For sole proprietors

If you already are or are planning to become a sole proprietor (a self-employed person, FIE in Estonian), you can find all the information about entrepreneurship, registration as a sole proprietor and tax liabilities on this page. You may also find the sole proprietor's tax calendar and advice about keeping accounts, submitting declarations and paying taxes helpful.

Special arrangements for cash accounting for VAT

If a sole proprietor’s taxable supply did not exceed 200 000 euros in the previous calendar year or as of the beginning of the current calendar year (the transfer of fixed assets and the incidental transfer of immovable as goods are not taken into account), the sole proprietor may keep records of value added tax (voluntary) on the cash basis if he/she so wishes. A very important prerequisite for the implementation of the special arrangement is a prior notification in writing of the Tax and Customs Board whether upon the registration as a person liable to value added tax or at the latest, during the taxation period prior to implementation of the cash accounting for value added tax.

If a sole proprietor keeps accounts on a cash basis, the time of supply is deemed to be the date on which full or partial payment is received from the recipient of the goods or services.

Example
The sole proprietor notified the Tax and Customs Board that he would keep his accounts on a cash basis from 1 May. He sold (dispatched) the goods on 25 May. Money for the sold goods was received on 10 June. Thus, the supply was created on 10 June.

The entitlement to the deduction of input value added tax on goods acquired or service provided for the purposes of taxable supply in business activities arises after the partial or full payment for the goods or services, i.e. if the goods acquired and services received are not paid for, there is no right to deduct input value added tax.

Example
A sole proprietor acquired goods for taxable supply in business activities on 30 May, which were fully paid for on 6 June. In this case, the right to deduct the input value added tax will arise when submitting the value added tax return for June (the date of submission on 20 July).

A sole proprietor who keeps value added tax accounting both on cash basis and using the accrual method has to submit the value added tax return and appendix (Annex of the VAT return on Form KMD INF) thereto by the twentieth day of the month following the taxable period.


Waiver of the VAT accounting on cash basis

Waiver of the VAT accounting on cash basis may be either voluntary or obligatory.

In the case of a voluntary waiver, i.e. a sole proprietor’s taxable supply did not exceed 200 000 euros as of the beginning of the current calendar year, the sole proprietor has to notify in writing the Tax and Customs Board during the taxation period prior to the waiver at the latest.

Example
A sole proprietor wishes to waive the VAT accounting on cash basis beginning from 1 September. In this case, the notification must be submitted not later than within August.

Sole proprietors have the obligation to waive the special arrangement if their taxable supply (the transfer of fixed assets and the incidental transfer of immovable as goods are not taken into account) exceeds 200 000 euros as calculated from the beginning of a calendar year. It is not allowed to apply special arrangement as of the first date of the calendar month following the generation of the supply. Upon obligatory waiving of the special arrangement, the sole proprietor must inform in writing the Tax and Customs Board in the first taxation period from which the implementation of special arrangement was discontinued at the latest.

Example
The threshold of the taxable supply for a sole proprietor using the special arrangement reaches in May. In this case, the sole proprietor is obliged to submit a notification to the Tax and Customs Board in June at the latest.

Additional information  Data to be entered in a VAT return and instructions of filling out the return
Cash based VAT accounting

Last updated: 19.09.2022

Last updated: 29.11.2022

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