The most important changes in the Value Added Tax Act from 1 January 2011

On 25 November 2010, the Riigikogu passed the Value Added Tax Amendment Act, the most important changes of which we shall introduce in this document.

1. Changes in application of the special arrangements in VAT cash accounting
2. Changes in filling and submitting of  reports on intra-Community supply of goods (VD) and amendments to intra-Community supply  reports (VDP)
3. Reverse  charge on national transactions

1. Changes in application of the special arrangements in VAT cash accounting

The fundamental change compared to the valid procedures of 31 December 2010 is that special arrangements may be applied by all persons liable to value added tax

• whose taxable supply did not exceed EUR 200 000 in the previous calendar year or since the beginning of the current calendar year.

Taxable persons shall keep a cash-basis accounting on this limit and shall not include transfer of fixed assets and the incidental transactions of an immovable as goods.

On application of special arrangements, the time of supply is the day:

• when payment has been partially or entirely received from the recipient of goods or services, or
• when no payment has been received for the transferred goods or provided services in the two calendar months following the dispatch or making available of the goods or provision of services, the time of supply is the first day of the third calendar month following the dispatch or making available of the goods or provision of services, or
• when, in the case of self-supply, the goods have been dispatched or made available or the services provided.

Example

When there has been no payment made during February and March for goods dispatched in January, the time of supply is 1 April, and the supply is to be declared on the April VAT declaration with a deadline of 20 May.

The right to deduct input value added tax for goods purchased or services received for taxable supply arises in the case of:

• full payment
• partial payment in the paid amount
• in the case of non-payment, there is no right to deduct input value added tax

Taxable person applying special arrangements has no right to use cash-basis VAT accounting in the case of the following transactions and operations (Value Added Tax Act § 44 (11)):

• import of goods
• intra-Community supply and acquisition of goods
• according to Value Added Tax Act § 10 (4) 9), provision on services, the place of supply of which is not Estonia, to a person registered as a taxable person in another Member State or taxable person with limited liability
• receiving services from a foreign person engaged in business who creates supply in Estonia
• supply, acquisition of goods and receiving services, when payment for goods or services takes place under a contract, i.e. a leasing contract during a period longer than three calendar months after dispatch of goods or provision of services (i.e. long-term lease contracts, rental contracts and hire purchase)

As an important change, a new obligation is added to taxable persons who apply special arrangements:

• to present the Annex form KMD INF1 of VAT declaration

The form shows information on the issued and received invoices that are undeclared on the value added tax return (KMD), i.e. invoices that include transactions on which the obligation to declare VAT or the right to deduct input VAT falls to the later period of taxation, since the invoices are entirely or partially outstanding / unpaid.

The KMD INF1 form consists of Parts A and B:

Part A: sales invoices, for which the payment from the buyer has not been received in full or in part; Part B: sales invoices, for which the payment to the seller has not been made in full or in part.

Invoice data are not shown on this form, if the invoice has been

• fully received / paid
• issued only on supply exempt from tax
• presented only for a transaction or an operation, on which cash-basis VAT accounting shall not be implemented according to the Value Added Tax Act § 44 (11)

Submission deadline

The form shall be submitted together with the value added tax return by the 20th day of the calendar month following the period of taxation as at the last day of the period of taxation, either

• electronically at the e-Tax Board/e-Customs
• on paper

The form shall be submitted even when there are no unreceived sales invoices or unpaid purchase invoices (presented by zeros).

To  sole proprietors  who applied special arrangements before 1 January 2011

A  sole proprietor who has informed a tax administrator of the application of special arrangements under provisions that were in force until 31 December 2010, and wishes to continue from 1 January 2011, does not need to submit a new notification, except when the taxable supply of the taxable person exceeds EUR 200 000 as of the beginning of 2010.

If the  sole proprietor’s taxable supply exceeds EUR 200 000 from the beginning of 2010 (transfer of fixed assets and  incidental transactions of immovable as goods are not included), the sole proprietor is obligated from 1 January 2011 to:

• stop using cash-basis VAT accounting, and
• implement general procedures in VAT accounting (accrual VAT accounting), and
• inform the tax authority in writing during the first accrual VAT accounting period of taxation at the latest, i.e. before the end of January 2011, either
  • in writing as a signed document
  • via the link “Teated MTA-le” at the e-Tax Board/e-Customs, or
  • via e-mail

Let us remind you that in the case of continuing application of special arrangements, the use of accounting programmes may result in the need to make changes to the accounting programmes.

Additional information and help is available at:

• VAT information line 880 0813 (principal questions on taxation);
• e-Tax Board/e-Customs information line 880 0815 (assistance on submitting MKD INF1 via e-Tax Board/e-Customs);
• web-page of the Estonian Tax and Customs Board (http://www.emta.ee).

 

2. Changes in filling and submitting of reports on intra-Community supply of goods (VD) and amendments to intra-Community supply reports (VDP)

Declaration of services

A VD-report declares the services that would be taxed in accordance with the so-called main rule (Value Added Tax Act § 10 (4) 9)) by the service recipient in their country of location when referring to a taxable person from another country (Value Added Tax Act § 28 (1) 2).

Therefore, services that are tied to their location, and the place of service is not related to the recipient of service (i.e. immovable-related services), are not to be declared.

Showing credit invoices on the report

If an invoice submitted for supply of goods/provision of services is cancelled or a credit invoice is submitted, the changes occurring due to that shall be shown on the statement about the period of taxation on which the (credit) invoice was submitted (Value Added Tax Act § 28 (3)).

Therefore, the changes occurring due to cancellation of an invoice or submission of a credit invoice are to be declared at the same taxation period on both the value added tax return (KMD) and the report on intra-Community supply (VD).

The declaration period is a calendar month

A report shall be submitted by the 20th day of the next calendar month (Value Added Tax Act § 28 (2)). The first statement on intra-Community supply of goods shall be submitted by 20 February 2011.

Declaration in full euro

On a statement on the transactions of 2011, all sums are stated in full euros (Value Added Tax Act § 28 (6)). In the statement on year 2010, all sums are stated in full kroons.

 

3. Reverse VAT duty on national transactions

The Value Added Tax Act was supplemented by section 41¹, according to which there shall be a so-called buyer’s reverse VAT duty on certain national transactions.

§ 41¹ of the Value Added Tax Act “Special arrangements for imposition of value added tax on immovables and metal waste” provides that if a taxable person shall transfer an immovable stated in Value Added Tax Act § 16 (3) with VAT to another taxable person, or metal waste in the meaning of the Waste Act § 104, the acquirer of goods shall pay the transferor the sales price without the VAT. The acquirer shall calculate the VAT amount on the transaction invoice to be the VAT amount to be paid by the acquirer instead of the transferor.

Under special arrangements, an immovable or a part of it shall be taxed, the supply of which is usually  exempt from tax and on adding VAT to which a taxable person is obligated to inform the tax authority (Value Added Tax Act § 16 (3)). The obligation to inform rests with the transferor of the immovable.

Upon receipt of an invoice with a reference to the transfer of the VAT duty to the acquirer, the acquirer shows the transaction to be taxed in spaces 1, 4 and in the informative spaces 7 and 7.1 of their value added tax return. The acquirer has a right to show the VAT on the invoice as a deductible input VAT in space 5 when using the taxed supply on the immovable or metal waste.

Upon transferral of an immovable or metal waste in use, to a non-taxable entity or a person with limited liability, the regular VAT procedure applies, i.e. the VAT is calculated and paid by the transferor.