VAT in Estonia: Changes in the Estonian Value Added Tax (VAT) Act from 1 January 2024

From 1 January 2024, the standard rate of VAT in Estonia is 22% instead of the previously applicable 20%.

Choosing the right tax rate must be based on the time of supply of products and services:

• if the time of supply is in 2023, 20% VAT is applicable
• if the time of supply is in 2024, then 22% VAT must be added.

However, there are two transitional provisions (e.g. transactions related to long-term contracts), which you can read about following the link: https://www.emta.ee/en/business-client/taxes-and-payment/value-added-tax#from-01012024

VAT in Estonia: examples of VAT rate changes

Tax and Customs Board has brought out some examples of VAT rate change related situations, which you as a business owner might be facing:

1. I have issued an advance invoice from my company to the client in December 2023 and the invoice payment was also done in December 2023. The products were delivered to the buyer in January 2024.

What should be the VAT rate in this case? As the supply was fully generated in 2023, then it is taxed at 20% VAT rate.

2. I sold products in 2023 with 20% VAT, but the customer returned them in 2024.

When returning products, the invoice is credited just as it was issued, thus the credit invoice has a 20% VAT rate.

3. I issued the invoice in 2023, products were delivered and the invoice was paid in January 2024.

No supply is created from issuing an invoice alone. If both the delivery and the payment take place in 2024, the transaction is taxed at the VAT rate of 22%, and the VAT rate indicated on the invoice must also be 22%.

More examples can be seen here: https://www.emta.ee/en/business-client/taxes-and-payment/value-added-tax#examples-01012024

In case you are interested in or already use our accounting services, please do not hesitate to contact us and send us directly any tax-related questions you have.