2.9. Value added tax and its reimbursement from projects

Upon planning and incurring project expenses, it is important to pay attention to the calculation and eligibility of the value added tax paid on goods or services purchased, because in many cases VAT cannot be considered a project expense in whole or in part.

In projects the general principle is that VAT is eligible and refundable if it cannot be reclaimed from the Tax and Customs Board,

According to subsection 2 (2) of the Value-Added Tax Act, the activities of legal persons in public law are deemed to be business only where such persons engage in economic activities listed in Annex D to the sixth Directive or where their activities involve transactions and acts listed in subsection 1 (1) of the Value-Added Tax Act which may also be performed by other taxable persons and where non-taxation would lead to significant distortions of competition.

Tallinn University of Technology has been registered as a person liable to value added tax and for deduction of input value added tax we use the method combining direct calculation and proportional deduction.

Receipts from research and development projects are not deemed to be economic activities of Tallinn University of Technology. Input value added tax is not deducted on goods and services (except on fixed assets) purchased for the purposes of such activities. Consequently, no refund is paid by the Tax and Customs Board and the input value added can be considered as an eligible expenditure of the project.

Upon acquisition of fixed assets, Tallinn University of Technology uses the method of proportional deduction for deduction of input value added tax. This means that a proportion of the value added tax is reclaimed from the Tax and Customs Board and the rest is written off. The proportion of the value added tax changes annually - the proportion to be applied in 2021 is estimated at 13%, the proportion will be adjusted according to the actual proportion in the December VAT return. This means that 87% of the VAT on fixed assets is expected to be the university's own expenditure. For more information, please contact the  Finance Office – Ave Tamm, e-mail: Ave.Tamm@taltech.ee or Siret Malleus, e-mail: Siret.Malleus@taltech.ee.

Since we use the proportional deduction method, we cannot reclaim VAT on fixed assets from the funders, because the fixed assets are partly used for economic activities and VAT shall therefore be covered by the project implementer. However, the VAT refunded by the Tax and Customs Board is transferred to the financing source of the project in February of the year following the financial year with the end date of the financial year.

It must be borne in mind that the acquisition of goods from a taxable person of another Member State together with the transportation of these goods from the other Member State to Estonia is intra-Community acquisition of goods subject to reverse charge even if the seller has added VAT of his country to the price of the goods. It must always be verified that the amount of VAT has not been calculated on transaction set out in the invoice, otherwise value added tax will have to be paid twice, VAT reverse charge will be applied and this will increase the cost. Any additional VAT or customs duty costs should also be taken into account when planning the project budget.

In the project application phase, the funder may request a letter from the university regarding VAT eligibility. The letter template can be found HERE. Riina Vilgats arranges signing of the letter separately for each project.