Flat/apartment tax in Estonia

apartment tax in EstoniaThe income tax does not apply to the income derived from the alienation of a dwelling which, prior to the alienation, the taxpayer used as his place of residence (article 15, part 5, paragraph 1, of the Income Tax Act (Act on Income Tax)). For the application of tax exemption, the law provides an additional condition: tax exemption applies to only one transaction for two years (article 15, part 6, of the Act).

In taxation, the tax administrator applies equal taxation if the place of residence is alienated and:

  • In the serf book, both the dwelling and the storage and parking space related to the dwelling are listed as one apartment property,
  • In the serf book, both residential premises and a storeroom (non-residential premises) and a parking space (non-residential premises) are included as independent apartment property.

If the storeroom and parking space registered as independent housing units are disposed of together with the living space in one sale, then the tax exemption on the sale of residence is applied to the entire transaction, subject to a limitation of one transaction for two years.

If non-residential premises (storage space or parking space) are sold separately (another transaction) from the dwelling (before or after the alienation of the dwelling) or if the storage space or parking space is not used as part of the dwelling, a is used for commercial purposes (for example, for hire or use in business), in which case the sale is taxable.

 Share of a perfect flat

If a portion of the ideal share relating to the real part is expropriated (for example, to increase the real part of the apartment property or to create a new apartment property), then the transfer for payment is taxed, i.e. the ideal share of the land, Parts of a building or equipment shall not be treated separately as taxpayer living space.

These parts of the apartment property are not part of the real part of the apartment property (part of the apartment building of the taxpayer), but are the ideal parts of the shared ownership of the apartment house connected to the real part.

Guest apartment

A guest apartment is a hotel enterprise in which the hotel unit is an apartment leased in full (article 18, part 8, of the Tourism Act). The guest apartment is used for commercial purposes, therefore does not apply to the guest apartment tax exemption.

The Law of Obligations distinguishes between residential and commercial premises and essentially excludes the use of residential premises as commercial premises and vice versa. In the sense of the Law on Obligations, a dwelling is a dwelling house or apartment used for permanent residence. Commercial premises are premises used in economic or professional activities.

Unlike an ordinary apartment intended for residential use, the purpose of using the guest apartment is commercial. If the taxpayer did use the guesthouse as his or her place of residence prior to the alienation, and this is confirmed, then in exceptional cases tax exemption may be justified as in the case of the sale of a conventional flat, used for living.

Residential building

In this case, the income derived from the disposition of the property (the difference between the sale price and the acquisition cost) is taxed. Costs directly related to the sale (services of a notary, a broker, government fees, expenses related to the valuation of real estate, etc.) can be deducted from the profit from the sale of real estate. The actual amounts paid for the acquisition, replenishment and improvement of a property are recorded as the acquisition cost. Costs incurred by another person or expenses incurred for another person are not included as acquisition value. The purchase of the property is supported by a serf book. The property received as a gift has no acquisition value.

LKS Consult OÜ provides accounting services and legal advice on taxation. Please contact us regarding your taxation issue.