Key changes in taxation in 2014 and 2015

Author: Tõnis Elling

This year a number of tax changes have taken place and in 2015, key tax changes in a number of fields lie ahead.

There are actually many more changes, but we will touch on only the more important ones.

Taxation Act

Starting in August 2014, tax refunds to taxable persons will take place within 60 days instead of the current 30 days. In other words, the length of time for making the refund claim was extended by 30 days.

VAT Act

1. Starting from August 2014, the term for verifying VAT refund claims was changed. A tax authority verifying a VAT refund may now extend the term for refund by up to 60 days instead of 90 days. While the general refund term in the Taxation Act was extended by 30 days, the maximum refund term in the VAT Act was decreased by 30 days.
2. Starting on 1 November 2014, VAT taxpayers will have to declare, in the INF section of the VAT return, all invoices (or sum of invoices for one transaction partner) amounting to at least 1000 euros not including VAT.
3. Starting on 1 December 2014, a 50% input VAT deduction will apply to passenger vehicles that are used in enterprise and expenses on passenger vehicles. In other words, previously 100% of the input VAT could be deducted on car-related expenses, but starting on 1 December, only 50%. There are a few exceptions.
4. Starting on 1 January 2015, a new procedure will come into effect for determining the place of supply of electronically supplied services.

Income Tax Act

1. Starting 1 September 2014
   1. there is no longer an option of paying a flat tax-exempt 64 euros per month as compensation for use of a passenger vehicle, without keeping a trip diary. If a trip diary is kept, 30 cents per kilometre can be compensated, and up to 335 euros per calendar month per employer paying the compensation.
2. Starting on 1 January 2015:
   1. The income tax rate will be 20%.
   2. Tax-free income will increase from 144 to 154 euros a month.
   3. The tax-free portion of the pension is 220 euros a month (applicable only to payers into the 1st and 2nd pillar funded pension).
   4. New income and social tax return forms will come into use.
   5. The Estonian income tax of so-called directors` salaries shall levy regardless of which company (resident or non-resident) is the payer. 

The defining factor – remuneration is obtained for the performance of director duties of Estonian company or permanent establishment. Concrete implementation rules are currently missing, however, according to tax authority representative the Estonian income tax must be paid if Estonian related duties and fees are distinguished in contract. The social security tax treatment will remain same – Estonian social tax shall levy on non-resident directors’ fees regardless of who is the salary payer or where the management activities have been performed, unless A1 certificate is provided from other EU country.

Excise, 1 January 2015:

1. The alcohol excise duty will rise 15%.
2. There will be no more excise exemption for fishing vessels.
3. The use of special-purpose diesel fuel and light fuel oil in railway and marine transport will be prohibited.

Social tax

A monthly amount of 355 euros will be the basis for the minimum social tax obligation (instead of the 320 euros in 2014), meaning that the minimum social tax obligation is 117.15 euros per month.

Unemployment insurance premiums

• Employee: 1.6% (was 2% in 2014)
• Employer: 0.8% (was 1% in 2014)