Skip navigation


The Bill specifying the concept of land area planned for construction and the Bill changing the calculation of the rate of basic exemption for working pensioners passed the first reading in the Riigikogu.

The Bill on Amendments to the Value Added Tax Act (556 SE), initiated by the Government, will amend the regulation of the taxation with VAT of immovable property intended for construction. The amendment concerns persons liable to value added tax, in particular the sale of plots of land between enterprises.

Under the current procedure, transfer of immovables is treated as supply exempt from tax, with the exception of the cases specified separately in the Act. According to the current procedure, tax exemption is not applied for example when a land area planned for construction is sold. According to the current Act, plot of land planned for construction means a land area which is defined in a detailed spatial plan and in respect of which building rights are granted.

Sometimes, however, plots of land in respect of which no detailed spatial plan has been prepared are used for construction. Therefore, the Bill will amend the concept of plot of land subject to taxation, and introduce the concept of building land. According to the Bill, building land means an unimproved plot of land that is planned for construction according to design specifications, the national designated spatial plan or the local government designated spatial plan, and concerning which a building notice has been submitted or the intended purpose of which is residential land or commercial land.

The Bill is connected with the Council of the European Union’s Directive 2006/112/EC on the common system of value added tax. The aim is to tax similar objects uniformly and to achieve better conformity to the directive. Under the directive, only the transfer of unimproved plots of land on which no construction is planned must be exempted from VAT.

Besides, the Bill proposes to exclude certain metal products from the list of goods subject to the reverse charge: cold-formed or cold-finished flat-rolled products, for example, profiled (ribbed) sheets, and ventilation, aspiration, smoke and rain water pipes. The motion to amend was submitted by undertakings and the Association of Construction Material Producers of Estonia.

Under the reverse charge procedure, the purchaser, instead of the seller, is liable to pay VAT. The Bill will eliminate the requirement to issue a separate invoice regarding goods subject to the reverse charge, except in the case when supply has not been fully effected by the time of the issue of the invoice. The aim of the amendment is to reduces the administrative burden for undertakings.

Under the Bill on Amendments to the Income Tax Act (554 SE), initiated by the Estonian Reform Party Faction, pension will be taxable income, but will not be taken into account in the definition of the amount of the basic exemption. This means that the pension, including the old-age pension and the pension for incapacity for work, of a working pensioner will not be included in the rate of basic exemption. This will preclude situations where an amount on which tax has already been charged is included in the income tax base for a second time.

The reference to § 41 of the Income Tax Act is explanatory and stresses the continuation of the current practice – income tax is withheld on the amount of a single payment.

The Finance Committee moved to reject the Bill at the first reading. 77 members of the Riigikogu voted against the motion. Thus, the motion was not supported and the Bill remained in the proceedings. The deadline for motions to amend is 20 February.

Verbatim record of the sitting (in Estonian).

Video recordings of the sittings of the Riigikogu can be viewed at: https://www.youtube.com/riigikogu

(NB! The recording will be uploaded with a delay.)

Riigikogu Press Service
Merilin Kruuse
Phone +372 631 6353, +372 510 6179
E-mail merilin.kruuse@riigikogu.ee
Questions press@riigikogu.ee