Replacing the VAT refund system with tax exemption (or, to put it correctly, taxation with a 0% tax rate) will considerably reduce the administrative burden of the Ministry of Defence and the Allied Forces. The financial systems of Member States are different and the time between the payment of VAT and receipt of the refund may have a significant impact on the ability to spend money in Estonia and the amounts that are spent. Many countries may not use the refund here again, which can reduce the amount of the investments made here by 20%.
The amendment made in the second stage is that in comparison with the version of clauses 15 (3) 5) and 15 (4) 14) that were in effect until last May, the new one will also extend the application of the 0% VAT rate when goods are sold and services are provided to European Union institutions located in Estonia as of 1 January 2017. The VAT exemption certificate issued by the institution’s representative and approved by the Ministry of Foreign Affairs will be the document that proves the 0% tax rate. The 0% tax rate is applied to institutions located in Estonia on the condition that the amount of the invoice without VAT is at least 53 euros. The total amount of an invoice may be smaller in the case of utility payments and fuel. Clause 15 (3) 51) will be added to the Value Added Tax in relation to this.
Whilst undertakings have been able to sell goods and services to NATO Allied Forces with a 0% tax rate since 1 May 2016, local companies will also be able to sell goods and services to European Union institutions in Estonia with a 0% tax rate as of 1 January 2017. In order to sell to a European Union institution with a 0% tax rate, the undertaking must be able to present the tax authority with a VAT exemption certificate from the institution, which has been approved by the Ministry of Foreign Affairs, and the total amount of the invoice without VAT must be at least 53 euros. The VAT exemption certificate required for selling to NATO armed forces with a 0% tax rate is approved by the Minister of Defence or the official authorised by the latter. No monetary restrictions were established on the sales of goods or services to NATO forces.