15.05.2024 Tax and Customs

Partner Jaak Siim article “Real Estate Transactions: Value Added Tax Amendments”

In the third issue of 2024, the financial and legal magazine RUP published the article entitled “Real Estate Transactions: Value Added Tax Amendments” by Jaak Siim, a partner at Cuesta Law Office. The article discusses the planned tax amendments contained in the draft Act amending the Value-Added Tax Act prepared by the Ministry of Finance, which concern the taxation of transactions with immovable property with VAT and the adjustment of input VAT deducted upon the acquisition of fixed assets. The aim of the amendments is to reduce the possibilities of avoiding the payment of VAT and to end the preferential situation that can be obtained by taxable persons who start using the purchased fixed assets for tax-free turnover, contrary to what was initially predicted.

In more detail, the article writes about two important changes, which consist in the following:

  • in the case of new and substantially renovated immovable property, of which the essential part is a construction work within the meaning of the Building Code or part of a construction work, VAT obligation will henceforth arise not only on the supply before the first use of the construction work or part thereof or before the re-use of the improved construction work or part thereof, but also within one year after initial commissioning or re-commissioning;
  • upon the initial use of the acquired fixed asset, the input VAT will be adjusted in full in the future according to the proportion of the actual use of the fixed asset for taxable turnover during the taxation period of the asset’s use, i.e. in other words, when the fixed asset is put into use, the entire input VAT must be recalculated based on the purpose for which the asset is first actually used.

The full article is available to the subscriber of the magazine and the registered user of the RUP portal.