The EU has published Council Implementing Decision 2025/539 (the Decision) on 21 March 2025, which allows Estonia to continue applying a special VAT measure, deviating from parts of the VAT Directive (2006/112).
Under the Decision, Estonia can continue limiting VAT deductions to 50% for expenses on passenger cars not entirely used for business until 31 December 2024. This includes costs for purchasing, leasing, importing, or acquiring such vehicles, as well as expenses for their maintenance, repair, and fuel.
By letter registered by the Commission on 28 March 2024, Estonia requested the Commission for authorisation, under Directive 2006/112/EC, to continue to apply the special measure. By letter dated 3 April 2024, the Commission requested additional information. Estonia replied on 28 June 2024. By letter dated 28 August 2024, the Commission requested further clarification, which Estonia provided by letter registered by the Commission on 24 September 2024.
Given that the special measure, authorised by Implementing Decision (EU) 2021/1998, has had a positive impact on the administrative burden of taxpayers and tax authorities by simplifying VAT collection and preventing tax evasion through incorrect record keeping, the Commission considered it appropriate to grant the request.
The special measure is limited to the time needed to evaluate the effectiveness and the appropriateness of the percentage limitation. Estonia is authorised to apply the measure until 31 December 2027.
Additionally, this Decision applies only to passenger cars with a maximum authorised weight not exceeding 3, 500kg and having not more than eight seats in addition to the driver’s seat.
This Decision does not apply to the following categories of passenger cars:
- cars purchased for resale, hire or lease;
- cars used for the transportation of passengers for a fee, including taxi services;
- cars used for the provision of driving lessons.
The special measure retroactively takes effect from 1 January 2025 and will remain in place until 31 December 2027.
