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Determination of the place of supply of services

We should like to call attention of the companies entered in the Register of Persons Liable to Value Added Tax of the fact that from 01.01.2010 there are amendments to the Value Added Tax Act with regard to changes concerning determination of the place of supply of services. According to the basic rule applicable for determination of the place of supply of services and taxation, the place of supply of services is the country of establishment of the recipient of the services.  

The recipient of the services shall pay value added tax in its home country, or in other words, reverse charge is applicable on the services. The services which are not subject to reverse charge are specified in the Value Added Tax Act.  If the recipient of the services is a person of a Member State or third country engaged in business, then, according to clause 10 (4) 9) of the Value Added Tax Act the place of supply shall not be Estonia, and the services shall be taxed with the rate of value added tax of 0 per cent in Estonia. Upon provision of services to a business operator entered in the Register of Persons Liable to VAT in another Member State it is obligatory to ask the valid VAT number and in case of applicable reverse charge the supply of the services shall be declared on the form VD.

Also in case when an invoice is issued to a person engaged in business abroad on the person's address in Estonia while the recipient of the invoice has neither business activities nor VAT number in Estonia, the recipient of the invoice shall be deemed to be a person engaged in business abroad and not in Estonia.   

If a person engaged in business abroad has received an invoice from the Estonian business operator, where the supply is incorrectly taxed with the rate of value added tax of 20 per cent and the person submits an application for refund of value added tax through the EU VAT refund system, the Estonian authorities may refuse refunding the amounts of VAT on the basis of an incorrect invoice. In this case the recipient of the invoice has the right to request from the provider of the services a new invoice which is in compliance with the requirements specified in the Value Added Tax Act and also request refund of VAT. 
 

15.03.2016