Upcoming Amendments to the Estonian Value Added Tax Act
Changes regarding deductible VAT
On the 3rd of July the President of the Republic of Estonia declared the amendments to the Estonian Value Added Tax Act (hereinafter the Act). The amendments to the Act will be enforced starting from 1st of December 2014. According to the amendments, the law now sets limits on deductible VAT on purchasing a car and using the car on the basis of rent/ lease agreement and on car fuel, repair and maintenance instead of taxation the cars self-supply.
Deductible VAT percentage
When purchasing a car or using the car on the basis of a lease agreement and buying fuel or making costs for repairing car the input value added tax will be deducted according to the proportion of using the car in business, but not more than 50% will be deducted, taking into account the proportion of taxable supply and supply exempt from tax.
The restriction is not applied on when:
1) the tax payer has purchased the car for sale i.e. his business activity is to sell cars;
2) the tax payer has purchased the car for lease i.e. his business activity is to lease cars;
3) the car is used as taxi;
4) the car is used as a training tool in car schools;
5) the car is used only for business (exempt: for giving the car for a fee for usage to employees or management board members);
Regarding points 1-5 mentioned above, the car needs to be used at least 2 years after the purchase or lease agreement in order to qualify as exemption.
The idea of the amendments is to tax the usage of cars more fairly and therefore also to increase payments to the state.
Kati Kruut, lawyer of the Gencs Valters Law Firm in Tallinn.
Practising in fields of Value Added Tax and Mortgage Law .
T: +372 61 91 000
F: +372 61 91 007