Added recommendations from the ETCB on how to avoid mistakes and tax controls.
Companies with VAT risk make up 6% of all companies in Estonia. This means that most Estonian entrepreneurs are aware of the current rules and follow them.
According to ETCB’s VAT risk manager, Kristi Veskus, the ETCB meticulously reviewed the VAT returns of nearly 11 000 companies last year. “Due to anomalies identified, we contacted companies both to clarify what had been declared and to draw attention to possible errors. As a result of us contacting the companies, the initially declared VAT liability of companies increased by nearly 53 million euros," Veskus said.
Most of the companies contacted by the ETCB voluntarily correct the mistakes in their tax returns as soon as the possible shortcomings are pointed out to them. In such cases, the ETCB has no reason to initiate proceedings that are burdensome for the taxpayer.
The ETCB finds most VAT return errors when analysing VAT refund claims. In 2024, companies had to correct refund claims on more than 1270 occasions for a total of 28 million euros.
“The most common infringement in the deduction of input VAT giving rise to unjustified claims for refund concerns the declaration of the VAT on purchases of less than 1000 euros in the VAT return as an aggregate amount, which the law does not require to be indicated by invoices and transaction partners. When asked by the ETCB, it turns out that no purchase invoices exist in such an amount. Such violations were identified in nearly 360 companies last year in the total amount of more than 14 million euros," Veskus added.
The most common form of intentional VAT fraud is the deduction of input VAT on the basis of fictitious invoices. This is done, for example, by means of invoices from shell companies and invoice mills, but also by means of fictitious transactions, mass counterfeiting of retail cash receipts, etc. Last year, the ETCB identified unjustified deduction of input VAT on the basis of fictitious invoices on nearly 230 occasions and imposed tax obligations totalling nearly 8 million euros.
As in previous years, the most common form of tax evasion is still non-declaration of turnover. This is both the most common mistake, caused by a lack of knowledge of VAT accounting rules, and a deliberate way of evading taxes, causing VAT losses of approximately 39 million euros per year. Turnover is most commonly concealed by companies in retail, services and construction sectors, where cash is used more than in other sectors. In 2024, the ETCB detected 1600 companies that concealed turnover and the companies’ tax liability was increased by a total of more than 24 million euros.
Non-registration of companies for VAT purposes is also a common way of concealing turnover. For this purpose, the turnover of one company is often divided between several companies in order not to exceed the threshold of 40 000 euros per year for registration. "Upon identifying such cases, the ETCB considers the companies operating in this way to be a single economic unit - in the course of proceedings, we aggregate the turnovers and calculate whether the threshold has been reached on the basis of the turnover of the whole unit," Veskus explained.
Businesses also often fail to declare transactions between companies and amounts received through banks. This creates problems for both parties to the transaction. For example, a buyer has no hope of quick release of a VAT refund claim if he declares the acquisition and asks for the refund of input VAT in one period, but the seller does not declare such sales in the same period. Therefore, the different recording or not recording transactions is one of the reasons why the ETCB turns very much attention to companies that are transaction partners.
Three recommendations on how to avoid unintentional mistakes and tax controls:
- digitise and automate your accounting and tax accounting by introducing e-invoicing;
- use the possibility to submit a VAT return with one click directly from an accounting software via machine-to-machine interface over the X-tee data exchange layer;
- contact the ETCB for tax advice and read the detailed instructions and watch the online training courses in Estonian on the ETCB's website.
