Sale of electricity
Taxation of income from sales of electricity produced by private individuals depends on whether the seller is a private individual or a sole proprietor (FIE).
If the purpose of electricity production is to earn income, you must register as a sole proprietor in the commercial register in order to be able to take into account all business-related expenses for tax purposes.
Private individuals produce electricity by means of solar panels mainly for their own household use. If solar panels generate more electricity than is consumed in the household, the transmission network operator will repurchase the remaining electricity to its grid. During the period when the productivity of the panels is not sufficient for household consumption, an individual will have to purchase additional electricity from the transmission network operator.
If in conclusion of the year, the income from the sale of electricity is smaller than the amount paid for the electricity purchased, no tax liability arises. A person may also reduce the income from the sale of electricity by the cost of electricity used in other places of consumption belonging to him or her. This means that if a person has one place of production of electricity but more than one place of consumption, he or she can deduct the electricity costs of all the places of consumption from the sales revenue.
When selling electricity, income tax is charged on gains if in conclusion of the year the income from the sale of electricity exceeds the amount spent on the purchase of electricity.
A person who is not engaged in a business activity and is not registered as an economic operator cannot deduct the cost of equipment and materials necessary for the construction of a solar park and the cost of construction, installation and maintenance from his or her income. Nor can a person deduct the repayments and interest paid on a loan taken to build a solar park from his or her income.
Support is paid to the owner of solar panels on the basis of § 59 of the Electricity Market Act and the support is exempt from tax for the recipient.
A private individual is not required to declare the tax-free support in his or her income tax return.
If the sale of electricity is a business activity, the rules on the taxation of the income of a sole proprietor (FIE) must be followed. Business is a person’s independent economic or professional activity, the aim of which is to derive income from the production, sale or intermediation of goods, provision of services, or other activities.
A natural person who conducts business must register his or her activities in the commercial register. Business income from which business-related expenses have been deducted, is subject to income tax and social tax, and contributions to funded pension if the person has subscribed to mandatory funded pension.
In certain cases, a person may also be required to pay excise duty on electricity. You can read more about electricity excise duty on our web page on fuel and electricity excise duties (in Estonian).
A sole proprietor must declare the income from the sale of electricity in the income tax return form E.
A sole proprietor has the right to take into account all costs related to electricity production (e.g. plant construction and maintenance costs, including costs covered from the support received) and the tax liability on profits is calculated on the basis of the tax return.
The support received by economic operators is taxable and must be declared in the income tax return form E.
Costs covered from the support are taken into account in the total costs and the tax liability is calculated on profits.
Taxation of the income of drivers providing taxi service through a ride-sharing platform
The provision of taxi services is essentially business. While doing business, a person has to decide whether to offer his or her services as a sole proprietor, through a company or by using an entrepreneur account.
Drivers who are private individuals and do very few occasional drives in an extent which cannot be considered to be a business, have to declare their earned income in the income tax return under the heading “Other income on which income tax has not been withheld” and have to pay the income tax themselves.
The drivers who are private individuals and for whom this income is occasional, do not have to pay any other tax.
The amount to be declared is the received sum for drives or for the driver's services, the costs of which (for example, a service fee on Uber, Bolt or any other ride-sharing platform, fuel, car repair, tires and so on) are not deductible.
Since 2019, for simplifying the taxation of services offered by one natural person to another (incl. income derived through a taxi service platform), it is possible to use an entrepreneur account.
It is possible to open an entrepreneur account in a bank (LHV) offering the entrepreneur account service and to transfer income to this account. The bank will reserve a fixed percentage of the received amount automatically to cover taxes and transfers it to the Estonian Tax and Customs Board. Tax rate is 20% if the annual receipt is up to 25,000 euros and 40% if the annual receipt exceeds 25,000 euros.
The tax on business income will cover income tax, social tax and contributions to mandatory funded pension. The stated tax rate takes into account the estimated expenses which may be related to offering a service. The natural person does not have the obligation to submit tax returns, register as an entrepreneur or keep records of expenses.
It is convenient for a natural person to use the business account when earning occasional (business) income, because it also covers social tax and contributions to mandatory funded pension and therefore increases contributions to the II pension pillar. Income transferred to the business account will be taken into account when calculating compensations related to social tax.
You can find out more about an entrepreneur account.
Sole proprietors (FIE) may deduct business related expenses from their business income. From their profit they have to pay income tax and social tax, and also contributions to mandatory funded pension in case they have joined the mandatory funded pension system.
A sole proprietor registered as a person liable to value added tax (VAT), has to pay VAT. The VAT return (form KMD) has to be submitted every month.
A sole proprietor cannot distribute dividends and does not have to file an annual report to the Commercial Register.
The sole proprietor’s business income has to be declared on the form E of the income tax return. The income tax return and form E have to be submitted once a year with the person’s other income and deductions by 30 April of the year following the period of taxation. A sole proprietor has cash based accounting which means that income and expenses have to be indicated in the accounting for taxation purposes in the year money is paid or received.
If a sole proprietor wishes to save up for a bigger investment, he or she may use a special account to defer tax obligations.
Sole proprietors have to take into account the obligation to pay advanced payments.
More instructions about sole proprietors’ tax obligations.
When performing business activities through a private limited company (OÜ), it is necessary to consider that providing driver services is a business activity and labour taxes need to be paid on income from employment (income tax, social tax, unemployment insurance premiums and in case the driver has joined the mandatory funded pension system then also contributions to mandatory funded pension).
The owner of a private limited company may receive dividends as owner’s income in addition to salary. Distributing dividends requires only income tax to be paid.
In case of making taxable payments, the representatives of private limited companies need to submit monthly income tax declarations (form TSD or declaration of income and social tax, unemployment insurance premiums and contributions to mandatory funded pension) to the Estonian Tax and Customs Board and annual reports to the Commercial Register.
An obligation to register as value added tax (VAT) liable arises when the taxable supply exceeds 40,000 euros as calculated from the beginning of a calendar year. When the limit amount is reached the representative of the company has to submit an application to the Estonian Tax and Customs Board to register the company VAT liable. VAT return (form KMD) is submitted monthly.
The person providing driver services can decide on which business form (sole proprietor or private limited company) to use.
Regardless of the chosen form of business in Estonia, the Uber service of enabling the use of the application is registered as VAT liable in the Netherlands and is regulated in Estonia according to subsection 10 (5) of the Value Added Tax Act. This means that by using the Uber application for offering ride-sharing services the Estonian entrepreneur (sole proprietor or private limited company) has to register as a taxable person with limited liability and this service has to be declared and VAT with the Estonian rate of 20% has to be paid (the so-called reverse charge).
As a VAT liable person with limited liability does not have the right to deduct the input VAT on purchased goods and services (incl. the VAT calculated from the purchase price of the reverse charged service), the driver offering services in the course of business activities can consider registering for VAT according to the standard procedure voluntarily before the VAT registration threshold limit is reached.
If using the taxi service was related to performing the passenger´s (an employee) work tasks, the cost can be reimbursed to the employee by the employer on the basis of a ride summary issued by the ride-sharing platform as the expense in the benefit of another person and supported by documentary evidence pursuant to subsection 12 (3) of the Income Tax Act.
This is the case regardless of whether the taxi service was provided by a sole proprietor, private limited company, owner of an entrepreneur account or by a private individual.
The income derived from the assets upon the merger of the company with the assets of the natural person
If the sole shareholder of a company who is a natural person has merged the assets of the company with the personal assets as an alternative to the liquidation proceedings of the company, then he/she shall have to declare it in table 6.6 of the income tax return.
The difference between the income received from the company in monetary or nonmonetary form and the liabilities taken over, and the acquisition cost of the holding shall be declared. The income received in nonmonetary form shall be stated at the market price. The received gains shall be taxed except the share of profit taxed by the company.
If upon merging the liabilities of the company are taken over, then the amount of the liabilities taken over shall be declared.
If the liability taken over from the company ceases to exist later due to waiver of a claim, limitation period, consolidation of an obligor and an obligee or other reason, then it shall be declared and the taxable income shall occur during the period of taxation when the liability shall cease to exist.
Last updated: 23.12.2021