1. Taxation of company cars changes
As of 1 December 2014, amendments to the Estonian Value Added Tax Act (VATA) on taxation of vehicles take effect. Instead of the current 100% input VAT rate, entrepreneurs can now deduct only 50% of input VAT on purchase and use of a car under an operational lease as well as on purchase of goods and services for the car. Nevertheless, 100% of input VAT can still be deducted if the car is used solely for business purposes.
In the latter case, claimants must prove that the car is not used for personal purposes. However, the law does not provide specific rules for how proof must be given. The explanatory memorandum to the VATA states that a company must apply all measures to ensure that a company car is not used for personal purposes. For example, a company car must be parked at the workplace, GPS logs must be saved, driving logs must be kept and other measures need to be taken to prove reliably that the car is used solely for business purposes. As before, 100% of input VAT can be deducted on taxis, driving practice vehicles and vehicles acquired for sales or commercial leasing purposes.
If 100% of input VAT is deducted on purchase of a vehicle but the vehicle is later also used for private purposes, then half of the input VAT deducted must be repaid with interest. To avoid repayment of 50% of input VAT, the intended purpose of the car may not be changed within two years, i.e. the car may not be used even once for private purposes. This means that to retain the right to deduct 100% of input VAT, the car must not be made available for use by employees, officials, or members of governing bodies for private purposes, even for a charge.
The following tips may be useful for entrepreneurs:
- If you plan to acquire a car for your company or lease one under a financial leasing contract, then you should make the transaction before 1 December 2014 so that all input VAT paid can be deducted.
- We recommend formalising current operational leases as financial leases before 1 December 2014. Otherwise only 50% of VAT can be deducted from operational lease payments made as of 1 December 2014. If an operational lease is formalised as a financial lease before 1 December 2014, then 100% of VAT can be deducted.
- If, however, it is necessary to continue using a vehicle under an operational lease or to acquire a new vehicle, preparations need to be made for presenting proof to the Tax Board that the vehicle was and is used only for business purposes.
2. Companies must declare circumstances that may affect their tax liability
As of 1 January 2015 an amendment to the Estonian Income Tax Act (ITA) takes effect requiring resident legal persons and non-resident legal persons having a permanent establishment in Estonia to declare circumstances that may affect income tax payable on dividend or other profit distributions (§ 50) or taxation of the permanent establishment in the case of non-resident legal persons. The deadline set for declarations is 10 February 2015.
The following must be declared:
- contributions to company equity,
- income tax withheld and paid in a foreign state,
- income received from which an income tax free dividend can be paid and payments made from equity,
- similar rights, which used to be in the possession of another company, received in the course of merger, division or transformation of companies.
From now on, the circumstances listed above that may affect tax liability must be declared on an ongoing basis in the month following the emergence of a circumstance.
According to the explanatory memorandum to the draft act, one of the aims of the amendment is to increase legal certainty for entrepreneurs and tax administrators in determining tax liability arising from these provisions of the ITA. With this amendment, companies are once again faced at short notice with the obligation to file additional declarations and reports with the tax administrator.
3. Use of national electronic system for administration of accompanying documents for excise duty purposes (the SADHES-system) is now obligatory
Use of the SADHES-system, which was voluntary for excise warehouse-keepers until the end of September, became obligatory as of October. In addition to applications for repayment of excise duty, the SADHES-system also allows electronic preparation and filing of other accompanying documents.
The change helps to reduce paperwork – goods subject to excise duty now need be accompanied by only one document instead of the former three sheets. Discrepancies found between the goods and the information stated in the accompanying document must be entered in the SAHDES-system. For entrepreneurs, another positive feature of the system is that it provides a real-time overview of the handling of accompanying documents and generates pre-filled warehouse inventory status and change reports. >> For more information, please visit
4. Paul Künnap appointed head of FICE taxation and legal issues working group
On 9 September, the Board of the Foreign Investors’ Council in Estonia (FICE) appointed Paul Künnap, senior associate with law firm SORAINEN, as head of the FICE taxation and legal issues working group. Two other working groups were formed to analyse labour and education issues topical for foreign investors. The goal of the working groups is to perform an in-depth analysis of the current situation of each issue from the perspective of foreign investors, inviting field experts to participate in working group meetings, and to come up with well-argued suggestions for the attention of officials and the Estonian government.
The kick-off meeting of the taxation and legal issues working group led by Paul Künnap took place on 13 October. Says Paul: “Considering the complex situation that Estonia and the whole region are facing today, steps need to be taken to make Estonia more attractive for foreign investors. A favourable tax system and a reliable and efficient legal framework form an important part of an investment-friendly business environment. It seems that much can be done in this area, and participation in the FICE taxation and legal issues working group creates opportunities for putting forward constructive proposals.”
The FICE is a lobby group representing the Austrian, Danish, Finnish, German-Baltic, Dutch, Norwegian and Swedish Chambers of Commerce, Business Clubs and Marketing Offices in Estonia. Together, the nine countries represented on the FICE account for more than 80 % of total foreign direct investment in Estonia.
5. Sworn advocate Kärt Anna Maire Kelder joins the SORAINEN tax and customs team
Sworn advocate Kärt Anna Maire Kelder has worked as a legal advisor since 2001. Starting her career at the Estonian Investment Agency, she advised international investors seeking business opportunities in Estonia.
Kärt specialises in international business law and business structuring as well as in international taxation law. Before joining SORAINEN, she worked for eight years in Vienna, Austria, starting as an advisor on the tax team of international law firm Freshfields Bruckhaus Deringer and rising to the position of partner at a consultancy and auditing firm advising international entrepreneurs.
Kärt has advised a wide range of companies in gas and oil extracting and trading, real estate, IT and telecoms and pharmaceuticals, as well as alcohol and pulp producers and private investment companies in international transactions, plus internationally active private individuals such as IT workers and artists. Kärt has extensive experience of advising clients from countries such as Russia, Ukraine and Kazakhstan, and she currently resides in Moscow, Russia. She is proficient in German, Russian, and English, in addition to Estonian.
Kärt’s expertise includes the following areas of law:
- Worldwide tax systems: in addition to advising companies and entrepreneurs from the USA, most European countries, Russia, Ukraine, Kazakhstan, and Singapore, Kärt has helped establish companies in these jurisdictions. She has also written articles for specialist literature publisher Linde Verlag, analysing the applicability of WTO law to various jurisdictions, and has delivered presentations at numerous seminars;
- Tax treaties and their application: articles authored by Kärt on Estonian tax treaties and principles of their application have been published in specialist international literature on the important issue of how individual countries apply tax treaties and what guidance is given by the OECD and the European Court of Justice.
- Application of anti-avoidance measures: two of Kärt’s strengths lie in a strong network of colleagues developed over years of practising as a legal advisor plus a business-focused approach based on her personal experience of operating as an entrepreneur.
Kärt lives by her personal motto that heights exist to be conquered and dreams are stepping stones to achievements. She believes that academically accurate knowledge in combination with ethics, a quick wit and collegial amiability yield the best results – indeed, these were her very reasons for joining SORAINEN.
She graduated from Tartu University, Estonia with a magister iuris degree and from the Vienna University of Business Administration, Austria with an LLM in international tax law.