From 1 January 2024, the standard rate of VAT in Estonia is 22% instead of the current 20%.
In connection with this amendment, the VAT Act contains two transitional provisions.
- Until 31 December 2025, provided that the goods or services supplied are subject to a standard VAT rate, the user of cash accounting of VAT may pay VAT at the rate of 20% on the supply of the goods or services generated after 31 December 2023 if an invoice was issued to the purchaser and the goods were dispatched or made available or the service was supplied before 1 January 2024.
- The second transitional provision concerns transactions relating to long-term contracts, in particular transactions relating to immovables. Until 31 December 2025, a taxable person will be entitled, on the basis of a written contract concluded before 1 May 2023, to apply the 20% VAT rate applicable on the supply of goods or services until 31 December 2023, provided that the relevant contract provides that the price of the goods or services includes VAT at a rate of 20% or VAT at the rate of 20% is added to the price and the contract does not provide for a change in the price resulting from a possible change in the rate of VAT.
1. In December 2023, the company issued an advance invoice for the entire cost of the goods, which the buyer paid in December 2023. The goods were delivered to the buyer in January 2024.
Supply was fully generated in December 2023 and is taxed at a 20% VAT rate.
2. A partial advance payment for the goods was made to the company in 2023. The seller declared it with a 20% VAT rate. The goods were delivered, and the remaining amount was paid in 2024.
The advance payment is taxed at a 20% tax rate, the rest of the supply is generated in 2024 and is taxed at a 22% VAT rate.
3. The company sells the goods in 2023 at a tax rate of 20%. In 2024, the goods are returned.
When returning goods, a specific previously issued invoice is credited, the credit invoice has a VAT rate of 20% as in the original sales invoice.
4. The capital lease contract was concluded before 1 May 2023. The contract states that 20% VAT is added to the price, and the contract does not provide for an increase in the price of goods in the event of an increase in the VAT rate. Goods are delivered after 1 January 2024 (but before 31 December 2025).
Since a written contract has been concluded with a fixed VAT rate of 20% and the contract does not allow for an increase in the final price of the goods in the event of an increase in the VAT rate, the VAT rate of 20% can be used for the transfer of the item, if the transfer of the goods, which generates supply in an amount exceeding the advance payment, takes place before 31 December 2025.
According to subsection 25 of § 46 of the VAT Act, it is not the exact wording of the contract that is important, but whether the seller has the right to to increase the price of the goods or services under the contract due to an increase in the rate of VAT, or whether there is an exceptional contract under which this is not possible in any way.
5. The operational lease contract was concluded before 1 May 2023. The contract states that 20% VAT is added to the price of the service, and the contract does not provide for an increase in the price of the service in the event of an increase in the VAT rate.
Until 31 December 2025, operational lease payments may be taxed with VAT at 20%.
According to subsection 25 of § 46 of the VAT Act, it is not the exact wording of the contract that is important, but whether the seller has the right to to increase the price of the goods or services under the contract due to an increase in the rate of VAT, or whether there is an exceptional contract under which this is not possible in any way.
6. An advance payment has been paid in 2023 on the basis of a capital lease contract and it is taxed at a rate of 20%, the goods are delivered in 2024.
Since, in this example, it is not known that the contract was concluded before 1 May 2023, it is necessary to take into account the time when the supply was generated. The advance payment generates supply in 2023 and is taxed at a rate of 20%, while the rest of the supply is generated in 2024 and taxed at a rate of 22%.
7. The VAT liable person using cash-based accounting provided a service and issued an invoice for it in December 2023, but the buyer paid the person for the service in January 2024.
According to the transitional provision (subsection 24 of § 46 of the VAT Act), the service is taxed with 20% VAT, although the supply of the VAT liable person using cash-based accounting occurs in January 2024 according to the receipt of money.
8. The client rents the device during the period from 1 December 2023 until 31 March 2024. Which VAT rate applies to the billing of rental equipment during the given period?
If the invoice for rent is issued for the entire period in total, and no advance payment is paid, the time of supply is March 2024, and the entire service is taxed at a 22% VAT rate.
If the entire rental amount is paid in advance in 2023, the time of supply is the month of receipt of the advance payment, and the tax rate is 20%.
If a separate invoice for rent is issued for each month and paid in the month following the month the invoice is issued for, the December rent is taxed at a 20% tax rate and the rent for the remaining months at a 22% tax rate.
9. A contract for the provision of a service was signed in August 2023. The contract specifies the price of the service and VAT at the rate of 20%. The contract does not provide a possibility to increase the price of the service due to the increase in the VAT rate.
Since the contract has been concluded after 1 May 2023, there is no right to apply the transitional provision and to continue to provide the service at the VAT rate of 20% up to 31 December 2025. Upon conclusion of the contract, it was known that the VAT rate will change. As of 1 January 2024,the service is subject to 22% VAT rate under this contract.
10. A private person orders goods from an online store in December and agrees to pay for the goods upon taking the goods out of a parcel locker. The seller sends the parcel in December 2023 and the buyer takes the parcel out of the locker and pays for the goods in January 2024.
Supply is created in December 2023 when the goods are dispatched, the VAT rate is 20%.
11. A framework agreement has been concluded before 1 May 2023 with a fixed VAT rate of 20%. After 1 May 2023 a public contract has been concluded under the same conditions.
Since the framework agreement is not implemented directly without the public contract awarded on the basis of it, the VAT rate is calculated according to the terms of the public contract. Since the public contract was concluded after 1 May 2023, the VAT rate of 22% is applicable as of 1 January 2024.
12. Invoice is issued in 2023, goods are delivered and the invoice is paid in January 2024.
No supply is created from issuing an invoice alone. If both the delivery and the payment take place in 2024, the transaction is taxed at the VAT rate of 22%, and the VAT rate indicated on the invoice must also be 22%.
13. Invoice is submitted in November 2023; service is provided between November 2023 and February 2024 as one complete service; payment is made in 2024.
In this case, supply is created in 2024 and the whole transaction is taxed at 22% VAT rate, and the VAT rate indicated on the invoice must also be 22%.
14. Construction service is provided in December 2023. An instrument of delivery and receipt is signed by both parties in January 2023. In which month and at what VAT rate must the transaction be declared?
The time of supply must be determined on the basis of the time of provision of the service. The time of provision of the service must be indicated on the invoice as well and the seller is obliged to reflect the supply in the period indicated on the invoice. Only if the buyer and the seller have agreed that the time of provision of the service is the period when the instrument is signed, the date of signature must be the period of provision of the service indicated on the invoicel, and the seller is obliged to reflect the supply in that period. Therefore, if it has not been agreed in advance that the moment of supply is deemed to be the moment of signing the instrument, it is correct to include the supply of construction services in the December VAT return and apply VAT at the rate of 20%. If there is an agreement that the service is deemed to have been provided by signing the instrument, the applicable VAT rate is 22% and the supply must be declared in January 2024.
15. How to proceed as of 1 January 2024 if I sell cigarettes (the price on the package is fixed)?
Pursuant to § 8521 of the Alcohol, Tobacco, Fuel and Electricity Excise Duty Act opens in a new tab, cigarettes, cigars and cigarillos released for consumption before 1 January 2024 may be transferred or offered for sale at a price higher than the maximum retail price due to the increase in the rate of VAT, i.e. the retail price of these products is allowed to be increased by the amount of additional VAT payable (from 1 January 2024).
Source emta.ee
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