Monitoring your tax affairs

There is a lot you can do to keep your tax matters in order. On this page, we provide an overview of advice to follow and links to important pages.

Advice

  • Follow up that your taxes are declared and paid in time. If your company experiences difficulties and the timely payment of taxes are becoming complicated or has already become difficult, please be sure to contact us. We try to find a solution in common.
    More particularly on payment of tax liabilities in instalments.
  • Please register your employees in the employment register in time.
    More particularly on employment register.
  • Please submit correct and objective data on declaration. When being controlled, the data to be declared by you shall play an important role among the rest in comparison with similar companies operating on the same area of activity and in the same region. The average indicators are displayed on the page Statistics and open data – Business statistics by local authorities (in Estonian) and in the section below Reference data to reduce the risk of envelope wages.

    For example, you will keep a shop trading with clothes and have 10 employees. We will compare the salaries declared by you with the other ones of salespersons in shops of ready-made clothes. If the salaries declared by you exceed the average of your competitors, the likelihood of getting under control shall be little. If you declare the salaries less than the average, we may contact you in order to verify the accuracy of the information declared.
  • Check the tax behaviour ratings of your company in the e-MTA on a regular basis. Tax behaviour ratings is the new e-service offered by us to provide companies with feedback on their tax matters. In the event of deficiencies, instructions are given on how to correct them. By following the instructions, companies can reduce the risks of tax controls and additional tax liability. More about the service of tax behaviour ratings

  • Keep yourself well informed about the changes in taxation – this will help you to avoid mistakes arising from ignorance.

  • If you have questions, please consult with our tax specialists.
  • If needed, take part in training events organised by the Estonian Tax and Customs Board.

Choose your transaction partners carefully!
In transactions performance, providing sales of goods and services subject to value added tax, beside the reliable traders participate also persons whose objective is to get rich at the expense of value added tax by fraud. By this, unequal competition terms are set for the undertakings operating at the market and extensive damage is caused to the state. We have also detected value added tax frauds in chains of transactions where goods or services have been realised through companies that may not always be aware of such fraud.

In order to reduce tax risks, it is always sensible to check thoroughly the other party’s background of the transaction and the circumstances thereof. We shall recommend giving special attention to the price of the goods or services provided, if this is considerably lower or higher of the market price and economic justifications for the disparity in prices are lacking. If doubts remain, we shall recommend giving up such transactions and consider finding more trustworthy parties of transactions.

Read more: How to check the background of a business partner.

The background check of your transaction party is useful for you because then you can be sure that:

  • your transaction partner can supply goods or provide services in agreed conditions at the right time, at the acceptable volume, of the required quality;
  • if you have further pretensions related to the goods/services, your transaction partner continues operating and is able to rectify deficiencies;
  • if your transaction partner cannot guarantee the abovementioned, you shall not face a problem with the other cooperation partners and you shall not damage your or your company’s reputation;
  • you yourself shall not foster deterioration of competition conditions in the sector with such a transaction;
  • in the case of doubt, you have no difficulties to substantiate the performance of the transaction to the Estonian Tax and Customs Board or the other authorities;
  • the transaction partner has paid the taxes on the transaction and performed other obligations.

It may bring along a suspicion of participating in tax fraud for the taxable person who has become aware of the actual circumstances of the transaction (that refer to a tax fraud) but despite that participates in the transaction which might be involved in a tax fraud, and thus, it may bring along a suspicion about engagement in a tax fraud, according to the judicial practice in effect (Decisions of the Administrative Law Chamber, Nos 3-3-1-73, point 15, and 3-3-1-27-14, point 18). 

Taxation rules relating to immovable property are with many nuances. Therefore, companies using dwellings for business purposes have often questions in what way one or another transaction should be charged.

In order to help you to take your bearings in the taxation landscape full of nuances, we provide here a short survey about the rules laid down in different acts what to bear in mind in accounting related to dwellings used for business purposes.

Value added tax rates

Whereas dwellings can be used in various ways for business purposes, it is useful to know for a company planning to obtain dwelling belonging to an enterprise (apartment ownership, residential building, etc.) that various services relating to immovable property are taxable in different ways according to the Value-Added Tax Act.

So, for example, the rate of value added tax on provision of accommodation services (visitor’s apartment or holiday home) shall be 9 per cent of the taxable supply (clause 15 (2) 4) of the Value-Added Tax Act (hereinafter the ‘VAT Act’), the leasing or letting of immovable property, or establishment of a usufruct on immovable property is, as a rule, the supply exempt from tax (clause 16 (2) 2) of the VAT Act), however, transactions of leasing or letting immovable property or of establishment of a usufruct thereon may be voluntarily charged with the 20 per cent value added tax rate, having prior notified the tax authority of it, except in the case a dwelling is the object of transaction (clause 16 (3) 1) of the VAT Act). A dwelling is a residential building or apartment which is used for permanent habitation (subsection 272 (1) of the Law of Obligations Act).

Thus, in order to make a distinction between dwellings and business premises, it is important to assess whether the rooms afford to live there permanently or not and how these are actually used. Therefore, even if business premises are concerned, according to the permit of use, but actually the rooms are used for living in, then these rooms are treated as dwellings and, also vice versa – if according to the permit of use it is a dwelling but actually used as business premises, then it shall be charged on the basis of the provisions meant for business premises.

The accommodation service is concerned if the lease contract is entered into for the temporary use of the premises and for a term not exceeding three months (clause 272 (4) 1) of the Law of Obligations Act). Therefore, if you give a dwelling for use to different persons for short periods, an accommodation service charged with the 9 per cent value added tax rate is in question, but if you find a client who wishes to use the dwelling more than three months, you shall conclude a residential lease contract with the client and supply exempt from tax is created from the provision of the service.

We will note in addition that on providing accommodation services, persons using accommodation services shall be registered on the basis of visitor’s cards (subsection 24 (1) of the Tourism Act). Visitor’s cards shall be preserved for two years as of the date they were filled in (subsection 24 (6) of the Tourism Act).

It should also be borne in mind, if the assets belonging to a company are given for use to an associated person, the associated person as well shall pay to the company according to a general price list and the company has to declare the grant of use of the dwelling as supply. However, it can be either tax-exempt supply or self-supply, depending on whether or not the person pays for the use and whether the company has deducted input VAT on the acquisition of dwelling. We will note that the grant of use of the assets of a company to an associated person free of charge or at a price lower than the market price is regarded as a fringe benefit on which the income and social taxes shall be declared and paid (subsection 48 (1) and clause 48 (4) 2) of the Income Tax Act and clause 2 (1) 7) of the Social Tax Act.


Examples how the transactions are taxed and declared when dwelling is used by company’s employee or member of the management or control body
  1. The company has deducted input VAT on the acquisition of the dwelling. The employee or member of management or control body does not pay for the use of the dwelling (the use of the dwelling is free of charge) to the company. The company has to declare the use of the dwelling as self-supply (in box 1 of the VAT return) and as fringe benefit (in annex 4 of form TSD).
  2. The company has deducted input VAT on the acquisition of the dwelling. The employee or member of the management or control body pays rent to the company according to the general price list (market price). The company has to declare the rent on the VAT return as tax-exempt supply (in box 8) and input VAT on the acquisition of the dwelling is not deductible or input VAT deducted on the acquisition is subject to adjustment (in box 10 of the VAT return).
  3. The company has not deducted input VAT on the acquisition of the dwelling. If the employee or member of the management or control body does not pay rent to the company (use of the dwelling is free of charge), the rental transaction is taxed as fringe benefit (in annex 4 of form TSD).
  4. The company has not deducted input VAT on the acquisition of the dwelling. If the employee or member of management or control body pays rent to the company according to the general price list (market price), the company has to declare the rent as tax-exempt supply (in box 8 of the VAT return).

Upon the sale of dwellings as well, different taxation may be applied depending from whether a dwelling taken into use or a new one is concerned. If upon the resale of a new dwelling prior to the commencement of its use the 20 per cent value added tax is added to the selling price (clause 16 (2) 3) of the Value-Added Tax Act), then upon the transfer of a used dwelling the supply exempt from tax is concerned (clause 16 (3) 2) of the Value-Added Tax Act). 

Deduction of input value added tax

Value added tax on dwellings, and on goods and services acquired for it is allowed to declare as input value added tax in the case only when the rooms shall be taken for use for the purposes of taxable supply (subsection 29 (1) of the Value-Added Tax Act).

Thus, upon the acquisition of dwellings for the purpose to use it, for example, as an office, the right of deduction of input value added tax depends upon the fact whether:

  • the rooms are used for an office fully or partially,

  • the supply to be created as a result of activities of an undertaking shall be taxable or exempt from tax.

If an undertaking uses dwellings for an office partially only, or the undertaking creates in the course of its activities both taxable and tax-exempt supply, the deduction of input value added tax shall be justified partially only on dwellings used for an office and on goods and services related to it, the deduction shall be based on the estimated proportion in which the immovable property were to be used for the purposes of taxable supply during the year of the acquisition of the immovable property (subsection 32 (3) and subsection 29 (4) of the Value-Added Tax Act).

But if an undertaking acquires a dwelling for the purpose of letting it out for a long term, the assets acquired for the purposes of tax-exempt supply are concerned wherefrom input value added tax cannot be deducted.

At the same time, whereas this taxation sphere is full of many nuances, one can make different transactions with one immovable during years, as a result of what the taxation of services provided by the same movable may change depending from the changes in use of the immovable.

In the case you have deducted input value added tax upon the acquisition of immovable property, provided that you shall start to use it for the purposes of taxable supply, but as time passes, it turns out that the market situation has changed or you do not succeed in realisation of your initial plans for some reasons and the apartment shall be taken into use for the purposes of tax-exempt supply, it is essential to know that the value added tax deducted from the acquisition of the apartment, as well as from the other fixed assets related to the apartment ownership, shall be adjusted according to the real use (subsection 32 (4) of the Value-Added Tax Act).

Input value added tax shall be adjusted within the period for adjustment of input value added tax starting from the year of the acquisition of the fixed assets according to the actual proportion in which the fixed assets are used for the purposes of taxable supply. The period for adjustment of input value added tax shall be ten calendar years in the case of immovable and five years in the case of other fixed assets. Input value added tax shall be adjusted at the end of each calendar year taking into account the actual proportion in which the fixed assets are used for the purposes of taxable supply during the given calendar year (subsections 32 (41 and 42) of the Value-Added Tax Act).

Upon the acquisition of a dwelling, the deducted input value added tax is subject to adjustment on the tax return of the month in which the assets are transferred, if the dwelling taken into use already is transferred within the period for adjustment of input value added tax (subsection 32 (5) of the Value-Added Tax Act).

  • In order to guarantee fair competition and equal treatment of taxpayers, we would like you to inform us of tax offences.
WE are waiting for your hints

by phone +372 800 4444 (free of charge, 24 h)

by e-mail: vihje@emta.ee

  • On giving hints, please try to describe the details of offences committed or to be planned, as precisely as possible, give the place and time of the commitment and the information of the persons related to the matter.
  • You can drop a hint to us anonymously as well or to request anonymity for yourself when the information acquired shall be treated. If possible, we still ask you to provide your contact details as well so that we can specify the details of the hint when needed.
  • We will not give feedback on the proceedings and the results thereof, whereas such information is tax secrecy. The information not falling within our competence shall be forwarded to the appropriate authority.

As from June 2020, we publish data on payments declared to the Estonian Tax and Customs Board (ETCB) by job titles for the last 12 months, which we regularly update once a month.

The classification of job titles is based on the International Standard Classification of Occupations 2008 (PDF).

Average wages in Estonia have been observed on a post basis from the month of publication of the data during the last 12 months. The ETCB makes calculations on a monthly basis and calculates the average remuneration for employees with an employment contract and persons working on the basis of contracts under the law of obligations (the duration of which is longer than 20 days in a calendar month), regardless of the rate of working time recorded in the employment register. The calculation is based on declared payments made by at least 100 employers to 100 persons. If this criterion is not met, we will display data at the level of the group of occupations.

The publication of the payments declared to the ETCB gives both employers and employees the opportunity to compare the declared average wages on the basis of a job title.

Difference in the calculation of average wages by the ETCB and Statistics Estonia:

  1. Types of remuneration – Statistics Estonia publishes the average wages which include the following types of remuneration: time and piecework pay, holiday pay, remuneration in kind, irregular bonuses and premiums. The ETCB does not publish average wages, but the various payments per person related to the employment relationship.
  2. Time-shift – the data of Statistics Estonia are accrual-based, the ETCB's data are cash-based. For example, the wages earned in August are included in the data of August by Statistics Estonia, whereas in the ETCB these wages are included in the data of September, when the wages are paid. Likewise, if two months’ salary (or salary and holiday pay) is paid to the employee in one instalment, Statistics Estonia reflects the payment on an accrual basis whereas according to the ETCB's data, the employee received twice the usual amount.
  3. The number of employees – in order to compare the wages of part-time and full-time employees, Statistics Estonia will reduce the number of employees to full-time employment. The average number of employees reduced to full-time employment is calculated as follows: the number of full-time employees is added to the number of part-time employees, calculated in proportion to the time worked (for example, two half-time employees calculated as one), the total sum of gross monthly wages is divided by the average number of the employees reduced to full-time employment. The ETCB takes into account all people who have received payments, regardless of whether the payment is made to a person for full-time or part-time work.
    In the data of the ETCB, the number of employees is increasing, this means that each employment is accounted for, regardless of the time worked (for example, one month or 12 months). The data are based on the tax return form TSD annexes 1 and 2 (more specific payout codes). In the ETCB, the total amount of payments subject to income tax is divided by the number of persons to whom the payments have been made.

Last updated: 10.11.2021

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