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Key tax changes in the Baltic states

The international community has expressed concern about international companies that take advantage of the possibilities afforded by different tax jurisdictions for tax planning purposes. Such companies aim to move profits into low-tax-rate territories, without actually being engaged in economic activity there. In response to this concern, the G20/OECD published the BEPS (Base Erosion and Profit Shifting) action plan in July 2013. BEPS covers 15 different areas of activity, which are planned to be completed in three stages: September 2014, September 2015 and December 2015.

Maintaining proper accounting on transfer prices and documenting the reasoning for conformity to market value is in the interests of every enterprise, as it avoids tax risks. In preparing documentation, the requirements of legal acts should be considered along with the specific company’s risks and needs.

Another change has been made to the Value Added Tax Act, under which, starting 1 December of this year, only 50% of the input VAT on cars and car-related expenditures may be deducted.

Many companies in the process of preparing annual reports for the last year find themselves facing the need to recognize transactions between related parties.

The Value Added Tax Act sets forth four categories of goods or services on which a taxable person can voluntarily impose VAT. In general these cases involve tax-exempt supply, but VAT can also be imposed on the sale of these goods or services if the tax authority is notified of this in advance in writing. At first glance, it may seem curious why anyone should want to impose VAT voluntarily only to forward the tax to the state, but there is a reasonable explanation.

Until the beginning of 2015, the procedure set forth in Section 43 of the VAT Act for imposing VAT on electronically supplied services applies only to third-country persons engaged in enterprise. In accordance with the rules valid up until the end of 2014, it is possible to apply special procedure for VAT taxation of electronically supplied services (referred to in this guide simply as “special procedure”) on condition that the service is supplied by a third-country person engaged in enterprise that is not registered in any Member State as a taxable person (referred to hereinafter as third-country taxable person) to an EU Member State person that is not registered as a taxable person or limited taxable person – i.e. to an end consumer, usually an individual.

1 December saw an amendment to the Value-Added Tax Act enter force that does away with the term “sõiduauto omatarve” (own use of a passenger car). With a restriction placed on input VAT deductions, there is no longer a need to impose value-added tax on private consumption. Thus the general rule is that VAT will no longer be imposed on use of a company car for a non-business-related use; instead, the right to deduct input VAT will be curtailed.

During 2014 a number of tax changes have taken place and in 2015, key tax changes in a number of fields lie ahead.

Starting on 10 February 2015, all circumstances that enable a company to make income tax-exempt disbursements to shareholders or partners in the future must be declared.