1. Taxation of company cars changes
As of 1 December 2014, amendments to the Estonian Value Added Tax Act (VATA) on taxation of vehicles take effect. Instead of the current 100% input VAT rate, entrepreneurs can now deduct only 50% of input VAT on purchase and use of a car under an operational lease as well as on purchase of goods and services for the car. Nevertheless, 100% of input VAT can still be deducted if the car is used solely for business purposes.
In the latter case, claimants must prove that the car is not used for personal purposes. However, the law does not provide specific rules for how proof must be given. The explanatory memorandum to the VATA states that a company must apply all measures to ensure that a company car is not used for personal purposes. For example, a company car must be parked at the workplace, GPS logs must be saved, driving logs must be kept and other measures need to be taken to prove reliably that the car is used solely for business purposes. As before, 100% of input VAT can be deducted on taxis, driving practice vehicles and vehicles acquired for sales or commercial leasing purposes.
If 100% of input VAT is deducted on purchase of a vehicle but the vehicle is later also used for private purposes, then half of the input VAT deducted must be repaid with interest. To avoid repayment of 50% of input VAT, the intended purpose of the car may not be changed within two years, i.e. the car may not be used even once for private purposes. This means that to retain the right to deduct 100% of input VAT, the car must not be made available for use by employees, officials, or members of governing bodies for private purposes, even for a charge.
The following tips may be useful for entrepreneurs:
- If you plan to acquire a car for your company or lease one under a financial leasing contract, then you should make the transaction before 1 December 2014 so that all input VAT paid can be deducted.
- We recommend formalising current operational leases as financial leases before 1 December 2014. Otherwise only 50% of VAT can be deducted from operational lease payments made as of 1 December 2014. If an operational lease is formalised as a financial lease before 1 December 2014, then 100% of VAT can be deducted.
- If, however, it is necessary to continue using a vehicle under an operational lease or to acquire a new vehicle, preparations need to be made for presenting proof to the Tax Board that the vehicle was and is used only for business purposes.
2. Companies must declare circumstances that may affect their tax liability
As of 1 January 2015 an amendment to the Estonian Income Tax Act (ITA) takes effect requiring resident legal persons and non-resident legal persons having a permanent establishment in Estonia to declare circumstances that may affect income tax payable on dividend or other profit distributions (§ 50) or taxation of the permanent establishment in the case of non-resident legal persons. The deadline set for declarations is 10 February 2015.
The following must be declared:
- contributions to company equity,
- income tax withheld and paid in a foreign state,
- income received from which an income tax free dividend can be paid and payments made from equity,
- similar rights, which used to be in the possession of another company, received in the course of merger, division or transformation of companies.
From now on, the circumstances listed above that may affect tax liability must be declared on an ongoing basis in the month following the emergence of a circumstance.
According to the explanatory memorandum to the draft act, one of the aims of the amendment is to increase legal certainty for entrepreneurs and tax administrators in determining tax liability arising from these provisions of the ITA. With this amendment, companies are once again faced at short notice with the obligation to file additional declarations and reports with the tax administrator.
3. Use of national electronic system for administration of accompanying documents for excise duty purposes (the SADHES-system) is now obligatory
Use of the SADHES-system, which was voluntary for excise warehouse-keepers until the end of September, became obligatory as of October. In addition to applications for repayment of excise duty, the SADHES-system also allows electronic preparation and filing of other accompanying documents.
The change helps to reduce paperwork – goods subject to excise duty now need be accompanied by only one document instead of the former three sheets. Discrepancies found between the goods and the information stated in the accompanying document must be entered in the SAHDES-system. For entrepreneurs, another positive feature of the system is that it provides a real-time overview of the handling of accompanying documents and generates pre-filled warehouse inventory status and change reports. >>For more information, please visit