All law firms regularly come across different types of cases where entrepreneurs unintentionally fail to properly preform an obligation arising from a law due to lack of legal knowledge. Unfortunately, entrepreneurs tend to turn to lawyers only once it is too late to prevent the legal obstacle, and legal consequences (liability for breach) already followed. Without a doubt any unexpected demand from the Tax and Customs Board will give any entrepreneur a valid reason to be concerned. In such situations, seeking legal assistance may be the most reasonable course of action. However, a better option is to prevent such a scenario from arising in the first place. In this article, a lawyer explains the amendments to the Packaging Act that came into effect on May 1, 2023, which impose new obligations on small packaging companies.
Summary of the Packaging Act and Packaging Excise Duty Act
Summary of the Packaging Act and Packaging Excise Duty Act. The general norms regarding packaging, its use, handling, and taxation are consolidated in the Packaging Act and the Packaging Excise Duty Act. One of the substantive objectives of these norms is to reduce the overall use of packaging, prevent packaging waste, and organize a packaging recycling system. Before releasing packaging into circulation, entrepreneurs must carefully consider how much and what kind of packaging they use and whether it is possible to avoid using packaging whatsoever. Packaging undertakings are obliged to take back packaging (and packaging waste) and recycle it to the extent prescribed. All packaging placed on the Estonian market is subject to excise duty, with the excise duty rate depending on the extent of packaging recycling by every separate packaging undertaking. Every entrepreneur must keep records of the packaging placed on the market. Compliance with the requirements of the Packaging Act and the packaging excise duty is supervised by the Tax and Customs Board.
Changes affecting small packaging undertakings
Under the Packaging Act in force before May 1, 2023, relatively lenient conditions applied to small packaging undertakings. By small packaging undertakings, we mean companies that annually placed goods on the market in plastic packaging weighing less than 100 kg or in packaging made of other materials weighing less than 200 kg. Specifically, these small packaging undertakings were exempted from:
1. The obligation to accept return of packaging (and packaging waste).
2. Providing verified data for registration in the packaging register (mass of reusable packaging, mass of packaged goods placed on the market, and data on packaging waste recycling).
3. The obligation to meet recovery targets (i.e., ensuring the recycling of their packaged goods and imported packaged goods to the prescribed extent).
It is worth mentioning that under the previous legislation, small packaging undertakings (such as local online stores) were only required, to keep records of the volume of packaging placed on the market in Estonia (e.g., single-use plastic envelopes used for shipping goods to customers). The practice of law firms showed that the previous Packaging Act enabled many small entrepreneurs overlook that record keeping obligation. Small entrepreneurs did not face negative consequences for non-compliance with the record keeping obligation, which in practice often led to incomplete or non-existent packaging volume accounting.
As of May 1, 2023, the provision favouring small enterprises has been removed from the Packaging Act. This means that small packaging undertakings will now have to fulfil significantly more packaging-related obligations (especially the obligations to accept return of packaging, submitting data to the packaging register, and meeting recovery targets). This transition will presumably prove more challenging for many small entrepreneurs than expected. From the perspective of fulfilling the aforementioned obligations, keeping precise records of the volume of packaging placed on the market is now of central importance for small entrepreneurs as well. However, complying with the new requirements may initially seem overwhelming to any entrepreneur who has not previously dealt with the Packaging Act or packaging volume record keeping for one reason or another.
What's next?
In summary, a small packaging undertaking has two options to bring their packaging-related activities into compliance with the law:
1. Packaging companies can fulfil the obligations arising from the Packaging Act and Packaging Excise Duty Act themselves. For this purpose, a small packaging undertaking must foremostly keep proper records of the volume of packaging placed on the market (by mass and type) and familiarize themselves with all additional obligations. Small entrepreneurs must pay particular attention to fulfilling the obligations of packaging recovery and recycling. In the practice of our lawyers, these obligations are often the most time-consuming (e.g., the process of familiarizing oneself with the legal requirements tends to be lengthy and time-consuming) and financially burdensome for small entrepreneurs (e.g., lack of economies of scale).
OR
2. Packaging companies can transfer the obligations arising from the Packaging Act and Packaging Excise Duty Act (partially) to a recovery organization with a contract. Utilizing the services of a recycling organization is a more economically viable option for many small entrepreneurs. The greatest practical value lies in the fact that the recovery organization itself is responsible for the collection of packaging waste and the recycling of the collected packaging. Of course, there is no need to use a recovery organization if small entrepreneurs can easily and/or through cooperation fulfil the requirements.
The choice of the appropriate option largely depends on the specific details of the case at hand. Should you encounter any legal issues or questions regarding compliance with packaging legislation or taxation of packaging excise, feel free to seek legal assistance from the attorneys of our law firms Estonia here.