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InfoCourier - June 2020

InfoCourier - June 2020

InfoCourier provides a monthly overview of the latest changes in legislation.

Joel Zernask

Partner, Head of Tax Services

KPMG Baltics OÜ


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This issue of InfoCourier covers the following topics:

  • Amendments to the Aliens’ Act
  • Summary of court judgment: Income tax on gains from the sale of property

Amendments to the Aliens’ Act

The Riigikogu has passed a series of amendments to the Aliens’ Act to update the regulations governing the life, work and study of foreign nationals in Estonia. In particular, the amendments seek to encourage highly qualified foreigners to take up temporary or permanent residence here to bring added value to Estonia.
The most significant change concerns the digital nomad visa, which is currently being implemented in Estonia. The visa facilitates the stay of so-called digital nomads in Estonia. A digital nomad is a person who works independent of location, doing web-based work while travelling from one country to another. Digital nomadism is a popular practice in the fields of IT, finance and marketing. As formerly such workers were required to have an employer in Estonia, they often came on tourist visas even though they wanted to work from here. As digital nomads do not fall under the rules of traditional work, the requirement of having an Estonian employer may have discouraged them from coming to Estonia as it was harder for them to establish an appropriate basis for their stay here.
A digital nomad visa may be short-term or long-term and visa applications will be subject to general visa conditions. To come to Estonia to work remotely from here, digital nomads need a mediator who assumes responsibility for their stay.
Other amendments specify requirements for employers as the inviting party, who must register the short-term employment of their foreign employees, and adjust the rules for seeking a long-term visa.

More information on amendments to the Aliens’ Act is available here (in Estonian).

Additional information: Tax Advisor Einar Rosin

Summary of judgment no. 3-19-1279 (28 February 2020) of Tallinn Circuit Court Income tax on gains from the sale of property

The circuit court has examined a situation where a private individual did not pay income tax on the gains derived from the sale of property, relying on art 15 (5) 1) and 4) of the Income Tax Act, providing a tax exemption for gains from the transfer of immovable property if an essential part of the immovable is a dwelling used by the taxpayer as their place of residence until the sale (clause 1) or if the property includes a summer cottage or garden house owned by the taxpayer as a movable or an essential part of an immovable for more than two years and the size of the registered immovable does not exceed 0.25 hectares.
The court ruled that the exemption was not justified in this case as there was no summer cottage or garden house on the property at the time of the sale, which could have been used for at least seasonal occupancy. The court also reiterated several principles with a bearing on the taxation of immovable property transactions:

  • Tax exemption can be claimed for summer cottages or garden houses that qualify as buildings (i.e. structures with a roof and an interior space) and are designed for at least seasonal occupancy, i.e. it may have a lighter-weight structure and less substantial heat insulation compared with a residential building. However, structures such as sheds or shelters are generally excluded from the scope of the definition.
  • Whether or not the property was the taxpayer’s place of residence according to the data entered in the population register does not carry decisive weight as the tax exemption does not depend on formal entries in the register but on whether the property was actually used as the taxpayer’s permanent or main residence before the sale.
  • A taxpayer should keep account of its income and expenses in a manner which clearly sets out the data necessary for determining the taxable income. As there is no fixed term for preserving the documents serving as proof of acquisition cost, the documents should be available at the time of the sale of property.

More information on the judgment is available here (in Estonian).

Additional information: Tax Advisor Ave Rego

© 2021 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.

KPMG International Cooperative (“KPMG International”) is a Swiss entity.  Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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