Since 1 January 2025, Estonia’s standard VAT rate has increased to 24%.
This change directly affects property investors, especially those buying or managing real estate through a company.
Whether VAT can be reclaimed depends entirely on how the property is used —
for taxable business (e.g. accommodation, office) or for VAT-exempt residential rental activity.
⚙️ How VAT Applies to Real Estate
According to the Estonian VAT Act (§16):
- Residential sales and rental are VAT-exempt (no 24% VAT added).
- Commercial and accommodation use can be taxable if the seller or landlord is VAT-registered and the activity is properly declared.
🏢 Investing in Property Through a Company
| Property Type / Use | Is VAT Added in 2025? | Rate | Can Input VAT Be Reclaimed? | Notes |
|---|---|---|---|---|
| Long-term residential rental | ❌ No | – | ❌ No | VAT-exempt, no input VAT recovery |
| Commercial rental (office, retail, etc.) | ✅ Yes | 24% | ✅ Yes | If the tenant is a business and the lease is VAT-inclusive |
| Airbnb / short-term accommodation | ✅ Yes | 13% | ✅ Yes | Must be registered as an accommodation service (EMTAK 55.xx) |
| Sale of existing residential unit | ❌ No | – | ❌ No | VAT-exempt sale |
| New development (before first occupancy) | ✅ Yes | 24% | ✅ Yes | If used in VAT-taxable activity |
| Mixed use (residential + business/accommodation) | ⚖️ Partially | 24% / 13% / – | ⚖️ Partial | Proportional deduction based on usage |
💰 Example (2025)
A company purchases a new commercial property for €100,000 + €24,000 VAT.
If it’s used as an office or business space, the company can reclaim the €24,000 input VAT.
If the same property is rented as a long-term residence, no VAT can be reclaimed —
the entire cost remains VAT-inclusive.
🧮 Input VAT Adjustment (10-Year Correction Period)
If the property’s use changes later (e.g. from Airbnb to long-term rental),
a proportionate part of previously reclaimed VAT must be repaid.
Example:
Property bought in 2025 for short-term rental (VAT reclaimed).
In 2028, the owner switches to long-term residential rental.
→ 7 years remain in the 10-year correction period → 7/10 of the reclaimed VAT must be returned.
🏨 Special Case: Airbnb and Short-Term Accommodation
Short-term letting via Airbnb or Booking.com qualifies as an accommodation service if:
- stays are short (daily basis),
- services are provided (cleaning, bed linen, key management, etc.),
- the business is registered under EMTAK group 55.xx.
Then:
- 13% VAT applies (reduced accommodation rate),
- input VAT can be fully reclaimed,
- the business must be VAT-registered (if annual turnover exceeds €40,000).
⚠️ Common Mistakes
- Residential rental is always VAT-exempt, even between two companies.
Exception: both parties sign a written agreement to apply VAT (§16(3) of the VAT Act). - Ignoring the 10-year correction rule — the Tax and Customs Board can reclaim VAT if the property’s use changes.
- Unregistered companies cannot reclaim VAT, even if the invoice includes it.
✅ Summary
| Use Type | 2025 VAT Rate | Input VAT Reclaim | Notes |
|---|---|---|---|
| Residential rental | – | ❌ No | VAT-exempt |
| Commercial rental | 24% | ✅ Yes | VAT-taxable activity |
| Airbnb / accommodation | 13% | ✅ Yes | Registered accommodation service |
| New development (pre-use sale) | 24% | ✅ Yes | If for business use |
| Mixed use | 24% / 13% / – | ⚖️ Partial | Proportionate to use |
| Sale of used residential property | – | ❌ No | VAT-exempt |
📚 References
- Value-Added Tax Act (Käibemaksuseadus) §16 and §32
- Estonian Tax and Customs Board:
“VAT on Real Estate Transactions and Input VAT Adjustment”
→ www.emta.ee
