The service/good is subject to VAT in the country in which the service is traded. If in the case of goods it is always possible to identify the State in which the goods are located at the time of dispatch or access to the buyer, in many cases it is difficult, if not impossible, to determine the actual country of supply of the service – especially if the main instrument is the «instrument» is a computer or a smartphone. Therefore, the rules for determining the place where services are traded are often very conditional and relate to the location of either the service provider or the recipient, rather than to the actual place where the service is delivered.
Where do services turn?
The rules for taxing turnover in services are much more complex than those for taxation of goods.
If an Estonian turnover taxable person renders a service whose place of turnover is not Estonia and the person himself does not have to tax the service in the country where the turnover occurs, he taxes the service on turnover in Estonia at a rate of 0%.
This is an important difference compared to the taxation of goods: if the Estonian obliged turnover tax person sells goods whose place of circulation is not Estonia, it does not tax the transaction in Estonia at 0% and does not reflect it in the turnover declaration in Estonia; taxation always takes place according to the rules of the turnover state.
Basic rule of VAT
If no exception applies, the location of the turnover is determined by a so-called basic rule with two sides:
The place where the service is traded is Estonia, and the service is taxable in Estonia if the service is taxed to an Estonian person, or is subject to a turnover tax by a person in Estonia who is not obliged to pay a turnover tax to a person in another European Union country (hereinafter EU) or to a person who does not conduct business from a non-EU State (c. 1 €10 Turnover Tax Act; Käibemaksuseadus – hereinafter KMS).
If the service provider is liable to a turnover tax on a person in Estonia, the service itself is taxed (and if it provides a service under the basic rule to another person liable for a turnover tax in Estonia)If the service is provided by an entrepreneur of a foreign State, the service should be taxed by the recipient on the principle of reverse taxation.
When an Estonian obligor renders a service to an obligor for a turnover tax of another EU country or to an entrepreneur from a non-EU state, the place of turnover is not Estonia (para. 9.4 a.m. 10 KMS)And the obligor of the turnover tax declares its turnover in Estonia at a rate of 0%, while the service, under the basic rule of the turnover tax on a person of another EU country, is reflected both in the turnover declaration and in the turnover report within the Community (form VD). This part of the Basic Rule also applies when a service is received by such a business operator from a non-EU State (since that year also the United Kingdom)which does not have the registration number of the person liable for the turnover tax.
It should be borne in mind, however, that if a person liable for a turnover tax in Estonia provides a service or receives a service subject to reverse taxation through a permanent place of business in another country, it will tax turnover and declare a service in the country of its permanent place of activity, not in Estonia. In the examples given in this article, it is always assumed that the service was rendered or obtained through the location of the person liable for the turnover tax in Estonia.
The place where services are traded is always the country where they are delivered.
There are, however, certain services whose place of circulation is always the State where the service is actually rendered and which are always taxed on turnover in that State at the rate established there for the service concerned, – this rule also applies if the recipient of the service is an entrepreneur from another country. When such services are provided in Estonia, they are always taxed at the rate approved in Estonia for these services, irrespective of the recipient.
These services are as follows:
- All services related to real estate in Estonia – construction and repair services, accommodation services, renting or renting of real estate, design of a specific real estate object (but not model projects), and so on
- Restaurant and catering services in Estonia
- Carriage of passengers within Estonia
- Tickets for performances, concerts, entertainment and participation in conferences and seminars organized in Estonia
- Short-term rental in Estonia of a vehicle (up to 30 days, a vessel up to 90 days)
In addition to the mentioned services, the place of origin of the turnover and the rate of the turnover tax do not depend on the person receiving the service and if, during the carriage of passengers taking place on the territory of the EU, provide restaurant and catering services on board a water or air transport vehicle or on a train, in which case the place of turnover is always that EU country, from where a water or air transport vehicle or train departs for an international voyage and the service is taxed according to the rules on turnover of that country.
Thus, if restaurant or catering services are provided on EU territory by water or air transport or on a train leaving Estonia for an international voyage, the service is taxed on turnover in accordance with the Estonian Turnover Tax Act.
The fact that the place of turnover is Estonia does not necessarily mean that the service is taxed on turnover at the rate of 20% or 9% (accommodation services): Article 15 KMS, part 4, paragraphs 2-15, lists services whose turnover tax is 0% and then, where the place of turnover is Estonia. In the case of restaurant and catering services provided in EU territory by means of a vehicle on an international flight from Estonia, it is important to know that, according to Part 4, paragraph 2, of Article 15 KMS, This tax is levied at a rate of 0 per cent on the service required by the voyage for a passenger on an international voyage on board a ship or aircraft (which also includes food), but not on the service required for the voyage provided by the train.
Services where the location of turnover depends on the recipient of the service
In the case of some services, the State in which the service is traded depends on the status of the service recipient as a duty of return (whether the service recipient is liable for turnover tax or not).
When providing services to a liable turnover tax person in another EU country or to an entrepreneur from a non-EU country, the basic rule applies.
If the recipient of the service is not subject to turnover tax by a person in an EU country or by a non-EU entrepreneur, the place of turnover (and turnover tax is imposed according to the rules of the country where the turnover originated) is defined as follows:
- Provision of cultural, artistic, sports, educational, scientific or recreational services or services related to a trade fair or exhibition – trafficking occurs in the country where the event takes place.
- Long-term lease of a vehicle – turnover arises in the country of residence of the recipient of the service (except for a long-term lease of a vessel for an interest or a pleasure craft, which is traded in the country of lease if the service is performed through a location or a fixed place of activity in that country).
- Work with movable object – the turnover occurs in the country where the movable object is located.
- Freight traffic and its organization – Traffic occurs in the country where the transport takes place in full or where it begins.
- Freight-related by-products – the trade originates in the country of supply.
- Brokering – Trafficking occurs in the same country where the mediated service is traded.
If an Estonian entrepreneur has a duty to tax the turnover in the country of origin of the service, and it has to tax the service on turnover and declare in that country – it declares the service only in the country of turnover and does not simultaneously reflect it in the turnover declaration in Estonia at 0% (base – c. 6¹ = = 15 KMS).