Taxation Changes in Estonia since January 1st, 2013
Starting from January 1st 2013 few tax changes came into force.
1. Changes in the Income Tax Act
Starting from 2013 it is possible to move between funded pension system and supplementary funded pension system without interrupting the 5-year requirement when applying the 10% tax rate for persons over 55 years old. Deposit made while transferring money from one system to another cannot be deducted from income as person already had the right to a tax incentive.
2. New tax treaty with India
The double taxation treaty with India entered into force of June 20, 2012. The provisions of the treaty will generally apply from January 1, 2013, in Estonia and from April 1, 2013, in India. Agreement is based on OECD Model Tax Convention on Income and on Capital. Purpose of the treaty is to predispose international investments and interstate trade, also free movement of people and technology. To gain the purpose, the treaty regulates the division of tax assessments right between contracting parties, enacts preventing of discriminative imposition of taxes and obligation of blocking tax avoidance. Treaty restricts the right of tax assessment of the contracting state, by implication, contracting state gives over the part of the tax revenues to the other contracting state and conversely.
Agreement establishes better conditions for undertakers and helps to make economic and business cooperation between India and Estonia more effective.
3. Changes in land taxation
Land owners or land users specified the law are exempt from the obligation to pay land tax on residential land or profit-yielding land to the extent of 0.15 hectares in cities and to the extent of 2.0 hectares elsewhere if the person's residence is in the building located on this land pursuant to the residence data entered in the population register. For clarification, if the intended purpose of the land under an apartment building is determined to be partly as residential land and partly as business land, then the tax exemption does not apply to the business land and the owner of the apartment shall pay tax for it.
4. Changes in the VAT Act
Most of the changes made to the VAT Act came into force already on April 1, 2012, but some changes took effect starting from January 1, 2013. Among those, changes were made regarding the place of supply when means of transport is hired or leased on a long-term basis (place of supply shall be the seat or residence of the recipient of the services), with an exception made to pleasure crafts (place of supply shall be the seat or permanent establishment of the service provider). An obligation to the taxpayer was added that states that if VAT should be paid by the taxpayer in another EU member state, the taxpayer is obliged to make the invoices or information immediately available to the tax authority at the latter’s request.
Additionally, requirements for the invoices were changed. Starting from January 1st, 20123, tax-payer registered in Estonia, shall be obliged to issue an invoice in the cases where: (1) the place of supply is Estonia; (2) the place of supply is outside of Community; (3) goods are transferred or services are provided to a taxable person in another Member State and the goods or services are subject to taxation in the recipient’s Member State and recipient has not issued an invoice to itself about the transaction.
Starting from January 1st, 2012 it is also necessary to note “reverse charge” on an invoice when the place of supply is not Estonia and reverse charge will be implemented in the Member State of destination.
5. Changes in the taxation of unemployment insurance premiums
The unemployment insurance premium burden is 2% for the employee and 1% for the employer in 2013.