1. Value Added Tax Act
On 1 November 2014, a new and already much-criticised obligations comes into force requesting legal entities to submit data about purchase and sales invoices to the tax authority in addition to a regular VAT returns. According to the new regime, Estonian VAT liable companies shall submit monthly VAT return annexes to the tax authority (in addition to the regular VAT returns) reporting data upon any transactions exceeding EUR 1000. The annex shall include information about transaction partners such as registration number, name of the party, number and date of invoice, invoice amount, VAT rate and amount. Transactions with natural persons do not need to be reported. While the main purpose of this amendment is to combat VAT fraud, it does create remarkable additional administration burden for legal entities as well as a number of questions, including the threat of confidentiality of a client-attorney relationship in case of law firms acting in the form of corporate entities (vast majority of Estonian firms). Disputes can be expected upon implementation of the new regime, as for instance the law firms will not and cannot be expected to disclose their client information to the state tax or any other authority.
Further, another amendment came into force effective from 1 January 2014, legislating the new legal practice which forbids the seller to lower/reduce his respective VAT obligation based upon issuing a credit invoice due to the fact that the buyer has not paid for the goods or services, unless the transaction has been cancelled or the price of the goods or services has been reduced at the request of the buyer.
It is also anticipated that further amendments are subject to passing in the Parliament limiting the tax deductions currently in force related to use of companies’ vehicles by the employees (including use of vehicles on the way to and from the office.
2. General Taxation Act
As of 1 June 2014, the Estonian tax authority publishes a monthly “black list” of tax debtors who owe at least EUR 1000 of taxes. According to the tax authority, the aim of publishing this list is to motivate the taxpayers to comply with tax obligations in a timely manner and promote equal competition. A new list will be published on the tax authorities’ webpage on a monthly basis.
Starting from 1 July 2014, new employee registration rules came into effect, requiring the employers to file all employees for registration with the tax authority prior to starting of the work in Estonia. Besides those working under a labour contract, the obligation to register also applies to short term contracts and other contractual relationships and to pro bono work (consultancy agreements with natural persons etc.). Both residents and non-residents working in Estonia (including EU residents) are subject to registration. For the registration purpose, non-residents shall have an Estonian identification number. The registration can be done in tax authorities’ online website and failure to register can lead to a punishment as a misdemeanour with the fine up to EUR 3200.
By Ants Karu