How are labour taxes paid
The service is received and paid for by a private person (customer). The service is provided by and the payment for providing the service is received by the owner of the entrepreneur account, sole proprietor or private limited company.
The entrepreneur account holder, sole proprietor or private limited company (the service provider) pays income tax, social tax, unemployment insurance premiums and contributions to mandatory funded pension according to its business form.
The service providers registered for value added tax (VAT) purposes (sole proprietors and private limited companies) pay VAT at the rate established by the Value-Added Tax Act to the service and submit proper invoices.
NB! If an entrepreneur account holder provides the service and the charge is taxed on the basis of the Simplified Business Income Taxation Act, the service provider cannot be registered as a taxable person liable to VAT and VAT is not charged. Entrepreneur account holders do not need to issue invoices.
The service is provided by and the payment for providing the service is received by the holder of the entrepreneur account, sole proprietor or private limited company through the app.
The owner of the app (company) provides the service of use of the application (digital service) and the intermediation service.
The entrepreneur account holder, sole proprietor or private limited company (the service provider) pays income tax, social tax, unemployment insurance premiums and contributions to mandatory funded pension.
The app owner has the right to organise business activities in such a way that services can be provided to customers through the app (mobile application, platform, etc.) only as an entrepreneur account holder, as a sole proprietor or through a private limited company.
NB! If the service is provided to a private person (customer) by the owner of an entrepreneur account, the owner of the app (service intermediary) does not incur income tax liability on expenses not related to business on the basis of subsection 1 and clause 1 of subsection 2 of § 51 of the Income Tax Act.
If the natural person (courier, driver etc., who is not an entrepreneur account holder, a sole proprietor or a person operating through a private limited company) provides the service and receives the payment for the provision of the service, then the owner of the app, i.e. the intermediary of the service, is obliged to declare and pay labour taxes.
The app owner (Estonian company), i.e. the service intermediary, who makes a payment to a natural person for the provision of the service, withholds income tax on the payment and pays social tax, unemployment insurance premiums and, in the case of an obligated person, the contributions to the mandatory funded pension. This is based on subsections 1 and 2 of § 40 and subsection 3 of § 41 of the Income tax Act; clause 6 of subsection 1 of § 2, clauses 1, 2 and 4 of subsection 1 of § 9 of the Social Tax Act; subsection 1 of § 40 of the Unemployment Insurance Act and subsection 1 of § 7 of the Funded Pensions Act.
NB! The app owner submits the monthly declaration form TSD and pays all the labour taxes on the payments made to the natural person on the basis of the form TSD, including on the amount the app owner transfers to the natural person as a brokered payment.
In summary
| Service is received by | Service is provided by | Taxes are paid by |
|---|---|---|
| Private person (customer) | Entrepreneur account holder | Entrepreneur account holder automatically via entrepreneur account in the LHV Pank |
| Private person (customer) | Sole proprietor | Sole proprietor according to submitted income tax return |
| Private person (customer) | Private limited company | Private limited company on the wages of its employees according to the tax declaration form TSD |
| Private person (customer) | Natural person who is not a registered entrepreneur | App owner according to the submitted tax declaration form TSD |
Value added tax
- An app owner will generate supply of digital services from granting an app to be used, which will be taxed according to the usual rules. If the app owner is an Estonian taxable person and the app owner grants it to another Estonian company for use, this is considered the supply of the taxable person at a 24% value added tax (VAT) rate. If the owner of the app is a foreign entrepreneur who provides the service of granting the app to an Estonian entrepreneur, the foreign entrepreneur will have supply at a 0% VAT rate in its country and the recipient of the service will have to reverse charge it in Estonia.
- An app owner will tax its intermediation service according to the usual rules. If the app owner is an Estonian taxable person and the app owner provides intermediation service to another Estonian company through the app, this is considered supply at a 24% VAT rate for the taxable person. If the app owner is a foreign entrepreneur who provides an intermediation service to an Estonian entrepreneur, the foreign entrepreneur will generate supply at a 0% VAT rate in its country and the recipient of the service will have to reverse charge it in Estonia.
- A service provided through an app is subject to VAT in the same way as when it would be provided directly to a customer. Renting out immovable property or a part of immovable property (for example, a house or apartment) as a dwelling is always considered supply exempt from tax, which also cannot be voluntarily subject to VAT, but if accommodation services are provided in the house or apartment, then supply taxable at the rate of 13% is generated. The invoice for this service must be submitted on behalf of the actual provider of the service, even if the owner of the app issues the invoice to the customer. A sole proprietor or the private limited company submits the invoice/cheque for the service. This does not preclude payment of money through the app — but the amount the app owner transfers to the service provider as an intermediary payment must be recorded in the app owner’s accounting separately from its own funds (as money not belonging to it) and not recorded in supply (in this case, the app owner’s supply is only the service fee charged for using the application).
In summary
| Content of the service | Service is provided by | VAT |
|---|---|---|
| Granting the electronic application to use (digital service) | App owner | If the app owner is registered as a person liable to VAT in Estonia, 24% VAT will be added when the service is provided to another Estonian person. If the app owner is a foreign entrepreneur, then the service provider has a 0% supply, the entrepreneur receiving the service must reverse charge in Estonia. |
| Intermediation of the service | App owner | If the app owner is registered as a person liable to VAT in Estonia, 24% VAT will be added when the service is provided to another Estonian person. If the app owner is a foreign entrepreneur, then the service provider has a 0% supply, the entrepreneur receiving the service must reverse charge in Estonia. |
| The service provided through the app | Entrepreneur account holder, sole proprietor, private limited company or a natural person | If the service provider (sole proprietor or private limited company) is liable to VAT, then 24% VAT will be charged at the provision of the service. If the person providing the service is an entrepreneur account holder or a natural person, VAT is not charged. |
Last updated: 01.11.2023
