Association: Amendment won't help Estonia with VAT due from Asian e-retailers

TALLINN – The Estonian Ecommerce Association has hailed the move by the government to introduce a legislative amendment to reduce the tax gap in e-commerce, but argues that e-traders based in Asia will nevertheless not pay the amounts due from them.

Last week, amendments to the Value-Added Tax Act exited the Estonian Ministry of Finance, which will result in the tax authority receiving quarterly data on cross-border payments as a tool to improve VAT inflow. However, according to the Estonian Ecommerce Association, this will only affect traders in EU member states, leaving Asian merchants off the radar screen.

Tonu Vaat, the CEO of the Estonian Ecommerce Association, said that according to conservative estimates, Estonia loses 145 million euros in tax money annually due to irregularities in the payment of VAT on e-commerce.

The association emphasizes that the legislative measure currently on the table is only half of what is necessary, and that Estonian residents' money goes largely to e-merchants in Asia.

"The Estonian Tax and Customs Board does not know all the e-shops operating abroad or how much they sell to people in Estonia. At the same time, Estonian payment intermediaries have the necessary information," Vaat said.

Until 2021, a VAT exemption for transactions under 22 euros from Asia was in place. The exemption was abolished, but, according to Vaat, Asian merchants now bypass the VAT liability by writing a lower value on the shipment or marking shipments as gifts and still paying no VAT to the Estonian state.

"However, Estonian payment institutions have information about the precise values of all transactions, the sharing of which with the Tax and Customs Board would eventually provide an opportunity to tax the business of Asian merchants and put an end to extremely unequal competition with our own companies," the CEO of the association said.

According to the central bank, e-commerce turnover in Estonia was 2.5 billion euros last year, of which 1.1 billion euros went abroad, and it is estimated that half of it went to online stores in Asia.

"For example, in the third and fourth quarters of last year, e-shoppers made payments of 520.6 million euros to foreign merchants, but according to the Tax and Customs Board, a sales turnover of 156.8 million euros was declared in Estonia in the same period," Vaat said.

When Estonian consumers buy goods from foreign e-shops, VAT must be paid on such goods. The e-shop normally has to add the VAT of the buyer's country of residence to the sales price, but since the Estonian tax authority cannot find out about such sales in any way, e-shops often ignore the obligation to pay VAT.

According to the association, the problem needs a quick solution, as the tax authority can only collect tax debts that are up to five years old.