[vc_row][vc_column][vc_column_text]Turnover tax in Estonia is applied as a value added tax, except in seperate cases (h 2 §1 of the Turnover Tax Law). One of these distinct cases is the margin scheme.
According to h 3 §41 of the Law on Turnover Tax, when reselling used goods, as well as original works of art, collectible or antique items, a distinct procedure for taxation with turnover tax, or, in other words, a margin scheme, can be applied.
A margin scheme is a taxation procedure in which the taxable value of turnover is the difference between the selling and purchase price, minus the turnover tax included in it.
Thus, a person applying a particular procedure calculates the taxable value of the resale of used goods during the tax period based on the difference between the sale and purchase prices of used goods. This means that by applying a margin scheme, the amount of turnover tax payable to the Estonian Tax and Customs Department can be legally reduced.
Conditions under which a margin scheme can be applied:
The product must not be new (used).
The product was purchased for resale purposes.
The product must be purchased from an Estonian person or a person of another EU Member state who is not taxable.
The company does not use (did not use) the purchased product after purchase.
Since January 1, 2022, there have been breaks in the use of a distinct order:
If it is difficult to calculate according to a margin scheme for each unit of used goods, then when reselling such goods, the tax authority may, on the basis of a reasoned written request, grant the tax subject the right to calculate the taxable turnover to be declared for the tax period as the difference between the total selling and purchase price of such goods resold and purchased for the entire tax period, minus the turnover tax included in it.
If the taxable amount to be declared for the tax period has a negative value, it is not reflected in the turnover declaration, and in the daily accounting of the turnover tax of the tax subject is transferred to the next tax period.
If the taxable amount has a positive value, it can be reduced to zero due to negative taxable amounts of previous tax periods. Such calculation of the taxable value is justified in cases where the usual calculation is too complicated.
A taxable person who observes a margin scheme when calculating the taxable value does not indicate in the invoice or in another sales document the amount of turnover tax paid upon purchase of goods or the amount of turnover tax calculated from the calculated taxable value.
In the case of using a margin scheme, there are no differences in the form of the declaration and the methods of its submission. Transactions under the margin scheme must be declared monthly in the turnover tax declaration (KMD form).
You can find out more about the use of the margin scheme and the possibility of its application in your company by ordering a personal consultation from the specialists of LKS Consult OĂś . We offer professional accounting services for Estonian companies.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column][vc_column_text]The obligation to pay income tax may arise in the case of a person/natural person exchanging a cryptocurrency for an ordinary currency or for some other cryptocurrency, as well as in the case of the use of a cryptocurrency to pay for goods and services, if the person earns an income, informs the Estonian Tax and Customs Department in anticipation of the tax declaration period.
It is important to bear in mind, however, that in the case of cryptocurrency, each transaction should be valued separately, since only transactions that generate income are taxed, i.e. profits. The loss incurred in the exchange or sale of cryptocurrency is not included in the tax, so that the loss-making transactions are not declared and do not affect the taxable income of the individual.
Profit on the sale or exchange of a cryptocurrency is defined as the difference between the value of the sale of the cryptocurrency and the value of its acquisition. For example, if a person buys one Bitcoin at a price of 18,000 Euros and sells it at a price of 10,000 Euros, they should not declare the transaction because the transaction is unprofitable (10,000-18,000). When a person buys one Bitcoin for 10,000 Euros and sells it for 18,000 Euros, he earns 8,000 Euros (18,000-10,000). This means that a profit transaction should be declared in the income declaration in Table 6.3 or 8.3 as income derived from the disposition of other property, and income tax at the rate of 20 per cent should be paid on that income.
The cost of acquisition and the price of sale of the cryptocurrency must be converted to euros, taking into account the exchange rate of the cryptocurrency in effect on the date of receipt of income or expenditure. If the transaction was made on market terms, the exchange rate of the medium in which the sale took place may be used.
When exchanging one cryptocurrency for another, it is necessary to control the market price of the transaction and to determine the income received. For example, a person acquires two litecoins worth 260 euros, which a few months later exchange for 0.2 ethers. At the time of the exchange transaction, the market price of the two litecoins rose to 500 euros. As a result of the transaction to exchange the cryptocurrency of a person, a profit of 240 euros (500-260 euros) was made, which has to be declared and with which to pay income tax.
When paying the cryptocurrency for a good or service, the income received is calculated as the difference between the price of purchasing the good or service and the cost of acquiring the cryptocurrency used. For example, in June 2017, people purchased Bitcoin for 2,500 euros. In December 2020, the market price of Bitcoin was already 30,000 euros, and a man used this Bitcoin to buy a new car. Thus, the income from the car purchase transaction was 27,500 euros (30,000-2,500). The income generated should be declared and paid as income tax. The same method of determining taxable income applies to the purchase of other goods and services (for example, food, machinery, beauty services, etc.).
It is important to note that if the income derived from the cryptocurrency and previously taxed by income (e.g., wages, dividends, and the salary of a member of the board) is exchanged for an ordinary currency, and is also used for the purchase of various goods and services, This no longer entails an additional duty to pay taxes. For example, the Estonian employer paid the employee a salary of 0.05 bitcoin for February, the employer declared the salary on the basis of the market price of bitcoin and paid labor taxes. If the salary received by the electronic wallet of 0.05 bitcoin is used to pay for various goods and services, then there will be no obligation to declare income. But if a person decides to invest in the cryptocurrency, each subsequent profitable transaction with the cryptocurrency will entail an obligation to declare and pay income tax.
If a natural person engages in the mining (mining) of cryptocurrencies, the resulting income must be declared as business income. In taxation, a cryptocurrency is equivalent to the production of a commodity. The duty to pay taxes arises from the profits earned at the time of the disposition of the cryptocurrency, i.e. at the time of its sale or exchange. A person who engages in the routinely mainstreamed cryptocurrency must register with the Business Register and act either as an individual entrepreneur (MNP) or through a business association. A registered entrepreneur may deduct from business income expenses incurred to generate business income (e.g., equipment, electricity, etc.). A person who is not registered in the Business Register as an entrepreneur cannot deduct the expenses incurred to earn income from the Cryptocurrency mining.
Cryptocurrency is also used to generate income from steaking (bet). By investing cryptocurrency in a chain of blocks in a blockchain, they essentially block their assets and pay a price for it. The Tax and Customs Department (NTD) views this process as the borrowing of a cryptocurrency. If a person earns income from a steak, that income is actually interest on borrowing a cryptocurrency. It is up to the person to declare the interest earned in the income statement (in part II of table 5.1 in part II or in table 8.1). The interest earned is declared in the income statement, which corresponds to the year in which interest is received.
It is important to note such cryptactin as NFT ( in translation from English language «non-reciprocal token», which is often associated with digital art. The NFT should be taxed on the basis of the content of the transaction from the perspective of both the originator and the buyer. If a person buys and sells NFT for the purpose of generating income, the profits derived from the NFT disposition are subject to declaration as disposition. If the creator of NFT is a natural person, each time receives a fee from the resale, this fee is a royalty. Royalties must be declared as royalties in the income declaration.
Since most transactions with cryptocurrency are cross-border, it is international cooperation that is an essential part of risk information exchange, explained NTBs. To date, STD considers the exchange of information with foreign countries to be effective. States are aware that successful cooperation contributes to the better and early identification of those who have taken their activities abroad and whose tax behavior does not conform to the norm.
The practice of NTD in cryptocurrency tax cases is increasing, with NTD handling an increasing number of cryptocurrency tax cases. Moreover, in addition to NTD’s own practice, there is also jurisprudence on the mine of cryptocurrency, where the commercial association has obtained a tax advantage in the form of an unjustified deduction of the entry tax on turnover. NTD has also dealt with cases in which data obtained from foreign cryptocurrency exchange platforms, as well as data from settlement accounts opened in credit institutions of foreign countries, have been the subject of verification.
The NTD can retroactively impose a tax payable for up to three years and, in case of willful non-payment, up to five years. In addition to the amount of taxes not paid on time, the rate of interest is 0.06 per cent per day.
LKS Consult OĂś provides accounting services and legal advice on taxation. If you have any questions about taxation in the cryptocurrency area, please contact our specialist, and we will answer all your questions.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column][vc_column_text]When a private company is created with limited liability, minimum capital requirements disappear.
The Minister of Justice, Maris Lowry, submitted to the Riigikogu a draft Business Register Act, prepared as part of a project to modernize business-related legislation which, inter alia, removes the minimum capital requirement in force since 1995.
In the course of an audit of corporate law, which began in 2014, the legislation on the activities of associations under the leadership of the Ministry of Justice underwent a thorough, substantive and systematic review with a view to harmonizing and updating it, the Ministry reported.
The legislation in force in Estonia today is undoubtedly competitive and contributes to success. However, this does not mean that we can rest. Changes in the world require us to be constantly ready to respond and update the rules and possibilities», commented Lowry.
Based on the audit feedback, the draft Law on Business Register, the largest of the drafts prepared so far, harmonizes the registration procedure for all legal entities. It would also make the regulation of private limited companies more flexible in several respects, for example by removing the minimum capital requirement for the establishment of a private limited company.
If the statutory minimum capital, which is not subject to payment and therefore provides little evidence of the reliability and sustainability of a limited liability partnership, is now automatically selected for the establishment of a limited liability partnership, Lowry explained the reasons for the change.
Flexibility will also be given to other companies, for example, by allowing the e-business register to reserve a brand name for six months, to better prepare for the establishment of the company and to have a suitable trade name when applying to the Commercial Register.
According to the Minister, the improvement of legal certainty benefits everything, which is the main objective of a number of changes.
According to the Minister, it is hoped that more structured government requirements will also lead to better reporting by companies. The electronic business registry can provide more information on problematic entities than before, and in case of non-compliance with reporting obligations, the entity can be removed from the registry even more quickly.
[vc_row][vc_column][vc_column_text]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. 6Âą = = 15 KMS).
[vc_row][vc_column][vc_column_text]The trade in cryptocurrency is a growing trend that is gaining in popularity. Although cryptocurrency has been used worldwide for more than a decade, trading virtual money can still be considered a new way of earning income.
At the same time, many traders may not know how the income thus generated is taxed. This article explains how a natural person is required to declare income received in cryptocurrency or earned from trade in cryptocurrency.
Cryptocurrency can generate income in a variety of ways – for example, by buying, exchanging, mining, and then selling or trading, accepting as payment the goods or services sold. Although the virtual currency is developing rapidly and is increasingly used as a means of payment, there are no specific rules for the taxation of transactions involving cryptocurrency. Consequently, all transactions involving crypto assets must be treated in accordance with the law in force.
Cryptocurrency trade
The most popular trade was in cryptocurrency. In trading, it must be borne in mind that the virtual currency is treated as property within the meaning of Article 15, Part 1 of the Income Tax Act, which means that the income tax must be paid with the benefit derived from the sale and exchange (alienation) of the currency. The benefit is equal to the difference between the price of purchase and sale of the cryptocurrency (article 37, part 1, of the Income Tax Act), for which the value of the virtual money should be converted into euros at the exchange rate in effect on the date of receipt of the income or expenditure. Conversion uses either the common exchange rate of cryptocurrencies or, in the case of a market-based transaction, the exchange rate of the medium in which the transaction was made.
The benefit derived from the disposition of the cryptocurrency should be reflected on lines 6.3 or 8.3 of the income declaration table as the benefit of disposition of other property separately for each transaction.
Only sales or exchange transactions from which a benefit has been obtained should be declared. From the taxable benefit, that is, the difference between the price of buying and selling in euros, it is possible to deduct the transaction payments, but unlike securities, in the case of cryptograms, the loss from the foreclosure cannot be deducted. In addition, in the case of cryptocurrency, it is not possible to use an investment account system that would allow the deferral of the income tax obligation.
Mining
Mining a cryptocurrency is considered an entrepreneurial activity in which taxable income arises when the cryptocurrency acquired by mining is alienated, that is, exchanged for an ordinary or some other cryptocurrency, or if it is used to pay for certain goods or services. In the case of private individuals, the taxable income is the value of the currency received in exchange in euros. Payment for goods or services in cryptocurrency is based on the euro exchange rate in effect on the day of the transaction.
Since mining cryptocurrency usually involves significant costs, it is important to note that an individual is unable to deduct them from his taxable income.
If a natural person wishes to engage in the business on a permanent basis, he or she must register as an individual entrepreneur in the Business Register or register a business partnership. This gives the right to declare the costs incurred in obtaining business income and deduct them from taxable income. At the same time, tax liabilities associated with relevant forms of business need to be taken into account. The income generated by the commercial mining of cryptocurrency should be declared as business income in form E of the income declaration.
Earnings in virtual currency
Employers already often want to pay workers in virtual currency. In this case, the tax is based on the same principle as in the payment of ordinary wages, i.e., the employer must deduct all taxes on labour from wages. The payment must be converted to euros on the basis of the market price on the day the salary is paid, and the amount is declared in the appropriate annex of the declaration on the form TSD. The taxable income already paid to the employee does not create an additional tax burden, even if the market price of the virtual currency increases after the payday.
If an individual receives remuneration for work from which taxes have not been withheld, the income is converted to euros on the basis of the exchange rate in effect on the date of receipt and the income is declared as business income.
[vc_row][vc_column][vc_column_text]The employment of foreigners in Estonian companies raises a number of issues, including the payment of income and social taxes.
For example, an employee from Poland (EU) comes to work in Estonia for one month, but for three years. He has an A1 certificate that he is a resident of Poland. The Estonian company pays his salary and declares in Annex 2 a declaration on the TSD form, withholding 20% of the income tax, but does not pay social tax. How long can a social tax not be paid if the A1 certificate is constantly updated and confirmed as valid?
So the employee works for two different employers, mostly in Poland, and one month a year for an Estonian in Estonia. In this case, according to Regulation 883/2004 of the European Parliament and of the Council on the coordination of social systems, we are dealing with a worker in several countries of the European Economic Area at the same time.
According to the basic rule of Regulation 883/2004, if a substantial part of the work (at least 25 per cent) is performed in the worker’s country of residence, the legislation and the social insurance system of the worker’s country of residence shall apply. In this case it is the social insurance system of Poland, the relevant public institution of which issues the worker with a certificate A1. The certificate confirms that all social insurance contributions are paid for an employee in Poland.
In the case of workers who are regular workers in several countries of the European Economic Area, there are no time limits for issuing an A1 certificate, in any case so stated in regulation 883/2004. This regulation is mandatory for implementation in Poland, so that the Polish public institution must follow the same principles. That is, once the form expires, it may be extended or a new extradition request may be made.
The A1 certificate is limited to 24 months (renewable for an additional year) only in the case of seconded workers, that is, when the employee is sent to another country by his employer and performs work there for the benefit of the employer who seconded him. Accordingly, the 24-month limit does not apply.
Thus, as long as the employee has a valid A1 certificate, taxes and social insurance contributions are not paid in Estonia. Nevertheless, as Polish law is applied, the Estonian employer is most likely obliged to declare and pay social insurance contributions in Poland. This point should be clarified by Polish tax specialists.
With regard to income tax, since the work is performed in Estonia and the employer is an Estonian person, income tax is subject to deduction in Estonia.
LKS Consult OĂś offers private tax consultations for non-residents when declaring their income in Estonia. Our team will be pleased to advise on tax-related issues in Estonia and provide accounting services. Contact our specialist and get a price offer as soon as possible.[/vc_column_text][/vc_column][/vc_row]
In this article the term «transfer of an enterprise» will be used in the meaning of the Law of Obligations (Võlaõigusseadus, hereinafter – VĂ•S), according to which:
The transferor may, by contract with the purchaser, undertake to transfer the business to the purchaser. The enterprise may pass to the purchaser also on the basis of the law. (p. 1 § 180 VÕS)
The enterprise includes things, rights and duties related to the conduct of the business of the enterprise and its servicing, including the contract related to the enterprise. (p. 2 § 180 VÕS)
Therefore, from the quoted provisions of the law it should be quite clear that the term «enterprise» refers to certain business activities for which things and other assets are used (which are essentially rights in one way or another, whatever terms are used to refer to them in legal acts governing accounting and the payment of taxes), contracts are concluded, resulting in persons Business owners (let us call them entrepreneurs) have rights and obligations.
Taxation aspects
According to article 35 of the Tax Act, if the law provides for the succession of rights and obligations from one person to another, then all monetary and non-monetary claims and obligations (obligations) are transferred to the successor established in the Tax Act, in the specific tax laws and in the laws specified in Article 3, Part 4 of the Tax Act (including the Savings Pension Act and the Unemployment Insurance Act)which are not intrinsically linked to the person. There is no obligation to pay fines (more precisely, not fines, but sunniraha, that is, the sums of money imposed for the purpose of compulsion to fulfill an obligation).
As can be seen from article 182VĂ•S, part 2, not only all assets (things and rights) of the transferred enterprise are transferred to the purchaser of the enterprise, but also all duties related to the transferred enterprise, that is, the purchaser of the enterprise is the successor of that entrepreneur, from which the enterprise is received – of course, it is the transferee of the transferable enterprise only. If this is the case, he is the legal beneficiary of the tax rights and obligations of the enterprise.
Simply put, if the entrepreneur who transferred the enterprise has not paid, for example, some tax related to the transferred enterprise, the new owner of the company will have to pay the tax.
It is this tax succession that explains why the Turnover Tax Act does not apply to the transfer of a turnover business (cf. paragraph 1.2. 4 of the Act). No, as the transferee of the business, is given all rights and duties related to the turnover tax of the transferred business. The extent to which the taxpayer is literate and conscientious is the entrepreneur from whom the enterprise is derived.
Accounting aspects
The accounting aspects of the transfer of an enterprise are essentially clear from the purchaser’s point of view, since the transfer of an enterprise is a consolidation of business within the meaning of the Accounting Service Instruction RTJ 11 «Business associations, as well as reflection of subsidiaries and associated companies». Indeed, according to RTJ 11, clause 5, business association (of course RTJ 11) does not occur only when one person acquires control of another person by purchasing or sharing shares, but also when control over a business is created by the acquisition of assets and liabilities related to that business.
As follows from RTJ 11, if the purchaser, after entering into the contract referred to in article 180 VĂ•S, receives the enterprise from a person not associated with it (with the purchaser), then the business association should be reflected by the acquisition method (or sometimes referred to as the purchase method) described in paragraphs 19-49 of RTJ 11.
If, however, both persons who have concluded the contract referred to in Article 180 VĂ•SÂ (i.e., the transferor of the enterprise and the purchaser of the enterprise) are under common control, then the consolidation of the business should be reflected using the adjusted acquisition method, described in paragraphs 50-55 of RTJ 11.
Nor is it conceptually difficult to record a transaction in the accounting of a person who transfers an enterprise under a contract established in article 180 VĂ•S. When an enterprise is sold, it is necessary to record in the accounting the financial result obtained from the sale of the enterprise (profit or loss), which is calculated as the difference between the income from the sale of the enterprise and the value of the transferred net assets (i.e., transferred assets less transferred liabilities).
In the profit statement, the financial result obtained from the sale of the enterprise is reflected in other operating income (muud äritulud) if a profit is made, or other operating expenses (muud ärikulud) if a loss is incurred, since, first, the sale of an enterprise is in no way a permanent activity, therefore, the income from the sale of the enterprise is not to be reflected in the income from sales (mügitulu) and, second, the sale of the enterprise for the person who sells the enterprise, hence, a business is not a financial gain. And if so, in the profit statement there is only one place – the article «Other operating income» (Muud äritulud), or to reflect the loss – the article «Other operating expenses» (Muud ärikulud).
The most common nuances involved in the sale of a company are those to be taken into account in the course of both accounting and tax returns.
[vc_row][vc_column][vc_column_text]While the announcement of the meta-universe implies that the digital world may soon face a paradigm shift unprecedented since the advent of social networks, internal notification from CEO Andrew Bosworth may mean, that Blockchain will be the basis for the future of the Internet
It is believed that the Internet, an invention that has often been compared to a printing press in general for human society, has gone through three specific iterations. Web 1.0, or read-only, was mainly used as an information transfer method with little input from users. Web 2.0, or the Internet for reading and writing, allows users to enter their own content on the Internet. It allowed it to explode in importance through the democratization of content creation, which led to the Internet as we know it today.
Finally, experts at the frontier of emerging technology are beginning to note that due to recent innovations such as the blockchain, we may be in the first stages of Web 3.0. While the definition of this yet emerging concept can be nebulous, we may very soon see the dawn of an internet where private ownership would set the stage for a decentralized network of the people and for the people.
It is here that Meta, the leading force behind Metaverse and VR technology, appears. In a note sent by Meta’s chief technology officer and acquired by the New York Times, Mr. Bosworth expanded the vision in which the nascent social network would be designed to be organically compatible with the nascent Blockchain. In the note, he urges caution and advises them not to rely solely on distributed ledger systems, saying that “there are not many places where we can rely solely on them. ” This being said, he does argue that the technology has the potential to have “profound impacts on our industry over the next decade.” More so, he believes that the best path moving forward would be to work hand-in-hand with the crypto industry rather than to compete with them. He noted that “if we see an opportunity to work jointly with entrepreneurs in the web3 space I expect it will be worth the effort.”
Mr. Bosworth’s rank places him in charge of Meta’s projects based on AR and VR technologies, a position that he has used to advance the company’s work on NFTs as well as in investments pertaining to smart contracts, DAOs and internet-native communities internally coordinating through crypto tokens.
This note could not have occurred at a more important time, as recent innovations have made even titans of Big Tech tread cautiously. The alphabet, Google’s parent company, has shown a clear reluctance to enter cryptospace. By contrast, Meta has already started experimenting with blockchain-supported technologies. This included attempts to create a global digital currency for the Facebook and Whatsapp networks. Perhaps, by giving credence to the thin ice that underlies this emerging sector, the project has experienced a retreat from the lead project and a complete rebranding under the pressure of regulators.
Estonia is known to be very tax-friendly for starting a business. LKS Consult OĂś team can help you establish and develop your business in Estonia.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column][vc_column_text]The board member of an Estonian enterprise is a foreigner. If he obtains a temporary residence permit in Estonia with the right to work and wishes to receive remuneration (wages or dividends), what taxes should be paid? Was it true that non-taxable income and compulsory contributory pension contributions were excluded? Are there any other particularities that we should be aware of?
If a board member expects to be in Estonia for a period of at least 183 consecutive calendar months, he must register with the Tax and Customs Department as a tax resident from the day of arrival in Estonia, and then the tax of his remuneration can be applied to the tax of non-taxable income.
Income tax, compulsory contributory pension contributions should be deducted from the remuneration of a member who is a resident of Estonia, if he joins the second pension, and social tax should be paid.
If a member of the board is not in Estonia for at least 183 days during 12 consecutive calendar months, the amount paid to him shall be subject to income tax in accordance with article 29 of the Income Tax Act. Remuneration of a non-resident for work or service performed on the basis of a contract of obligations or an employment contract is taxed in Estonia as long as the work or service was performed in Estonia.
Since the seat of the board member is an enterprise registered in Estonia, the board member should be paid income tax and social tax. In this case, he is not entitled to a deduction of income tax-free income.
If a non-resident employee performs tasks not related to the management of the enterprise on the basis of an employment contract, the income tax and social tax will depend on whether he is in Estonia or abroad in the performance of his duties (In Estonia only income derived from work performed in Estonia is taxed).
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[vc_row][vc_column][vc_column_text]The trade of cryptocurrency is gaining in popularity, and buyers may wonder: do cryptocurrency taxes have to be paid, and if so, when? The Tax and Customs Department of Estonia clarifies this issue as follows:
In summary, the tax obligation arises in three cases:
When converting cryptocurrency to ordinary currency;
The exchange of a cryptocurrency for another cryptocurrency;
Using cryptocurrency to pay for goods and services.
In the case of cryptocurrency, only transactions with income are taxed, and each transaction should be evaluated separately.
Earned income is the difference between the acquisition value and the sale price of the cryptocurrency. In this case, the purchase price or the income generated should be converted to euros, taking into account the exchange rate of the cryptocurrency in effect on the date of receipt of the income or expenditure. If the transaction was made on market terms, the exchange rate in the transaction environment may be used. If, however, the euro is not used in the transaction environment, the income should be converted.
Exchange of one cryptocurrency for another should also be based on market price and earned income, that is, profit.
When paying for goods or services by cryptocurrency, you should calculate the earned income, that is, the difference between the price of the received good or service and the cryptocurrency used.
It is important to note that the conversion of cryptocurrency and previously taxable income (e.g., wages, dividends, members of the board) in the ordinary currency, or the use of such income to purchase various goods and services, does not entail additional tax liability: for example, if the electronic wallet containing the cryptocurrency person receives from the mutual partnership X a wage of 0 for February,05 bitcoin, declared by the enterprise and with which labour taxes have already been paid on the basis of the market price. If a person has used a salary in his electronic wallet of 0.05 bitcoin to purchase various goods and services, he is not obliged to declare it.
If an individual is engaged in the development of a cryptocurrency, the proceeds should be declared as business income. The development of a cryptocurrency is an entrepreneurial activity and is taxed on the same basis as the production of a commodity. The tax obligation arises from the benefit derived from the alienation of the cryptocurrency at the time of its sale or exchange. A person who continuously develops a virtual currency must register with the Business Register and act as an individual entrepreneur (FIE) or through a business partnership. A registered FIE may deduct from business income and also declare expenses incurred in generating business income (for example, equipment, electricity, etc.). An individual may not deduct from income expenses incurred to generate income from the development of a cryptocurrency. FIE should point out that cryptocurrency cannot be credited to a special account used to defer tax duties. In addition, it is possible to invest in cryptocurrency through a commercial partnership, in which case the taxation rules applicable to a commercial partnership should be taken into account.
Turnover tax in Estonia is applied as a value added tax, except in seperate cases (h 2 §1 of the Turnover Tax Law). One of these distinct cases is the margin scheme.
The obligation to pay income tax may arise in the case of a person/natural person exchanging a cryptocurrency for an ordinary currency or for some other cryptocurrency, as well as in the case of the use of a cryptocurrency to pay for goods and services, if the person earns an income, informs the Estonian Tax and Customs Department in anticipation of the tax declaration period.
When a private company is created with limited liability, minimum capital requirements disappear.
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.
The trade in cryptocurrency is a growing trend that is gaining in popularity. Although cryptocurrency has been used worldwide for more than a decade, trading virtual money can still be considered a new way of earning income.
The employment of foreigners in Estonian companies raises a number of issues, including the payment of income and social taxes.
While the announcement of the meta-universe implies that the digital world may soon face a paradigm shift unprecedented since the advent of social networks, internal notification from CEO Andrew Bosworth may mean, that Blockchain will be the basis for the future of the Internet
The board member of an Estonian enterprise is a foreigner. If he obtains a temporary residence permit in Estonia with the right to work and wishes to receive remuneration (wages or dividends), what taxes should be paid? Was it true that non-taxable income and compulsory contributory pension contributions were excluded? Are there any other particularities that we should be aware of?
The trade of cryptocurrency is gaining in popularity, and buyers may wonder: do cryptocurrency taxes have to be paid, and if so, when? The Tax and Customs Department of Estonia clarifies this issue as follows: