Starting from 1 July 2025, the new standard VAT rate of 24% will take effect in Estonia. Below is an overview of the key changes in SmartAccounts related to this VAT update and important notes for users.
New VAT rates
The following new VAT rates have been added to the system:
- 24%
- 24% (Reverse Chg.)
- 24% (car100%)
- 24% (car50%)
- 24% fixed asset
- 24% KMS § 41.1
Using 22% and 24% VAT rates on documents
Invoices
The new 24% VAT rate can be used on all invoice types (sales, purchase, recurring invoices, and e-invoice imports) starting from 1 July 2025, i.e., if the transaction entry date is 1 July 2025 or later.
If a transaction using the 24% rate is entered with a date prior to 1 July 2025, an error message will be shown and the entry will not be accepted.
Note:
The reason why entering transactions at a 24% rate before 1 July 2025 is prohibited is that the June VAT return is still submitted on the old form, which lacks rows for declaring transactions with a 24% rate.
General document usage
The 22% VAT rate remains available and can be used on all document types. However, if the 22% VAT rate is applied to transactions dated 1 July 2025 or later, a warning will be displayed. Users should ensure that the use of the 22% rate is justified and make necessary adjustments.
Example: the 22% rate may still be used when crediting an invoice originally issued with the 22% rate.
Summary:
- Error message will be displayed if 24% VAT is used before 1 July 2025
- Warning message will appear if 22% VAT is used after 1 July 2025*
*Use of the 22% VAT rate may be valid in certain cases.
All legacy VAT rates remain available in the system and may continue to be used when entering transactions for earlier periods or issuing credit notes for 22% rate invoices.
Default VAT rate for new items
- From 1 July 2025, newly added items will automatically have the 24% VAT rate assigned—unless the company has specified custom VAT rate substitutions earlier. This applies to items added via SmartAccounts, API, or data import.
- When a VAT number is added to a company profile, the default VAT rate suggested from 1 July 2025 onward will be 24%.
Already created 24% VAT rates
If you have previously created a custom 24% VAT rate:
- Replace the custom rate with SmartAccounts’ default 24% VAT rate on all relevant documents.
- The custom 24% VAT rate appears second in the VAT selection dropdown, while user-defined rates appear lower.
- Note: Custom VAT rates are not included in the VAT return. From 1 July 2025, only documents using SmartAccounts’ system-defined 24% VAT rate will be declared automatically.
What to do if you receive an incorrect invoice from a supplier?
If you receive a June-dated purchase invoice from a supplier using a 24% VAT rate, check with the supplier if the VAT rate is correct. If the information is accurate and the invoice VAT rate indeed needs to be 24%, then the entry date for the purchase invoice in SmartAccounts must be set to July 2025 (as it is not possible to enter documents with a 24% VAT rate in June).
New VAT return form
From 1 July 2025, the VAT return (KMD) form will be updated:
- Row 1 will now describe ‘Transactions taxable at 24%.’
- Current row 1 (‘Transactions taxable at 22%’) will move to Line 1.2.
- Row 4 description and calculation will be updated accordingly.
- The XML format version will be ‘KMD6’.
VAT return settings
Due to frequent changes to the VAT return format, the settings page now includes a dropdown to view or switch between previous versions.
By default, the form shown will be the one in use one month earlier. For example, until 31 July 2025, the current form will be shown; starting 1 August 2025, the new July form will appear.
Each return version can have its own formula. When switching to the new form, the formula on Line 1 will remain in place. So if a formula was used for “Transactions at 22%”, the same logic will now apply to the new 24% line.
To clarify, a warning will be shown during the July VAT return process if a formula is already in place.
Automatic VAT rate changes
You can automatically overwrite the VAT rates of existing:
- items
- customers and vendors
- recurring invoice contracts
Only SmartAccounts default VAT rates are updated—custom 22% rates will not be replaced.
You can overwrite the VAT rates:
- immidiately upon displaying the message
- later with the click of a button
- automatically on 1 July 2025 (early morning)
A summary of changes by object type will be shown after the process.
NOTE! The data overwriting can be confirmed by a user with company administrator rights.
Chart of accounts
We will not automatically make changes to the chart of accounts for existing companies. You may:
- change the account name in the chart of accounts and overwrite it with the new rate
- change the account name in the chart of accounts and remove the reference to the VAT rate from the name altogether (make the revenue account name more general – for example, ‘Revenue from the Sale of Services in Estonia’)
- enter a new account into the chart of accounts and use it from 1 July 2025 onwards
NOTE! This account must then also be set as the sales account on the article card.
New companies entered to SmartAccounts after update will receive an updated chart of accounts, which will already include revenue accounts and items with new names.
Default accounts
If new revenue accounts have been added to the chart of accounts, which are intended to be used as the default for sales articles in the future, then the default article sales account should be changed on the default accounts page (Settings – Default Accounts).
This is necessary only to ensure that when creating a new sales article, the account does not have to be changed manually, but the default sales account already set will be used.
Item names
We will not automatically make changes to the list of items for existing companies.
You can:
- change the name and overwrite it with the new rate
- change the name and remove the reference to the VAT rate from the name altogether (make the article name more general)
- enter a new item and use a new article from 1 July 2025 onwards
New companies added to the system after update will receive updated item lists.
Recommendations
Changing rates
The general recommendation when changing VAT rates is to use the automatic rate overwriting option offered by the application. In this case, from 1 July 2025 onwards, items, clients-vendors (if a default rate has been added to them), and recurring invoices contracts will have new VAT rates.
Manual updates are also possible before 1 July 2025.
Chart of accounts
If you do not need to show 24% transactions on a new revenue account, you can simply rename the existing account. Keep in mind that this change will apply retroactively on documents.
Recurring invoices
Decide early which VAT rate to apply to recurring invoices issued in June and July. If needed, manually update the recurring contracts in advance.
If all clients require new contracts due to the rate change, use the “Copy to Many” feature to replicate a recurring invoice template across multiple clients.
VAT and SmartAccounts pricing
From 1 July 2025, the standard rate of VAT in Estonia is 24% instead of the current 22%. This change will subsequently impact the prices of services listed in SmartAccounts’ price list. Therefore, from 1 July 2025, all services subject to VAT will be taxed at the new rate of 24%.
API services
If you’ve developed an interface for SmartAccounts’ API, it’s essential to adapt to the new 24% VAT rate regulations to maintain smooth functionality.
Make sure to:
- 24% will be the new default VAT rate starting 1 July 2025
- 24% rate may not be used for transactions before that date
- 22% rate can be used after 1 July 2025, but will display a warning
- new items created on or after 1 July 2025 will have 24% as the default rate
