In late June, the Riigikogu adopted significant amendments to tax laws
Amendments to the Value Added Tax Act
• On 1 January 2024, the general VAT rate will be increased by two percentage points, i.e. from 20% to 22%.
• On 1 January 2025, the VAT rate of accommodation establishments (including accommodation with breakfast) will be increased by four percentage points, i.e. from 9% to 13% and the VAT rate of press publications from 5% to 9%.
A transitional provision has also been included in the act, according to which those who entered into a contract for sales of goods or provision of a service before 1 May 2023 can apply the 20% VAT rate until 31 December 2025 if the contract stipulates that the transaction is subject to a 20% VAT rate and the contract does not stipulate a change in price as a result of a possible change in the VAT rate.
Further information about the amendments to the Value Added Tax Act and the proceedings in the Riigikogu is available HERE
Amendments to Income Tax Act
• The additional tax-free income of a natural person in the case of child maintenance will be abolished on 1 January 2024. The option to use the additional tax-exempt income instead of one’s spouse and the right to deduct the interest paid on a home loan from one’s taxable income will also disappear.
• The regressive tax-exempt income will be abolished on 1 January 2025 and a uniform tax-exempt income of €700 per month, i.e. €8,400 per year, will be established. An exception to this are old-age pensioners, whose tax-exempt income equals the average old-age pension.
• On 1 January 2025, the general income tax of a natural person and a commercial undertaking will be increased by two percentage points, i.e. from 20% to 22%. In addition, the preferential tax rate of 14% on regularly distributed profits of commercial undertakings will be abolished, as will the 7% income tax withheld on dividends paid to natural persons. The rate for advance payments by credit institutions will rise from 14% to 18%.
Further information about the amendments to the Income Tax Act and the proceedings in the Riigikogu is available HERE
Amendments to the Alcohol, Tobacco, Fuel and Electricity Excise Duty Act
• Excise duties on both alcohol and tobacco will increase by five percent each year from 2024 to 2026. The excise duty on tobacco products consists of a fixed rate and a proportional rate. The amendment only concerns an increase in the fixed rate of excise duty.
• The excise duty on special-purpose diesel fuel will be €21 per 100 litres from 1 January 2025. This cancelled the previously planned increase in the excise duty on special-purpose diesel fuel. However, the previously adopted amendment, which will also increase the excise duty on electricity in the coming years until 2026, was not changed.
Further information about the amendments to the act and the proceedings in the Riigikogu is available HERE
Gambling Act Amendment Act
• On 1 January 2024, the gambling tax will increase from €1,278.23 to €1,406 per gaming table and from €31.95 to €32 per slot machine.
• Gambling subject to 18% tax will be taxed at 22% and gambling subject to 5% tax will be taxed at 6% from 1 January 2024.
• The tax rate on gambling subject to 6% tax will increase to 7% on 1 January 2026.
Further information about the amendments to the Gambling Tax Act and the proceedings in the Riigikogu is available HERE
Supreme Court Ruling - A waiver of claims can be considered as a gift
In its Ruling No 3-20-326/32, the Supreme Court clarified that the write-off of loans granted to related parties may also be regarded as a gift. The tax authority has ascertained during proceedings that the company gave a loan to a related party and late wrote off the loan receivable. However, it was impossible to prove that the company tried to recover the loan.
The tax authority therefore concluded that, since the loan was granted to a related party and the company had not made any attempt to recover the loan, it was a gift taxable under subsection 49 (1) of the Income Tax Act.
Due to the procedural violations in the lower courts, the Supreme Court did not give a final ruling on the case, but sent it back to the Administrative Court for reconsideration. However, the Supreme Court found that a waiver of a proprietary right free of charge is considered a gift pursuant to subsection 259 (1) of the Law of Obligations Act. Thus, not seeking to recover a loan can in principle be regarded as a gift if it’s purpose was to enrich the borrower. However, if recovery of the loan is objectively not possible, it is not correct to consider the waiver of collection operations as a gift, provided that the loan agreement was actual, i.e. the company that received the loan had sufficient assets and the lender wanted the loan to be repaid.
The ruling of the Supreme Court can be viewed here