Should You Register as VAT Payer in 2025?
Estonian tax authorities sent an email notification in January 2025 to more than 24,000 businesses that may be required to register as VAT payers.
Starting from January 1, 2025, businesses must register as VAT payers if their annual turnover of €40,000 includes:
- Revenue from goods and services, including zero-rated sales, except for the disposal of fixed assets. Be sure to monitor your company’s taxable supply of goods and services, including 0% taxable supply, while excluding the transfer of fixed assets.
- Revenue from real estate transactions, except for the disposal of fixed assets andoccasional* transactions. Make sure to track your company’s supply of real estate trades, excluding the transfer of fixed assets.
- Supply of insurance and financial services, except occasional* services.
If your company’s business activity, as classified under the EMTAT Code** involves real estate, financial services, or insurance, or if your revenue from goods and services includes 0 per cent taxable supply, be sure to review this carefully, take note, and seek expert advice if needed.
** What is EMTAK Code?
EMTAK is the Estonian abbreviation for the Estonian Classification of Economic Activities. The determination of a company’s field of activity is based on the official classification, EMTAK. When starting a business, only one primary field of activity should be selected – specifically, the activity expected to generate the most income in the first financial year.
However, selecting a main field of activity does not restrict the company from engaging in other business activities as well. Fields of activity are classified similarly in all EU Member States.
* What Are Occasional Transactions?
- An occasional transaction is one that is not related to the company’s core business or daily operations.
- The occasional nature of a transaction cannot be determined solely by its frequency, transaction amount, or proportion of total revenue. Generally, a transaction is considered occasional if the company has invested its surplus funds, provided a loan, or engaged in similar activities, while being primarily established for a different business purpose.
- Example: A transaction is considered occasional if a company sells securities that were acquired as an investment, but securities trading is not part of its core business.
- Providing a loan is considered an occasional transaction if lending is not the company’s primary business activity.
Increase in VAT Rate
One of the key changes is the increase in the standard VAT rate from the current 22% to 24%, effective from July 1, 2025. This temporary measure is set to remain in place until December 31, 2028, after which the rate is expected to revert to 22%.
Our accountants regularly participate in professional training courses and seminars to stay up to date with changes in tax laws, regulations, and practices. This ongoing education helps us enhance skills and deepen expertise in the field. In the recent training programs conducted by tax authorities, this increase is outlined as follows:
- The general VAT rate is 22% of the taxable value.
- A Security (Defence) Tax of +2% will be introduced, bringing the total VAT rate to 24%, effective July 1, 2025.
- The VAT rate increase will remain in effect until December 31, 2028.
Additionally, starting January 1, 2025, the VAT rate for accommodation services, including those with breakfast, will rise from 9% to 13%. Similarly, the VAT rate for press publications will increase from 5% to 9%, returning to the rate that was applicable prior to August 2022.
Furthermore, the definition of “new buildings” in the VAT Act is changing. Previously, a building lost its status as new from the first day of use. However, under the updated VAT Act, a building is considered new if it is sold within its first year of use, and VAT must be added to the price in such cases. This change will take effect on January 1, 2025.
Businesses should also be aware of transitional provisions, especially those utilizing the VAT cash accounting scheme. For instance, until December 31, 2026, such businesses may continue to apply the previous VAT rates under certain conditions, such as for services invoiced before January 1, 2025, but supplied afterward.
It is crucial for companies operating in Estonia to familiarize themselves with these changes and assess their potential impact on operations and pricing strategies. Proactive measures, such as updating accounting systems and training staff on the new regulations, can help ensure a smooth transition and maintain compliance with Estonian tax authorities, and regulations.
At InCorpora, we specialize in VAT compliance for Estonian companies, providing professional, reliable, and efficient services tailored to your business needs. Whether you require VAT registration, monthly reporting, or strategic tax advice and planning, our experienced team ensures full compliance with Estonian regulations while optimizing your tax position.
To navigate these VAT changes smoothly and ensure compliance while optimizing your tax strategy, reach out to our expert team today. We are your Trusted Advisor in Estonian VAT and accounting matters.
CONTACT US NOW or visit www.incorpora.eu
Team InCorpora
