InfoCourier is a monthly newsletter which gives an overview of the latest changes in legislation.
Threshold for persons liable to value added tax increases from 1 January 2018
An Act to Amend the Value-Added Tax Act will increase the threshold for registering as a taxable person to 40,000 euros per calendar year from 1 January 2018. The current threshold has been 16,000 euros since 1 April 1995. With this change, the administrative burden for smaller businesses whose supply does not exceed the threshold and who do not want to register as taxable persons voluntarily, will decrease.
Special arrangements for national reverse charge to expand
On 1 January 2017, an amendment to the Value-Added Tax Act, which expands the special scheme for the domestic reverse charge on certain metal products, will enter into force. The reason for the amendment is to decrease tax fraud in this area.
Court decision: Taxation of purchase of immovable property as dividends
On 26 October 2016, the Administrative Law Chamber of the Supreme Court made decision no. 3-3-1-28-16 in relation to the application of subsections 50 (1) and 52 (2) 1) of the Income Tax Act on the acquisition of immovable property.
The Estonian Tax and Customs Board decided that Horetracon OÜ cannot deduct the VAT paid on the acquisition of an apartment and related expenses (notary fees, expert assessment, furniture, construction work in the apartment) as input VAT and respective expenses are subject to income tax because it interpreted the payments made by the company as dividends paid to the sole shareholder.
According to the Supreme Court, the immovable property was not purchased for the company’s taxable supply and taking into consideration the fact that the company did not have a serious business plan, and apartment furnishings, things written in social media and the registration of the apartment as a place of residence refer to the intention to use it as a dwelling. Therefore, the Supreme Court agreed with Tax and Customs Board’s decision on the deduction of input VAT.
However, with respect to dividends, the Chamber took a different stand, pointing out that the loan given to the company by the sole shareholder partly without interest did not prove that the apartment was purchased for the sole shareholder, and the acquisition of the immovable property did not reduce the assets of the company nor increase the assets of the sole shareholder. Within the meaning of the Income Tax Act, the fact whether expenses are related to business does not only depend on whether the acquired asset will be used for taxable supply, as a company’s activity has the characteristics of business even if the company sells goods or provides services to its shareholder.
The Estonian text of the Supreme Court’s decision is available here.
For further information, please contact Merike Oja, tax adviser, firstname.lastname@example.org
© 2017 KPMG Baltics OÜ, an Estonian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.