This issue of InfoCourier covers the following topics:

  • Forthcoming changes in tax legislation

Please feel free to contact KPMG’s tax advisers with any queries you may have.
We hope you are enjoying reading it! 

Value-Added Tax Act

An earlier amendment to the VAT Act will take effect on 1 January 2022, entitling the supplier to a relief from VAT on bad debt relief. The bad debt relief may be claimed if

  • the debt has remained unpaid for at least 12 months but is not older than 3 years;
  • the debt has been written off in the accounts and the other party is aware of the fact;
  • the debt has not been transferred;
  • the person from whom the debt is due is not a related party;
  • for a debt exceeding 30 000 euros, it has been proven by a final court judgment.

Additionally the Riigikogu passed a new bill, introducing the following changes to the VAT Act:

Export and import of goods

• Transport services for the export and import of goods, services for the organisation of transport of goods and the related ancillary services will be taxed at the zero rate only if the service is provided directly to the consignor or consignee.

• The import of goods will be deemed to have taken place in Estonia also in cases where the goods are not placed under customs procedure in Estonia but have been delivered to Estonia and a customs debt is incurred in Estonia.

• The taxable amount of imported goods will include the costs of delivery to a destination within the European Union if the destination is known at the time of import. Under the current regime, the taxable value includes the costs of delivery to the first destination in the territory of Estonia.

Packages not returned for deposit refund

• The wording of the provisions concerning packaging covered by the deposit refund system, which has not been returned by the end of the calendar year, will be changed in such a way that the definition of the taxable person is not restricted to the producer.

The sales of second-hand goods, original works of art, collectors' items and antiques

• When applying the special VAT regime for the second-hand goods, original works of art, collectors’ items and antiques, the taxable amount of sales may, in duly justified cases and if specifically requested, be calculated on a monthly basis (instead of a transaction basis).

Supplies to the agencies and bodies established under Union law and to armed forces taking part in a defence effort in the EU framework

• The current VAT exemption (zero-rated VAT) to supplies to the EU institutions will be extended to supplies of goods and services to the agencies and bodies established under Union law. Where these supplies are acquired in the execution of their tasks performed in response to the COVID-19 pandemic, the VAT exemption will apply retrospectively as from 1 January 2021. 

• The exemption applicable to the armed forces of the NATO states taking part in a common defence effort outside their own states will be extended to the armed forces taking part in a defence effort in the EU framework (the common security and defence policy). 

Collector coins

• The amendments will terminate the VAT exemption for coins and banknotes not intended for circulation, such as collector coins and investment coins, although they may have the status of legal tender in the issuing country.

A part of the amendments will take effect on 1 January 2022, and the rest of them on 1 July 2022.

Additional information: Tax Advisor Merike Oja, 

Bill on Amendments to the Income Tax Act

The government has proposed a bill to abolish the tax exemption on housing loan interest, on the grounds that the tax incentive has ceased to serve its original purpose of facilitating access to housing loans.
The bill is expected to become law on 1 January 2022. As from 2023, taxpayers can no longer claim deductions for housing loan interest.

The bill is available here (in Estonian).

Additional information: Tax Advisor Einar Rosin,

Bill on Amendments to the Funded Pensions Act, the Taxation Act and the Income Tax Act

A bill was put forward in October to introduce the option of a new 3rd pillar fixed-term pension plan – the supplementary funded pension. The bill is currently undergoing the third reading in the Riigikogu, and the amendments are expected to take effect on 1 January 2022.
Disbursements will be made from the voluntary pension funds. If a person has units of different pension funds, the units can be redeemed to any of the funds. This is a scheme similar to the 2nd-pillar funded pension.
The bill will also introduces changes to the 2nd pension pillar as the mandatory funded pension contributions will be removed from the general order of priority for the performance of liabilities, as provided in the Taxation Act, to ensure that contributions will be paid in the 2nd pillar even if the employer has other arrears. The option of payment in instalments will cease to apply to contributions to the 2nd pension pillar.
In the Income Tax Act, the bill will amend the provision granting an exemption to income earned from financial assets acquired through an investment account, adding a reference to the 2nd pillar pension investment account, which had been erroneously left out.

The bill is available here (in Estonian).

Additional information: Tax Advisor Einar Rosin,

Amendments in excise tax regulation

TThe excise duty on electricity and certain fuels has been lowered for the period 1 May 2020 – 30 April 2022.
The Riigikogu has passed a bill to:

  • extend the application of the lowered excise duties for another year, so that the current rates would apply until 30 April 2023, and
  • increase the excise duty on fuel and electricity gradually to its pre-COVID-19 level over a four-year period starting from 1 May 2023.

Additional information: Tax Advisor Merike Oja,