Infocourier - November 2023

• On 1 January 2024, the standard VAT rate will rise from 20% to 22%.
• On 1 January 2025, the VAT on accommodation services (including accommodation with breakfast) will rise from 9% to 13%.
• On 1 January 2025, VAT on press publications will rise from 5% to 9%.
  

The 20% rate will continue to apply until 31 December 2025 to contracts concluded before 1 May 2023 for the sale of goods or the provision of services, provided that the contract stipulates that the transaction is subject to a 20% VAT rate, and does not provide for a price change due to a possible change in VAT.

• On 1 January 2025, Estonia will introduce a standard income tax rate of 22% instead of the current 20%. Corporate income tax will be calculated on the basis of a 22/78 ratio instead of the current 20/80 ratio, and the advance tax rate for credit institutions will be 18% instead of 14%. In addition, the preferential tax rate of 14% on regularly distributed corporate profits and the related 7% withholding tax on dividends paid to individuals will be abolished.
• From 1 January 2025, a uniform basic exemption of €700 per month, i.e. €8,400 per year, will apply to all individuals, except for old-age pensioners whose basic exemption equals the average old-age pension. This will replace the current system where tax exemption depends on the amount of annual income.

Increase in the reference amount for the minimum social security contribution
In 2024, the uniform monthly reference amount used to calculate the minimum social tax obligation will increase to €725 (from €654 in 2023), which means that employers’ minimum social security contribution will be 239.25 euros per month (i.e. 33% of €725).

Major construction projects and contracting chains will have to be registered in the e-service environment of the Estonian Tax and Customs Board, according to an amendment that entered into force on 1 October 2023. Employees authorised to work on a construction site should be registered in the employment chain and duration of employment database. In addition, from   18. November 2023, data on the time spent by employees on the construction site must be reported to the tax authority.

Electronic registration is compulsory for construction projects that are subject to special requirements for safety at work and notification to the Labour Inspectorate, i.e. if the duration of the project exceeds 30 working days and at least 20 people are simultaneously working on the site, or if the total volume of the project exceeds 500 man-days.​​​​​​

Amendments to the VAT Act and the Taxation Act will enter into force on 1 January 2024, imposing additional record-keeping and reporting obligations on payment service providers.

Payment service providers will be required to maintain, and submit to the tax authority, data on payments that meet all the following criteria:

• payment services were provided in relation to the same payee during the same quarter,
• the total number of payments per payee exceeded 25 payments per quarter,
• the payer is located in one EU Member State and the payee is located in another Member State or in a third country.
  

Payment service providers will provide the information required by law in XML format by the end of the month following the quarter. The first report will have to be submitted in the tax authority's e-service environment on 30 April 2024.

Information on the collected data will be exchanged between EU tax administrations via CESOP, the central electronic system of payment information. The aim of these exchanges is to reduce fraud in cross-border e-commerce.

The Carbon Border Adjustment Mechanism (CBAM) entered into force on 1 October 2023. This is a price adjustment mechanism for carbon-intensive goods entering the EU market, aimed at ensuring a more level playing field for EU businesses. The new requirements apply to certain importers, but will also affect others in the supply chain. The CBAM covers the following types of goods: electricity, cement, certain iron, steel and aluminium products and fertilisers.

The CBAM adjusts the price of products so that imports of these types of goods from third countries where producers have not had to bear the costs of environmental requirements are brought into line with prices on the EU market. This way, producers outside the EU will be included in the system (ETS). The aim is to prevent carbon emissions being transferred to third countries and the advantage of producing in such regions.

European Commission Implementing Regulation 2023/1773 establishes the reporting obligations related to the carbon border adjustment mechanism, the rules for calculating the emissions associated with goods and the data to be submitted to fulfil the reporting obligations. During the transitional period from 1 October 2023 to 31 December 2025, operators will only be required to submit data on the emissions associated with the imported product, but no charge will be applied. During this period, it is most important for the presenters of reports to report verifiable data on the goods covered and to manage information on the origin of the goods and the supply chain.

The deadline for the first report is 31 January 2024 and this report concerns goods imported in Q4 2023. Afterwards, the report must be submitted within one month of the end of the quarter. The content of the reporting obligation will change during the transitional period, as the default values for the calculations are not yet finalised (they will be specified in 2025) and some variations are allowed for the underlying data.

As from 1 January 2024, individuals will no longer be able to benefit from:

• an increased basic exemption for dependent children,
• an increased basic exemption for spouses, and
• mortgage interest deduction.
  

These deductions can still be made against the taxable income earned in 2023, which must be declared in the personal income tax return by 30 April 2024.

Taxpayers will continue to be able to deduct up to €1,200 of training expenses and donations from taxable income, limited to a maximum of 50% of their income taxable in Estonia, and up to €6,000 per year for contributions to the supplementary funded pension (third pillar), limited to a maximum of 15% of taxable income.