Directo help

• From 01.01.2024, the standard VAT rate in Estonia is 22% instead of the previous 20%.
• For your information: from 01.01.2025, accommodation and accommodation services including breakfast are taxed at 13% VAT instead of the previous 9%, and the VAT rate for press publications will rise again from 5% to 9%.

Read more information on the website of the Tax and Customs Board.

An increase in the VAT rate is a significant event that can affect your company's financial position and business operations. An increase in the VAT rate can affect a company's cash flow, prices, tax accounting and customer behavior. Timely and correct preparation will help you manage this change smoothly and minimize possible negative effects.

Accounting and tax accounting
Make sure that you have created VAT codes with new VAT rates and updated the configuration of the VAT declaration for correct calculation and declaration of VAT.

More complex aspects of taxation: prepayments, refunds/credit invoices
According to the VAT Act, the VAT rate applicable at the time the turnover is generated is applied. The time of turnover is important for determining the time of declaration of VAT liability. The issuance of an invoice (including a prepayment invoice) is not considered to be the time of turnover. Turnover has taken place when the goods have been sent or made available to the buyer or the service has been provided or payment has been received for the goods/services.

• Prepayments - if a 100% prepayment for goods or services was made before January 1, 2024, for example, in December 2023, the turnover for the prepayment is considered to have occurred in December 2023 and is declared on the December VAT return at a rate of 20%. The VAT return for December will be submitted on January 20, 2024, according to the old form. If a partial prepayment was made before January 1, 2024, the turnover related to this prepayment is taxed at 20%. Any prepayment received after January 1, 2024, will be taxed at the 22% rate for the entire payment.

• Credit invoices - when making a credit invoice, the tax rate that was valid at the time of the turnover is applied, so if the product was purchased, for example, in December 2023 (20% VAT turnover) and is returned in January 2024 (new VAT of 22% applies), then the credit invoice must have the same tax rate as the product perhaps 20% was acquired on the basis of this example. If the credit invoice is submitted after the VAT return has been submitted for the taxation period of the turnover of the goods or services, both the seller and the buyer reflect the resulting changes in the VAT return submitted for the taxation period of the credit invoice submission. The change in turnover due to the submission of a credit invoice is reflected in box 1.1 of the VAT return. The buyer reflects the change in input VAT in box 5 of the VAT return. If the product is returned by a private individual and the money paid for the product is returned to the private individual, i.e. the invoice or purchase transaction is cancelled, the seller reflects the VAT changes in the month of cancellation of the invoice in accordance with the above.

If the sales or accounting system integrated with Directo does not support the creation of invoices with transactions related to the previous tax rate, then consider how you can manually adjust the invoices in the simplest way so that they are correct in terms of taxation.

Issuance of invoices
It may happen that there are difficulties with setting up cash register systems and software, and therefore after 1.1.2024 invoices will still be issued with a 20% tax rate. The seller is still required to pay VAT at the rate of 22% and to declare the total amount received divided by 1.22 as the taxable value. However, the buyer can deduct only the amount indicated on the invoice, i.e. 20%, as input VAT. Upon discovery of an error, the buyer must contact the seller with a request to correct or cancel the faulty invoice and replace it with a new one.

If invoices must be prepared in 2024 for turnovers, part of which occurred in 2023 (e.g. KMD § 11. (4)), then such invoices must be prepared in two parts in Directo - one invoice will be prepared for the period ending on 31.12.2023 (with a 20% VAT rate), and another invoice for the year 2024 (with a 22% VAT rate) and this is because Directo does not allow the month of turnover to be indicated on each line of the invoice, but the invoice is added to the VAT return according to the transaction time indicated on the invoice.

Similarly, the opposite situation can also arise, where in 2024 a purchase invoice is received from the supplier, with both 20% and 22% products/services on it. In this case, the supplier should be asked to divide these invoices into two, but if the supplier is not willing to do this, then it must be split into several purchase invoices in Directo so that the input VAT can be declared in the correct tax period.

Sales platforms (e-shop, etc.)
If the sale takes place through an e-store, website or other sales platform, monitor and ensure that the correct tax rates are used there as well from 2024. It is advisable to check in advance whether this change in the used solution is automatically applied to all products according to the settings, or whether it is necessary to change the VAT rate for each product separately.
If you have problems and questions regarding your sales platform, contact the service provider of this (sales platform) for help.

Data integrations
If the data comes to the accounting system from external software through an integration, make sure that the VAT rates are updated in the external software and, if necessary, the integration itself.
If you encounter problems and questions regarding external software or integrations, please contact the providers of these services for assistance.

Pricing
Think about pricing and recalculating prices according to the new VAT rate. If the customers are private individuals, the price lists and options can be reviewed in advance, in which case the tax increase can be transferred to the consumer and when it remains with the company.

Employee training
If your employees are involved in accounting or sales, ensure that they are aware of changes in the VAT rate and know how to use it in their work.

Cash and cash flow management
An increase in the VAT rate can affect your company's cash flow. Plan ahead and make sure the business has enough liquidity to cover new tax liabilities and expenses.

Monitoring customer behavior
Keep an eye on how the change in the VAT rate affects the purchasing behavior of customers. This can affect the demand and sales of your products and services

• Create new VAT codes and attach them to item classes/items/customer cards/supplier cards from 1.1.2024, depending on where they come to the documents.
• If you are sure that you will no longer use any VAT codes, you can close them. The VAT code card has a field > Closed No/Yes. If you have VAT codes with empty data, you can also close them so that they do not appear in the VAT code selection for documents. See also in the guide: VAT codes.

You might wonder why it's necessary to create new VAT codes instead of simply changing the VAT rates on existing codes. A simple example of why this is not recommended is as follows. If, after 1.1.2024, a credit invoice is drawn up on an invoice submitted with a 20% VAT rate, and the VAT rate has been changed to 22% on the VAT code, the 22% VAT rate will automatically be applied to the credit invoice. However, this is not correct, because when creating a credit invoice, the tax rate that was valid at the time of the turnover must be applied, and therefore the VAT must be adjusted manually on the invoice.

Watch the video:

Directo offers the automation of changing the VAT code and recalculating the price of items according to the customer's needs, located in the main menu Maintenance > Button Import/Export. With automation, you can change the VAT rates in the registers specified in the VAT code replacement list, for example items, item classes, customers, suppliers, etc. For example, you can automatically change the price of an item without VAT or with VAT, or change the VAT code specified for the item and class. Since the automation changes the item prices, the customers must review the orders/quotations/invoices that have already been prepared and, if necessary, adjust the VAT rates.

The VAT code replacement automation applies only to domestic VAT codes.

Automation will be made available shortly before the end of the year. The automation is activated by clicking on the link and also gives an answer as to how many replacements have been made.The workflow for the automation should follow these steps:

• first the VAT codes must be replaced (Section 1).
• then perform a recalculation of item prices (Section 2).
• replacement and recalculation can be done piece by piece.
• if the link has been clicked once and the replacement has been made, this link will become inactive. In order for the link to be activated, you need to close and reopen the Maintenance window.

Watch the video:

You cannot use automation to change the reverse VAT % on the VAT code card; this change must be made manually or by bulk import.

Before you activate the automatic recalculation of item prices, be sure to make a copy of the existing item and item class data, so that in case something goes wrong, you can restore the old data state.

• If the bulk import and bulk export modules are used in the database, then export the items to excel, and if it is necessary to restore the original data, then return the bulk import data. See bulk import and bulk export instructions here:https://wiki.directo.ee/en/yld_mass_import and https://wiki.directo.ee/et/yld_mass_export

• Since the price recalculation automation works for items, if there is a desire to change the prices by item class, it can also be done via bulk export/bulk import.

However, if the bulk import/bulk export module is not in use, you can select all necessary fields in the Items browser and export to Excel. To import back, you need the bulk import module, which you can also purchase separately.

The price recalculation robot is located under Maintenance→Import/Export. The robot is divided into two sections, of which section 1 allows replacement of VAT codes and section 2 recalculation of item prices.

Example 1:

For item classes it is necessary to replace the existing VAT code 1 (20% VAT) with VAT code 43 (22% VAT).

• Item classes currently have VAT code (20% VAT):

• Place the old and new correct VAT code:

• Click on the Item classes link to change the VAT code:

• A check question will appear - if you are sure, answer OK:

• A message will appear indicating how many item classes have been updated:

• Check - the VAT code has been updated for the item classes:

Example 2:

After changing the VAT codes of the item classes, it is necessary to update the prices of the items in such a way that the price with VAT increases and without VAT the price remains the same (it was 100.00 without VAT, 120.00 with VAT > it becomes 100.00 without VAT, 122.00 with VAT)

• After changing the VAT codes, the item card will have the same prices with and without VAT as before.

• Click on the automation link:

By clicking on the link, a message will appear, “Are you sure you want to update? If you agree and press OK, the data will be updated. If you did something wrong, clicking the link again won't get you back to the original state. You can restore the original data using the bulk import module and previously saved Excel with item data. If the bulk import module is not available, contact customer support or your project manager. Item prices can also be changed back manually on the item card.

• Message of how many updates have been made:

• Check > on the item card, the price with VAT has been updated to be higher and the price without VAT has remained the same:

Watch the video:

1. Prepayments 100% received before 1.1.2024

Practice for individual customers: If a prepayment for an order has been received 100% before 01.01.2024, and no prepayment invoice is issued, but the 20% VAT is declared based on the receipt document, and the sales invoice is issued during the delivery period, i.e., in 2024 (when the 22% VAT rate is already in effect), the lines from the order will automatically appear on the invoice with the 20% VAT rate, as per the VAT rate that was valid at the time the order was created. As a result, no VAT needs to be paid.

Corporate customers: if it is a legal entity whose invoices are subject to declaration in the KMD INF A section, then in case of receipt of a prepayment, a prepayment invoice must be issued, with which VAT is declared in the VAT return prepared for the month of receipt, and the amount of this prepayment can be reduced on the final invoice through the lines of the VAT invoice to be paid. However, if the VAT is declared only through the receipt document (it does not go to the KMD INF A part), then on the final invoice, the settlement with this prepayment does not take place through the lines of the invoice, but through the settlement.

Please note that the taxable value of the goods/services shown on the invoice can be reduced only if the (prepayment) invoice(s) have been previously submitted and declared at the VAT return. In all other cases, such as settlements, guarantees or other amounts that reduce the actual payment, the invoice for the transfer of goods/services may not be shown with a minus sign and these amounts may not reduce the total amount of the invoice or the taxable value of the goods/services. See also the Tax and Customs Board’s guide https://www.emta.ee/en/node/337/chapter/58

2. Partially received prepayments before 01.01.2024

• Do you have prepayments in the balance as of 31.12.2023, for which the 20% VAT was incurred before 01.01.2024? To adjust the VAT rate for orders partially paid in 2023 on an invoice created in 2024, you can create service-type auxiliary items. Create a separate item class and item for the year 2023 with a 20% VAT rate, and another item class and item for the year 2024 with a 22% VAT rate. Choose item codes and names as appropriate. Optionally, you can set a default quantity on the item card. For example, you can create items with the following names:
• Code: KM2024_KORR_22. Name: Turnover adjustment (+) > received as 20% prepayment
• Code: KM2023_KORR_20. Name: Turnover adjustment (-) > received as 20% prepayment

If you create an invoice via Order and you have the setting “Service items can be added to the invoice connected to the order” No, you have to add auxiliary items to the order lines, because if you add them to the invoice lines, you will get an error message that the item is not on the order. However, if you want to add auxiliary items to the invoice, select the setting “Service items can be added to the invoice connected to the order” Yes.

Example 1: the prepayment was partially received in 2023, the final invoice was submitted in 2024.

• On 31.12.2023 an order for goods worth €120 was created, and a 70% prepayment (€84) was made on 31.12.2023 for which a prepayment invoice was issued, and the VAT (€14) was declared in the 12.2023 declaration, which was payable on 20.01.2024.

Based on the Value Added Tax Act, there is a rule that if a partial prepayment has been made before January 1, 2024, the turnover is taxed at 20% to the extent of this prepayment. A prepayment received after January 1, 2024 is taxable at a rate of 22% on the entire payment.

Order 31.12.2023:

Prepayment invoice 31.12.2023:

• On 1.1.2024, the goods were shipped and a final invoice was issued for the order.
  

According to the receipt, 70% of the turnover of this order has occurred in 2023 and 30% in 2024. Since when making an invoice from the order, the lines from the order are automatically added to the invoice with a 20% VAT rate according to the VAT rate valid at the time the order was created, so you have to correct the invoice so that the VAT on the part received in 2024 is calculated on the invoice at a 22% VAT rate. Add the adjusting auxiliary items, quantities and amounts to the invoice and confirm the invoice.

Add adjusting items to the order:

Prepare the final invoice for the order (including settlement with prepayment):

Example 2: A sales transaction worth 3,000 euros takes place in 2024, for which a prepayment of 1,000 euros is received in 2023, for which a prepayment invoice is issued. Orders are not used.

• In 2023, 1,000 euros will be received, for which a prepayment invoice will be prepared with a 20% VAT rate:

• A sales invoice will be made in 2024, and since 1,000 euros of the total amount has been taxed as turnover in 2023, the sales invoice can be prepared in two ways:

Option A: it is not necessary to use the adjusting items, but to show the amount paid in advance in a separate line:

Printout:

Option B: using adjusting items:

Printout:

Due to the increase in the standard VAT rate, it is important that the invoices issued from 1.1.2024 have the correct VAT rates and that all VAT calculations are correct. The VAT return for January 2024 must be submitted by February 20. To avoid discovering errors too late, we recommend starting to check the correctness of VAT rates on documents now. For this, we recommend using the check reports, which you can find under Finance > Reports > Maintenance > the “Check” button.

We recommend using the following control reports:

• Sales Document and Customer VAT check
• Sales Document and Item VAT check
• Invoice VAT and Account check
• P.Invoice VAT and Account check

The use of these reports requires, that the VAT codes have been changed to the new VAT rate on the documents (items, item classes, customers, suppliers, etc.), and the check reports highlight exactly those transactions for which the VAT rates do not match. See more: https://wiki.directo.ee/en/km_tous_1.1.2024l.

Report: Sales Document and Customer VAT check

This check report compares whether the VAT code on the invoice, sales order and quotation corresponds to the VAT code on the customer card.

Report: Sales Document and Item VAT check

This check report looks at the VAT code on the item card and invoice and the VAT country on the customer card. If you enter the wrong country on the invoice, an error message will be displayed.

Report: Invoice VAT and Account check

The check report shows the accounts and VAT codes used by sales invoice lines. This report is a good check before submitting the VAT report to make sure that the accounts and VAT codes used are correct.

If the account and VAT code filter is not filled, the table shows the accounts and VAT codes used on all invoices.

If the account and VAT code filter is filled, it shows sales invoices where the lines have the account and VAT code specified in the filter.

Report: P.Invoice VAT and Account check

The check report shows the accounts and VAT codes used by the lines of purchase invoices. This report is a good check before submitting the VAT report to make sure that the accounts and VAT codes used are correct.

If the account and VAT code filter is not filled, the table shows the accounts and VAT codes used on all invoices.

If the account and VAT code filter is filled, it shows invoices where the account and VAT code specified in the filter are on the lines.

If you find an error, correct the account and/or VAT code on the invoice. If the invoice has many lines on which you want to bulk replace wrong VAT codes with the correct ones, use the F3 function for this.

• Place the cursor on the field of the first line where you want to change the data (e.g. VAT code)
• Press F3 on the keyboard - a pop-up window will appear

• In the pop-up window, enter the VAT code that you want to replace with the correct one in the “Search” field and the VAT code to be replaced in the “Replace” field and “Replace all”.

Result:

Watch the video:

NB! The VAT return for December 2023 will be submitted by January 20, 2024 according to the old form.

From 01.01.2024, the standard VAT rate in Estonia is 22% instead of the previous 20%. However, there may be situations where invoices can be issued at a rate of 20% until the end of 2025.

Therefore in 2024 and 2025 it must be possible to declare both 20% and 22% VAT at the same time..

Such situations include:

• Receipt of payment when applying the special arrangement for cash-based VAT calculation. If the buyer was invoiced and the goods were shipped or made available or the service was provided before January 1, 2024. Reference: VAT Act from 01.01.24 § 46, subsection 24.
  

• Invoices issued on the basis of written contracts concluded before May 1, 2023. If it was specified in the contract that the price of the goods or services includes VAT or a 20% VAT rate is added to the price, and the contract does not provide for a price change resulting from a possible change in the VAT rate. Reference: VAT Act from 01.01.24 § 46, subsection 25.
  

• Credit invoice preparation for invoices with a 20% rate issued until 31.12.2023.
  

On the VAT return form from 1.1.2024, it can be seen that the change has taken place in the first two lines:

• line 1 will be used for acts and transactions taxed at a 22% rate and
• line 1.1 will be used for acts and transactions taxed at a 20% rate.
  

• Make a copy of the old VAT declaration or create a new one.

• Name it something like as of 1.1.2024 so it can be distinguished from the previous VAT declaration form.

• Select the new VAT declaration form 2024KMD_INF1 from the XML selection. Then the line of 20% acts and transactions automatically changes to 1.1
  

• Make the necessary changes in the VAT declaration configuration either manually or with Excel:
• To make a manual change, add the calculations for the 22% taxable acts and transactions to the first section and remove unnecessary lines from the 20% taxable activities and transactions section. Select all the necessary data such as VAT code, section, appendix, automatic transaction, etc. Save.
  • A better and easier way to change the VAT declaration configuration is to do it in Excel. First, copy the VAT declaration configuration into Excel. To do this, place the cursor in the number field of the first line in the VAT declaration configuration table and press the key combination Alt+C, open Excel and press Crtl+V. In Excel, add new rows and delete unnecessary rows and make other necessary changes, such as formulas, etc., and copy the table back to the VAT declaration configuration by selecting Ctrl+C in Excel and Ctrl+Alt+V in the number field of the first row in the VAT declaration configuration table. Save.

If you use the Directo standard chart of accounts and VAT codes, you can ask your project manager or customer support to copy the new VAT codes and the new VAT declaration form to your database, which looks like this:

See also the general VAT guide: https://wiki.directo.ee/en/kaibemaks.

Although emta.ee accepts 2023 declarations already in the new XML, you can still send them in valid XML. If you decide to send the November and December 2023 KMD as a new XML, choose the new XML over the old, i.e. currently valid, form, not the new one.

• If you select the new XML 2024KMD_INF1 for the valid form, then as a result of this selection, the line number of the section of the VAT declaration form for “acts and transactions taxed at the rate of 20% (20% määraga maksustatavate toimingute ja tehingute)” will automatically change - before it was 1, but it will become 1.1, because from 1.1.2024 these transactions can be on the line with this number on the VAT declaration. Don't worry - the VAT declaration will still be correctly received by EMTA.ee

There are printout templates where the VAT rate is written. The best way to test it is to either create a new one or change an existing VAT code, create a new document with it (for example an invoice) and then check the printout to see if it reflects the correct VAT rate of 22%. If the VAT rate is still 20%, then the corresponding printout template must be reviewed and changes made there.

If you have the right to edit the printouts, you can find the templates under printout customization (Settings - Print layouts). Select the desired module from there (invoice, order, etc.). The default prints are with the lowest sequence number. At the right end, you will find the XSL button, by clicking on which you can start changing the configuration of the printout.

With Ctrl+F, you can search for the right place for VAT adjustment in the description in several ways:

Option 1: Search for “20%” and change it to 22%.

Option 2: Search for “1.2” or “1,2” and change to 1.22 or 1,22.

Option 3: Look for a VAT code with 20% attached (for example km='1') and change km='new code'.

When the changes are made, save and close the XSL (print configuration). Then check the printout on the document to see if the correct VAT rate is applied.

In the case of the VD report, the VAT codes in XSL must also be reviewed and changed if necessary. The 'VD Report (XML)' printout is located in the Print layouts settings, under the Customer Statistics (REP) module.

If you have any questions, contact Directo's help desk (671 8578, info@directo.ee).

If desired, it is possible to order a change of VAT code numbers from Directo. This is good to use in situations where there are old VAT codes that are no longer in use and you want to move them back to free up numbers for valid/usable VAT codes.

For example, if you use VAT code 1 for 20% transactions today, but you want to use this code for 22% transactions from 1.1.2024.

Changing VAT code numbers is a paid service, performed by Directo, and its price is 300 EUR per base + VAT. If you want to order this service, please contact your project manager or customer support.

If you are already changing the number of the VAT code(s) in a situation where the VAT returns for November and December 2023 have not yet been submitted, you must correct the configuration of the VAT declaration, because the VAT codes on the lines there do not change automatically.

The process of changing VAT code numbers is as follows using the example above:

• check the VAT code register for the first free number in the sequence, e.g. 40, which will be the new code for the current no. 1 for the code. This new VAT code does not need to be created in the register before the replacement, as it is created automatically with the number change.

• then the VAT code numbers must be exchanged (old code > new code), as a result of which No. 1 becomes number 40, i.e No. 1 becomes free (the card with this number remains, but the card is cleared of data).

• in the VAT code number exchange process the VAT codes in all past transactions are replaced. We would like to point out that in larger databases, such a change of VAT code numbers may take more time.

• then you can write 22 in the “VAT%” field on card number 1, meaning that this code can be used for 22% transactions in the future.

Change of VAT code:

The four videos below provide a good overview of the steps to be taken in Directo regarding VAT rate changes.

Read more about creating and configuring VAT codes..

Read more about the change in VAT rates and the recalculation of item sales prices..

Read more about creating sales invoices.

Read more about setting up the new VAT declaration form.