What are the main VAT implications if your company is registered for VAT purposes?
The following is based on the assumption that you have established an OÜ in Estonia and provide services to your clients. The provision of services to other Estonian companies and/or individuals is generally subject to the standard 22% VAT rate. However, if you provide services to clients in another EU member state or third countries, the 0% VAT rate usually applies.
If you invoice corporate customers (so-called business-to-business or B2B transactions) in other EU Member States or third countries, you must include the customer’s VAT registration number and a reference to a “reverse-charge mechanism”, meaning that you apply the 0% VAT and the customer applies and reports the VAT by self-assessment in the Member State that issued the VAT registration number.
The situation becomes a little more complicated when your customers are end consumers (so-called business-to-consumer or B2C transactions) in other EU member states or third countries. If services are supplied to end consumers outside Estonia, such supplies will be subject to Estonian VAT, unless an exception based on the nature of the service applies. In the latter case, there may be an obligation to register your company for VAT in the country where the end consumers are located and to comply with local VAT rules. Also note that depending on the type of service provided, there are rules that determine where a particular service should be subject to VAT.
If your company provides fully taxable services, you can deduct the VAT paid on the purchase of goods and services from all expenses related to your business activity of making taxable supplies (with some exceptions to the general rule). If at the end of the month you have paid more input VAT than you added to your taxable supplies, once officially approved by the tax authorities, these funds will be transferred to your prepayment account, and you can use them to cover other taxes, related liabilities or apply for a refund.
As a registered VAT payer, your company is obliged to calculate and pay VAT on its taxable supplies, goods and/or services purchased under the reverse-charge mechanism in other EU member states and third countries. In some rare cases, goods purchased from another Estonian taxpayer (e.g. scrap metal) are also subject to reverse chargeback.
The VAT taxable period is one month, and you must declare and pay VAT to the tax authorities by the 20th of the following month. You can file your VAT returns in the online e-Tax/e-Customs environment. KMD VAT returns and the KMD INF application, which lists all sales invoices with domestic counterparties that exceed €1,000 in one month, must be declared in KMD INF. Supplies of services to VAT registered customers from other EU Member States must be declared in the monthly VD declaration, due also by the 20th of the following month.
Please visit the website of the Estonian Tax and Customs Board for more information and, in particular, to understand cases where obligations may arise in a foreign country, and you may not be able to register as a VAT payer in Estonia.
Once you have decided whether you should register as a person liable to pay VAT in Estonia, you can follow the instructions of the Estonian Tax and Customs Board here.
Cases where a company must become a limited liability VAT payer.
Yes, there is another complication with VAT in the EU. Even if your company has not exceeded the €40,000 threshold, you may become restricted to paying VAT if:
- a company purchases from another VAT payer goods with a taxable value exceeding 10,000 euros (calculated from the beginning of the calendar year)
- a company receives certain services from a foreign person who is not registered as a VAT payer in Estonia. The list of services is quite large and includes such services as advertising, various types of consulting services and some financial services. We advise you to study the full list here and follow all these rules to avoid tax problems.
Thus, if a company fulfils the above framework, it is obliged to register as a VAT payer limited by guarantee. It is not a company obliged to pay VAT in the usual sense—the company must pay VAT only when purchasing goods within the Community and when receiving services from a foreign person. Please note that the company must submit a special application to the Estonian Tax and Customs Board within three days of becoming liable.
Exemption from registration in Estonia
Compulsory registration
A foreign person who does not have a permanent establishment in Estonia must register as a VAT payer if he/she makes a taxable supply in Estonia that is not subject to the reverse taxation mechanism. There is no registration threshold for such persons. However, different rules apply to the transfer of fixed assets, distance selling and e-commerce. If a foreign person only makes zero-rate supplies in Estonia (excluding supplies of goods or services within the Community), e.g. supplies of goods through a free zone or customs warehouse in Estonia, he does not need to register as a VAT payer in Estonia. Estonia.
Voluntary registration
The Estonian VAT Act also provides businesses with the possibility to register voluntarily, even without registration obligations. In order to register, an entity that voluntarily registers must provide proof of business activities in Estonia or that it intends to start business activities in Estonia.
Exemption from registration
A person is not required to register for VAT if all his taxable supplies are zero-rated supplies, except supplies of goods and certain services within the Community, which are subject to reverse-charge.
Registration procedures
With or without registration obligation, the registration application can be submitted to the Estonian Tax and Customs Board by e-mail or on paper.
Applications submitted by email, post or through the Electronic Tax/Electronic Customs Department will not be considered valid. However, an authorised person may act on behalf of the taxpayer provided that he/she can provide proof of authority, which may be in the form of a digitally signed document or a document notarised and apostilled.
VAT representatives
Non-EU entities residing in countries that do not have an agreement with the EU on combating VAT fraud and do not have a permanent establishment in Estonia must appoint a tax representative. However, there is an exception to this rule if a non-EU company decides to use the One Stop Shop (OSS) scheme, with the exception of the single import centre, which requires the appointment of a representative established in the EU.
