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Why some places attract more buyers and sell faster than others?

Majority of people are looking for a new home and not just a house or a flat while surfing through hundreds of real estate ads. They are imagining cooking in the kitchen, hosting a party in the backyard, relaxing in the living room after a long day at work and so on. So how to make a simple room feel extra inviting?

Although we all have different tastes in decor there are some simple suggestions that can make even an ordinary apartment into someone`s dream home.   (more…)

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Statistics: For an average apartment in Harju County, 7.4 years’ mean wages have to be paid

In an Estonian average, 5.7 years’ mean net wages have to be paid on a transaction with an apartment. In Harju County, wages are higher; however, real estate there is also the most expensive. As a result, far more – 7.4 years’ wages – has to be paid on an average transaction with an apartment in the capital and its vicinity.

On an average transaction with an apartment, sellers of real estate charge 5.8 years’ wages in Tartu County and 4.1 years’ wages in Pärnu County. (more…)

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Do Apartment Ownerships In Estonia Constitute An Enterprise?

The Estonian Tax and Customs Board sometimes seems to use unlawful measures to limit the taxpayer’s right to deduct value added tax (VAT), report Law Firm LEXTAL attorney-at-law Ants Karu and lawyer Margus Reiland.

Obligation to pay VAT usually lies with the seller of goods (e.g. apartment ownerships or immovables). As a general rule the (VAT registered) buyer of those goods has in turn the right to deduct input VAT in cases where it uses the purchased goods to create VAT liable goods or services. This means that the buyer does not generally bear any real tax burden.

However, there are situations where the buyer pays the price (including VAT) demanded under the contract, but the seller does not pay VAT to the state. In these cases the buyer must keep in mind that the Estonian tax authority has a strong interest in limiting the buyer’s right to deduct input VAT.

According to the logic of VAT, the buyer’s right to deduct input VAT should not depend on whether or not the seller pays VAT to the state (this principle does not apply in exceptional cases, such as tax fraud or when the buyer has not been diligent).

However, the Estonian tax authority has recently made several attempts to limit the buyer’s right of input VAT deduction using rather creative measures. This generates a substantial tax risk for the buyer. According to the recent decision of the Estonian Supreme Court the Estonian tax authority’s conduct in limiting the right of VAT deduction hat not always been lawful, as we shall explore.

The Supreme Court decided in favour of the taxpayer

The main question of this dispute was whether a group of apartment ownerships acquired by the buyer constituted as a transfer of enterprise. Pursuant to the Value Added Tax Act, the sales transaction of apartment ownerships may be taxable with VAT, but in cases of transfer of enterprise no supply will arise, as a result of which the purchaser has no right to deduct input VAT. The Estonian tax authority was of the opinion that the buyer acquired an enterprise instead of apartment ownerships and the buyer disputed this opinion in court.

The buyer claimed that empty flats do not constitute as an independent enterprise. An enterprise is an economic entity consisting of things, rights and obligations (e.g. workers) and is able to function independently. For example, a factory is considered to be a typical enterprise because it consists of staff, equipment, trademarks and know-how. The Supreme Court agreed with the taxpayer’s arguments. A group of apartment ownerships are simply a body of things, which do not constitute an independent functioning economic entity, that is to say an enterprise.

Summary

The mentioned case may be considered a significant victory for those taxpayers who deal with the buying and selling of apartment ownerships, immovables and similar. The Estonian tax authority’s overly aggressive conduct in limiting the right to deduct input VAT may be unlawful in some cases and should thus be revised.

The authors of this article represented the taxpayer in the referred tax dispute.

Authors:
Ants Karu, attorney-at-law, Law Firm LEXTAL
Margus Reiland, lawyer, Law Firm LEXTAL

www.lextal.ee

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Slight Fall In Tallinn Property Transactions For October

Tallinn property transactions fell in October in comparison with the previous month, according to Tõnu Toompark’s blog Adaur.ee (available in Estonian only).

Citing figures compiled by Tallinn real estate agents 1Partner Kinnisvara, transactions fell by 12 per cent, from a figure of 482 million Kroons (c. 30.8 million Euros)  in September to 423 million Kroons (c. 27 million Euros) in October. 1Partner’s executive director Martin Vahteri said that activity was particularly noteworthy in the Vanalinn (Old Town) and City Centre areas, where the highest real estate prices are generally to be found. He further remarked that a significant proportion of transactions involved overseas nationals, most notably Finns and Russians. 17 per cent of transactions, a total of 112 objects, comprised foreign investors, he said.

Average price per square metre stood at 15,546 Kroons (c. 994 Euros). The value of transactions of apartments varied hugely, from a reported highest price of 6.225 million Kroons (a little less than 400,000  Euros) to a low of 10,000 Kroons (c. 640 Euros)!  The most expensive transaction on a whole housing unit stood at 11.5 million Kroons ( c. 735,000 Euros). There were foreclosures on 31 buildings in October.

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