persons obliged to pay this tax, as well as the list of transactions subject to this tax.
Who pays VAT?
According to the law, VAT payers are legal entities, sole proprietors, and individuals engaged in entrepreneurial activity. The obligations are defined in the Value Added Tax Act.
Important! The obligation to pay tax arises only upon reaching a certain threshold of annual turnover, which is established by law.
Foreign companies providing services in Estonia are also obliged to pay VAT. This applies to both companies registered outside the EU and those registered in EU countries but do not have a permanent establishment in Estonia.
What is subject to VAT?
The objects of taxation are transactions on the sale of goods and services in Estonia. Such transactions include:
- sale of goods;
- provision of services;
- transfer of ownership of goods and services;
- import of goods and services.
However, there are exceptions to the general rule. For example, some types of activities are exempt from paying VAT. Among them, we can highlight medical services, educational services, financial services, etc., as stated in the Value Added Tax Act.
Turnover of non-profit associations and target funds
Particular attention should be paid to the turnover of non-profit associations and target funds. These organizations can carry out business activities, but they are exempt from paying VAT if certain conditions are met.
Such conditions are:
- carrying out activities exclusively within the framework of statutory purposes;
- no profit from business activities;
- use of income exclusively for the purposes stipulated by the charter.
If a non-profit organization begins to engage in commercial activities, it is obliged to pay VAT as per the Value Added Tax Act.
When does turnover arise?
Turnover is considered to arise at the time of transfer of ownership of goods or provision of services. However, in some cases, the legislation provides for other moments of occurrence of turnover. For example, when delivering goods on deferred payment terms, turnover may arise at the moment of receipt of payment.
It is important to take into account that the moment of turnover may be considered the date of issuing an invoice, if the invoice was issued before the transfer of goods or provision of services, according to the Value Added Tax Act.
To summarize
The Estonian Value Added Tax Act is a comprehensive regulation establishing taxation rules for a wide range of business entities. In order to correctly apply the provisions of this law, it is necessary to take into account the specifics of each specific situation, in particular, the type of activity, the status of the taxpayer and the nature of the transactions performed.