2025 changes you need to know about
Who needs to pay attention? Owners of companies that aren't VAT registered, especially if they use the company for any stock trading (even small amounts), receive rental income, and have income from selling goods, providing services, etc.
What will change? Mandatory VAT registration.
Solution? Have a separate company for holding your investments, managing real estate and offering services
New VAT regulations taking effect next year in Estonia create complications for investors using companies for investments. Previously, companies engaged in non-taxable activities like long-term rentals or stock trading only became VAT payers if they voluntarily registered or if their taxable turnover (e.g., short-term rentals, training) exceeded €40,000 annually.
Under the new rules, financial and real estate transactions (unless purely accidental) will now count towards the €40,000 VAT threshold. This means a company primarily engaged in high-value, non-taxable financial transactions (like stock trading) could be forced to become a VAT payer if it provides even small amounts of taxable services (e.g., training) that push its total turnover over the limit.
This change will require many companies to file monthly VAT declarations, a significant increase in administrative burden. Existing accounting software isn't equipped to automatically include securities sales in VAT returns, requiring manual calculations. Furthermore, companies with both taxable and non-taxable income will face complex VAT calculations and may need specialized accounting expertise.
While voluntary VAT registration remains an option for input VAT deduction, many investment companies prefer to avoid VAT filings altogether. The Ministry of Finance states the €40,000 limit is meant to protect small hobby businesses, not large-turnover investment firms. However, even small amounts of taxable income will trigger VAT obligations for these companies.
Experts warn that many investors are unaware of these changes. Some active traders could exceed the threshold early in the year. The easiest solution may be to separate taxable and non-taxable activities into different companies. While some investors may choose to restructure their holdings, others, particularly those with primarily passive income, may find the new regulations burdensome. The changes also potentially incentivize long-term investing over active trading.