A company orders branded gifts, takes two customers to dinner and adds a board member to the same restaurant bill. One receipt now contains three tax questions. Calling everything marketing does not settle them: the recipient, business purpose, item value and VAT history determine whether the cost is advertising, a taxable gift, reception expenditure or a fringe benefit.
In my 15+ years in Estonian accounting, I have seen the largest corrections arise when income tax and VAT are treated as one test. The EMTA guidance on gifts and reception expenses shows why they must be checked separately. This guide turns the current 2026 rules into a decision route for ordinary Estonian companies.
Classify the recipient and purpose before posting the invoice
Under the Income Tax Act, § 49, gifts and costs of entertaining guests have their own company-level tax treatment. A genuine advertising item can use the promotional-gift exemption. Food, accommodation, transport or entertainment provided to a guest or co-operation partner belongs to reception expenses instead.
The same benefit given to an employee, board member, long-term contractor or a connected family member does not use the guest allowance. EMTA treats it under the fringe-benefit rules and TSD Annex 4. Split a mixed restaurant invoice by attendee and purpose rather than putting the whole receipt into Annex 5.
| Situation | Likely route | First evidence |
|---|---|---|
| Low-value item supplied for advertising | Promotional-gift tests | Item value and advertising purpose |
| Ordinary present to a customer | Gift under § 49 | Recipient, value and business decision |
| Meal or event for a business partner | Reception expense | Attendees and meeting purpose |
| Benefit for employee or board member | Fringe benefit | Employment link and personal benefit |
Run the EUR 21 income-tax test and EUR 10 VAT test separately
A good or service supplied for advertising purposes with a value of up to EUR 21 excluding VAT is not taxed as a gift for income-tax purposes. The advertising purpose must be real; a pricey personal present does not become a promotional item merely because a logo was added. If the qualifying item exceeds EUR 21, review the full gift under § 49 and the 22/78 rate.
VAT has a lower threshold. According to the EMTA promotional-gift VAT guidance, a VAT payer creates taxable supply when a free item's taxable value exceeds EUR 10 and input VAT was deducted on purchase. A gift can therefore be free from income tax and still create output VAT.
| Example: branded item | Amount | Result |
|---|---|---|
| Item value excluding VAT | EUR 18 | Within the EUR 21 income-tax limit |
| Separate logo application | EUR 2 | Advertising cost; document separately |
| Taxable value for free transfer | EUR 20 | Above the EUR 10 VAT threshold |
| Output VAT at 24% | EUR 4.80 | Due if input VAT was deducted |
Keep the supplier invoice, distribution list and short campaign description together. Without evidence of the per-item value and advertising purpose, accounting cannot support the exemption.
Calculate the guest allowance before taxing the excess
For meals, accommodation, transport or entertainment provided to guests and co-operation partners, the current exemption is EUR 50 per calendar month plus 2% of the same month's payments subject to individually registered social tax. Unused capacity can be recalculated cumulatively through the calendar year, so the ledger should track both costs and allowance.
Assume the company has EUR 20,000 of relevant social-taxable payments in August and spends EUR 700 on a documented customer dinner, including non-deductible VAT. Its August allowance is EUR 50 + EUR 400 = EUR 450. The taxable excess is EUR 250 and the company income tax is EUR 250 × 22/78 = EUR 70.51.
| August calculation | Amount | Treatment |
|---|---|---|
| Monthly base allowance | EUR 50 | Tax-exempt capacity |
| 2% of EUR 20,000 payroll | EUR 400 | Additional capacity |
| Documented reception expense | EUR 700 | Compare with EUR 450 allowance |
| Taxable excess and tax | EUR 250 / EUR 70.51 | Declare in TSD Annex 5 |
Do not claim the restaurant VAT as input VAT merely because the meeting was commercial. EMTA's input-VAT restriction covers goods and services used for receiving guests; employee meals and accommodation are also restricted, apart from employee accommodation on a business trip.
Close the file with evidence and the correct TSD annex
The tax period is the calendar month in which the gift or reception cost is made. EMTA requires Annex 5 information even when the available allowance means no income tax is payable. File TSD and pay any tax by the 10th of the following month. Employee or board-member benefits belong in Annex 4 instead.
A card receipt proves payment, not the tax classification. Add the supplier invoice, names or organisations of recipients, date, commercial purpose, per-item calculation, VAT treatment and the person who approved the expense. For events, keep an attendee list and split employees from guests.
- Identify who received the item, meal, transport or entertainment.
- State the advertising or commercial purpose in one sentence.
- Calculate the per-item value excluding VAT and check the separate VAT threshold.
- For reception expenses, update the cumulative EUR 50 plus 2% allowance.
- Post to Annex 5 or Annex 4 and submit TSD by the following month's 10th.
- Archive the invoice, attendee or distribution list, calculation and approval together.
Before approving a client expense, I ask one practical question: who enjoyed the benefit? The answer usually decides the route faster than the account name. A customer dinner, an employee dinner and a mixed dinner may look identical on a bank statement but require different tax records.
The safe workflow uses four separate questions: who received the benefit, why it was provided, what the per-item value is and whether input VAT was deducted. Only then apply the EUR 21 gift limit, the EUR 10 VAT threshold or the EUR 50 plus 2% guest allowance. See also: Monthly Document Flow for an OÜ in Estonia.
If your event or gift campaign mixes customers, employees and several invoice types, send the budget, recipient groups and supplier documents through the Accounting Resources contact form before TSD is prepared.