Declaration of aid received through ARIB (Estonian Agricultural Registers and Information Board)
In accordance with the Income Tax Act, income tax is not charged on benefits paid pursuant to an Act. As a rule, the Estonian Agricultural Registers and Information Board (ARIB) aid is paid on the basis of an Act (European Union Common Agricultural Policy Implementation Act) and if the beneficiary is a person who is not engaged in business, such aid is not subject to income tax.
At the same time the aid received in relation to business is subject to taxation. Therefore, if sole proprietors request aid that is related to their business, the received aid must be included in their business income and they may deduct the expenses incurred from their income (incl. from the aid). If a person is engaged in agriculture for self-consumption only, in other words, the person does not manufacture the agricultural products for commercial purposes, this is not business within the meaning of the Income Tax Act and the person is not required to declare the aid as his or her income.
In the event of area payments the question of taxation depends on the fact, whether the plots of land for which the area payments were requested, are used for business purposes. If the receipt of aid depends on the number of heads in cattle, the next question that matters is: Is the cattle raised for receiving income from the sale of the product (e.g. milk, meat, wool, skins and furs, etc.).
The benefits which may be requested by sole proprietors only must be declared under business income and the expenses incurred may be deducted from business income.
It is not allowed to deduct from business income the expenses that have been made on account of the benefits not subject to income tax. Upon receipt of aid on the basis of information of a previous period it is important to know if the expenses necessary for achieving an objective (e.g. harvesting expenses) have been deducted. If such expenses have been deducted from business income, then the aid must be reflected under business income also in the cases when in the year of receipt of aid the person was not engaged in business any more. If the expenses have not been deducted from business income and in the year of receipt of aid the person was not engaged in business, the aid shall be exempt from tax.