VAT Margin Scheme in Estonia

VAT margin scheme in EstoniaTurnover 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 OÜ . We offer professional accounting services for Estonian companies.