This issue of InfoCourier covers the following topics:

  • Taxation of foreign citizens working in Estonia
  • Amendments to the Alcohol, Tobacco, Fuel and Electricity Excise Duty Act
  • Refund of VAT paid in the UK after Brexit
  • Summaries of court judgments: Charging personal expenses to company card and fringe benefits received

Please feel free to contact KPMG’s tax advisers with any queries you may have.
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Taxation of foreign citizens working in Estonia

A part of a package of amendments to the Aliens Act, the Income Tax Act and the Taxation Act entered into force on 1 January 2021. The amendments were adopted last year with the aim of preventing disregard for employment rules in Estonia.

As from 1 January 2021, non-resident employers who hire temporary agency workers out to an Estonian user enterprise for work in Estonia are required to register themselves at the Estonian Tax and Customs Board; they are also required to withhold and declare all labour taxes from the salary of a non-resident temporary agency worker since the day when the hired-out worker begins work in Estonia. A non-resident employer hiring workers out to an Estonian user enterprise, is thus required to withhold income tax on wages paid for work in Estonia. If the agency worker holds a A1/E101 certificate from another Member State, the non-resident employer is not required to pay social tax and social security contributions in Estonia for the hired-out worker.

The applicable tax requirements also depend on whether the foreign citizen who works in Estonia is a ’posted worker’ or a ’worker on a business trip’, and on the length of the period of their stay in Estonia. The posted worker always has a specific host (a recipient of services).

Further information: Ave Rego, averego@kpmg.com

Amendments to the Alcohol, Tobacco, Fuel and Electricity Excise Duty Act

On 1 January 2021, the rate of excise duty on cigarettes was increased by almost 5% (to 145.60 euros per 1,000 cigarettes). The excise rate on smoking tobacco was also raised, by close to 8% (to 97.10 euros per 1 kg of smoking tobacco). Other excise rates remained unchanged.

At the end of 2020, the act was amended to provide that excise tax on tobacco e-liquids, with or without nicotine, be suspended for two years. The amendment, which will take force on 1 April 2021 and remains in force until 31 December 2022, is expected to help control border trade and black market.

Further information: Merike Oja, moja@kpmg.com

Other News

Refund of VAT paid in the UK after Brexit

After Brexit, the VAT paid on purchases made in the UK can no longer be reclaimed through the EU VAT refund system. In respect of goods and services bought in 2020, VAT can be reclaimed through the e-MTA portal as before until 31 March 2021.

From now on, the VAT refunds on purchases made in the UK will be processed in the same way as for any third country. First, there must be a reciprocal agreement in place between the countries for VAT refunds. The UK has confirmed that it will continue to refund VAT to taxable persons in the EU Member States on the basis of reciprocity.

As from 2021, the VAT refund application will be filed directly to the UK tax authority (i.e. not through the e-MTA portal), using the UK forms and subject to the UK’s terms and requirements.

By way of exception, refunds of the VAT paid in Northern Ireland will continue to be processed under the same procedure as in the EU Member States, and the applications can be filed through the e-MTA portal (in respect of 2020, until 30 September 2021).

Further information: Merike Oja, moja@kpmg.com

Summary of court judgments

Summary of Supreme Court judgment in administrative matter no. 3-19-104 (3 December 2020)

Liability of legal representative

The Supreme Court agreed with the tax authority’s position that although the authority of the member of the management board ended before the due date of the tax liability, the board member was still responsible for ensuring that the company pays its tax as due. The board member of the board intentionally withdrew, from the company’s account, the money required for the payment of tax, and was not able to prove that the money was used for business purposes. The Court found that even in the absence of relevant documents, the board member could himself have provided evidence regarding the purpose of the transactions.

The Court further noted that a liability decision may be made in respect of a legal representative only after three months have passed from the beginning of tax collection proceedings (except in case of bankruptcy). In order to collect tax arrears, the tax authority made a liability decision addressed to the board member liable for the performance of the taxpayer’s obligations. In proceedings for annulment of the liability decision , the Court pointed out the following:

  • A breach where a legal representative intentionally violates a tax obligation falls under joint and several (solidary) liability, even if the company does not have the required funds for the payment of tax arrears after the end of the legal representative’s authority.
  • The principle of investigation does not require the tax authority to establish and verify hypotheses about all kinds of transactions that the taxpayer may have entered into within the relevant period.
  • A liability decision may not be made before the legal deadline has expired, even if it is clear that the tax arrears cannot be collected from the company, and regardless of any enforcement proceedings that may have been started against the company in respect of other tax arrears.
  • Tax arrears include the overdue amount as well as any unpaid interest on the amount in arrears.

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

Further information: Ave Rego, averego @kpmg.com