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Registration as a VAT payer

When to register for VAT?

A VAT liable person is a person engaged in business according to the Value Added Tax law § 3 subsection 1 (natural person, legal person, resident, non-resident), including a public legal entity, or a state, municipal or city authority, who is registered or obliged to register as a taxable person (VAT Act § 19). A person liable for tax in a foreign country or another member state is a person, including a pool of assets without the status of a legal entity or an association of persons, who are considered liable for VAT according to the laws of the respective country.

Estonia or a foreign country person means a person whose registered office or main residence is either Estonia or a foreign country, where they are considered liable for VAT according to the legislation of the respective country.

A foreign taxable person is not considered an Estonian taxable person because of his permanent place of business in Estonia, if they do not participate in a taxable transaction or operation through their main business location in Estonia (VAT Act  § 3, paragraph 3¹).

A person from a foreign country is not considered a taxable person in that Member State through his permanent establishment, if the transactions are not related to his permanent establishment. Therefore, the taxation and reporting of cross-border transactions must be based on the persons involved in the transaction. If the actual consumer of the service or the recipient of the goods is a foreign taxable person in his own member state and they are also registered as a taxable person in Estonia, the transaction is taxed at a 0-percent rate, this means that reverse taxation occurs and the tax liability is transferred to another member state.

Registration as a person liable for VAT is done as mandatory or voluntary.

The obligation to register as a person liable for VAT arises from the day when the taxable turnover of transactions exceeds 40,000 euros calculating from the beginning of the calendar year. Transactions do not include the transfer of fixed assets and intra-Community long-distance sales from another member state to Estonia.

The obligation to register does not arise if the person’s total taxable turnover consists of turnover that is taxable at a zero percent VAT rate. Except of the intra-Community turnover of goods and the turnover of the service specified in VAT Act  § 10 ( 4) point 9, if the service is provided to a taxable person of another member state or a limited liability taxable person (VAT Act  § 19 paragraph 1 ).

 

For example, a foreign entrepreneur whose entire activity consists of exporting goods or who deals only with goods transactions in a customs warehouse does not have to register as a taxable person. At the same time, the entrepreneur has the right to register trough an application process even if he has not been obligated to register.

The limit includes according to the VAT Act the transactions specified in clauses 1 and 3 in the § 1 subsection 1:

sale of goods where the place of turnover is Estonia (VAT Act § 9 subsection 1 )

a service where the place of turnover is Estonia (VAT Act § 10 subsections 1 and 2, § 10¹ subsection 7)

provision of services, where the place of turnover is not Estonia (VAT Act § 10 subsections 4 and 5, § 10¹ subsection 6)

The limit does not include:

  • transfer of goods that were used as fixed assets
  • intra-Community distance selling from another member state to Estonia
  • the acquisition of goods or the receipt of services, when the purchaser of the goods or the recipient of the service must pay VAT in Estonia.

The application for registration as a VAT payer must be submitted to the Tax and Customs Board within three working days from the day the registration obligation arises.

If a person has not generated taxable turnover or his taxable turnover does not exceed the limit of 40,000 euros, he can be registered as a VAT payer voluntarily.

The prerequisite for registration as a VAT payer is to have business activity or start a business in Estonia.

If the person’s business activity or starting a business is not sufficiently proven, the Tax and Customs Board has the right to demand additional evidence from the person or to collect it on their own initiative.

Registration at the initiative of the tax authority

In the event that the taxable person has not submitted the registration application within the deadline provided by law (does not submit an application at all or submits it late), the tax authority will register the person on his own initiative retroactively from the day when the turnover exceeded 40,000 euros and the taxable person will be notified of this decision within three working days from the day of the decision. (VAT Act § 20 paragraph 10 ).

If the taxable person has submitted a registration application and has also been registered as a taxable person, but after registration it turns out that the application was submitted late and the turnover limit had actually been exceeded earlier, the tax authority makes a new registration decision. The tax authority retroactively declares its original decision invalid, and the person is registered with a new date when the corresponding amount of taxable turnover actually occurred. The tax authority will notify the taxable person of the changed registration decision within three working days from the day the decision was made (VAT Act § 20 (11 )).

When to register as taxable person with limited liability

Person is required to register as taxable person with limited liability, if they are not registered as a VAT payer , but purchases goods from a VAT payer of another member state or a country outside the European Union with a taxable value of more than 10,000 euros calculated from the beginning of the calendar year. Or person who receives certain services from a foreign person (whether from another member state or a country outside the European Union)  engaged in business activities, but not registered as a VAT payer in Estonia.

The difference between a limited VAT payer and a VAT payer is that a limited VAT payer pays VAT only on intra-Community acquisition of goods and receipt of services from a business of a foreign person.

A limited VAT taxable person does not add VAT to the price of the goods transferred or services provided by him and due to the lack of the right to deduct input VAT, he does not deduct input VAT either.

A limited liability taxable person of another member state is a person who, according to the legislation of the respective country, is registered and corresponds with his tax obligations to a limited liability taxable person status in Estonia.

Services for which, starting from the day of receipt, an Estonian person and a foreign person operating through a permanent place of business in Estonia are subject to a limited VAT registration obligation. (The provision does not apply to a taxable person or a natural person not engaged in business activities (VAT Act § 21 (1 )). Who receives  services from a foreign person engaged in business without being registered as a taxable person in Estonia, are listed in the VAT Act § 10(5) and they are:

  • granting or transferring the right to use intellectual property;
  • advertising service;
  • consulting, accounting, legal, auditing, engineering, translation, data processing or information services;
  • financial service, except safe deposit box rental, or insurance service, including reinsurance and insurance brokerage services;
  • workforce rent;
  • movable property, exept renting, leasing or usufruct of the means of transport;
  • electronic communications service within the meaning of the Electronic Communications Act (hereinafter electronic communications service), including the assignment of the right to use transmission lines;
  • electronically provided service;
  • enabling access to the natural gas or electricity, heating or cooling energy network and transmission of natural gas or electricity, heat or cooling energy through the network and directly related services;
  • transfer of the permitted emission unit of greenhouse gases regulated in the Atmospheric Air Protection Act;
  • abstaining from the service specified in items 1-10 of this paragraph for a fee, waiving the rights or tolerating the situation.

In the event that the taxable value of a person’s intra-Community acquired goods (VAT Act § 8), excluding excise goods and new means of transport, exceeds 10,000 euros starting from the beginning of the calendar year, he or she is required to register as a limited liability taxable person from the day the said limit is exceeded, except in the case provided in VAT Act § 21 subsection 2¹ . The provision does not apply to a taxable person or a natural person not engaged in business (VAT Act § 21 (2 )). VAT Act § 21(2)¹ states that if a foreign person engaged in business activities, who does not have a permanent place of business in Estonia, acquires goods in Estonia within the Community, then he has the obligation to register as a limited liability taxable person from the day of acquisition of the goods within the Community. The provision does not apply to tax-free acquisition of goods within the Community (VAT Act § 18).

Within three working days from the day the obligation arises, the person must submit an application to the Tax and Customs Board for registration as a limited VAT payer. When registering a limited liability taxable person, the provisions on the registration of a taxable person provided for in § 20 of the VAT Act apply. A person is registered as a limited liability taxable person as from the day the registration obligation arises.

A person who is not registered as a taxable person may register themself as a limited liability taxable person even before the registration obligation arises, by submitting an application to the tax authority (VAT Act § 21 (4 )). If a person registers as a limited liability taxable person, he has the opportunity to purchase goods and receive services at a zero rate. To do this, you must inform the seller or service provider of your registration number, and in this case, the limited liability taxable person receives the goods and services without VAT (the seller does not add VAT to the price of the goods). Thus, the limited liability taxable person has the obligation to pay VAT later (not at the moment of acquiring the goods or receiving the service), and the tax rate applicable in Estonia is 22% or 9%.

Reminder for limited liability tax payer

From the day of registration as a limited liability taxable person, the person must fulfill the obligations of a limited liability taxable person, including (VAT Act § 25 paragraph 1 ):

  • calculate the amount of VAT to be paid in accordance with  the provisions of § 29 subsection 12 of the VAT Act  . The amount of VAT payable by the limited liability taxable person (VAT Act § 3 subsection 5) from the specified operations, i.e.
    • from the import of goods to Estonia (except tax-free import),
    • from intra-Community acquisition of goods (except tax-free acquisition),
    • from the acquisition of goods as the acquirer in a triangular transaction,
    • from the acquisition of goods to be installed or assembled in Estonia from a person of another Member State engaged in business not registered as a taxable person in Estonia,
    • from services received from a foreign person engaged in business that is not registered as a taxable person in Estonia,
    • from the acquisition of goods not mentioned above from a foreign person engaged in business not registered as a taxable person in Estonia;
  • pay VAT according to the procedure provided in § 38 of the VAT Act;
  • keep documents and keep records in accordance with § 36 subsection 3 of the VAT Act;
  • submit VAT returns only if he has performed the actions specified in § 3 subsection 5 of the VAT Act during the taxation period (VAT Act § 27 pt. 2 p. 2 ).

A limited liability taxable person incurs a real VAT liability from the acquisition of declared goods and the receipt of services, because there is no right to deduct input VAT (VAT Act § 25 (1 )).

If a limited liability taxable person is registered for receiving the services specified in the VAT Act § 10 subsection 5 and the limit of his goods acquired within the Community exceeds 10,000 euros starting from the beginning of the year, then the limited liability taxable person must notify the tax authority in writing within three working days of exceeding the limit for intra-Community acquisition of goods (VAT Act § 25 subsection 2 ).

If a person is registered as a limited liability taxable person due to the receipt of services, he is not immediately obliged to pay VAT on intra-Community acquisition of goods. A limited liability taxable person must pay VAT on the acquisition of goods only if he acquires excise goods or a new means of transport and if the threshold for the acquisition of other goods of 10,000 euros has been exceeded, although he may do so earlier if he wishes, by notifying the tax authority in writing. If a person registers as a limited liability taxable person due to exceeding the threshold for intra-Community acquisition of goods and then also receives taxable services, he is also obliged to pay VAT on the services received, since there is no tax-free threshold for the receipt of services.

If a person is registered as a limited liability taxable person only in terms of receiving services, he does not have the right to use his limited liability taxable person registration number when purchasing goods, on the basis of which the seller applies a zero rate. If the limited liability taxable person nevertheless gives his registration number to the seller, this is considered as a request to start paying VAT on the acquisition of goods in Estonia, and he has the obligation to declare the intra-Community acquisition of goods on his VAT return and to pay VAT on it (VAT Act § 25 (3 )).

The obligation to declare and pay VAT does not arise only for the transaction in which the person used his registration number, but from this transaction he is obliged to pay VAT on all intra-Community acquisitions of goods, because from this transaction he is also considered registered for intra-Community acquisitions of goods.

Deletion of a limited liability taxable person from the register

If a limited liability taxable person is registered as a taxable person in accordance with § 20 of the VAT Act , he is deleted from the register as a limited liability taxable person (VAT Act § 23 (1 )) and all the rights and obligations of a taxable person are extended to him.

A limited liability taxable person can, under certain conditions, be deleted from the register of taxable persons as a limited liability taxable person based on an application. A limited liability taxable person must be registered in the register of taxable persons for at least two years before deletion. He can then submit an application to delete himself from the register. The prerequisite is that the total value of goods acquired within the Community has not exceeded in the last calendar year and, according to his calculations, will not exceed the limit for the acquisition of goods within the Community in the current calendar year of 10,000 euros (VAT Act § 23 subsection 2 ).

Since the obligation to register as a limited liability taxable person also arises when receiving certain services from a foreign company, the possible purchase of services should also be taken into account before submitting an application for deletion from the register, otherwise the person will have the obligation to register as a limited liability taxable person again immediately upon receiving the first corresponding service.

The tax authority deletes a limited liability taxable person from the register of taxable persons on his own initiative, if he has information that the limited liability taxable person has ceased his activities in Estonia (VAT Act § 23 paragraph 3 ).

Before deciding to delete from the register based on the application, the tax administrator checks the economic activities of the limited liability taxable person, if necessary. A limited liability taxable person is deleted from the register as a limited liability taxable person based on the decision of the head of the tax authority as of the date specified in the decision (VAT Act § 23 (4 )).

If the basis for deletion from the register was not registration as a taxable person, then upon deletion from the register, the person is freed from the obligations of a limited liability taxable person (declaration and payment of VAT) and loses the right to exercise the rights of a limited liability taxable person (the right to use the registration number to buy goods from another Member State at a zero rate applied by the seller).

An application for deletion from the VAT register can be submitted in the e-services environment e-MTA  or  e-business register . The application can also be submitted through a notary public.

Registration of taxable persons as a single taxable person or VAT group

Persons registered as a VAT group have a common VAT registration number, they keep common VAT records, and submit common VAT returns on form KMD, intra-community turnover reports on form VD and intra-community turnover change reports on form VDP.

Transactions between members of the VAT group are not taxed with VAT, i.e. VAT is not added to mutual invoices, and it is not declared on the VAT return. Transactions of members of the VAT group with persons outside the VAT group are considered transactions of the VAT group and are taxed based on general principles.

All members of the VAT group are jointly and severally responsible for timely payment of VAT. Also, if the VAT group is deleted from the register, all members are jointly and severally liable for the VAT debt incurred during the period when they were registered as a VAT group.

of the Minister of Finance on 18.12.2009. a regulation no. 69 ” VAT group registration procedure, registration application form, tax authority’s decision form on registration and procedure for deleting VAT group from the register “.

Value Added Tax Act § 26

Cash-based VAT calculation

All VAT payers whose taxable turnover did not exceed 200,000 euros in the previous calendar year or as of the beginning of the current calendar year can choose to apply the special procedure for cash-based VAT accounting. The calculation of the mentioned limit is carried out by the taxable person on a cash basis, and the transfer of fixed assets and the random transfer of immovable property as goods are not taken into account.

Implementation of the special procedure for cash-based VAT accounting

The Tax and Customs Board must be informed of the wish to apply the special procedure either when submitting an application for VAT registration or at the latest in the taxation period prior to the application of the special procedure.

You can submit a notice of implementation of the special order:

  • e-Tax and Customs Office
  • digitally signed by e-mail to the address: emta@emta.ee
  • In the service office of the Tax and Customs Board

The right to submit the notification is held by the signatory or authorized person of the VAT liable person.

If submitted by an authorized person, a document certifying the authorization must be attached to the e-mail or presented at the service office.

Determining the time of VAT registration

A person wishing to apply the special procedure shall keep records of the limit of the VAT registration obligation (40,000 euros) on a cash register basis. A transaction that exceeds the mentioned limit must be subject to VAT for the entire amount of the transaction.

Example: calculation of the limit of the registration obligation

 Goods that were shipped 20.01 In the amount of 30,000 euros Payment 17.02 In the amount of 30,000 euros
The service was provided 10.02 In the amount of 5,000 euros Payment 18.03 In the amount of 5,000 euros
The item was shipped 01.04 In the amount of 5100 euros Payment 01.05 In the amount of 5100 euros
A total of 40,100 euros A total of 40,100 euros

 

 

Therefore, in the case of cash-based accounting, the turnover exceeded 40,000 euros on May 1 (when applying the general procedure on April 1). The taxable person must add VAT to all invoices of the same day (May 1).

What does VAT registration entail?

As a person subject to VAT, you have the right to deduct from the calculated VAT the VAT payable on the goods and services purchased for taxable turnover (input VAT).

If there is no business or if the goods and services have been acquired for the purpose of tax-free turnover, input VAT cannot be deducted.

From the day of registration as a VAT payer, a person must fulfill the obligations of a VAT payer, including:

  • add VAT to the taxable value of the transferred goods or services;
  • calculate the amount of VAT to be paid, which must be paid to the state budget by the 20th day of the month following the taxation period (usually a calendar month);
  • submit invoices that meet the requirements set forth in § 37 of the VAT Act;
  • keep documents, keep records;
  • submit a sales tax return ( form KMD ) by the 20th of each month and a declaration of income and social tax, mandatory accumulated pension payment and industrial insurance contribution ( form TSD ) by the 10th . Submission of intra-Community turnover report ( form VD ) (VAT liable persons who sell goods or provide certain services to VAT liable persons of other European Union countries)

NB! VAT (input sales tax) payable on purchased goods and received services can only be deducted if the purchased goods and received services have been acquired for the purpose of taxable turnover .

The right to deduct input VAT arises when paying for goods or services received for the purpose of taxable turnover in business, i.e. if the purchase of goods or service has not been paid for, then there is no right to deduct input VAT. In the case of partial payment for the acquisition of goods or services, the right to deduct input VAT is granted on the part paid for the goods or services.

If there is no business or if the goods and services have been acquired for the purpose of tax-free turnover, input VAT cannot be deducted.

Business verification before registration

A person registered as a taxable person must prove to the Tax and Customs Board that he is engaged in business in Estonia or is starting business in Estonia.

Doing business is a real started economic activity, as well as a developed business plan and making investments to start a business, pre-contracts, contracts (rent, procurement, delivery, work, etc.), objects of work to be done, etc.

The Tax and Customs Board has the right to request additional evidence from the person or collect it on its own initiative. Proof is any information that confirms that the applicant has either started a business or is planning to start a business at the place of business indicated in the application. Such evidence can be, for example, pre-contracts, contracts (lease, procurement, supply, work contracts, etc.), objects of work to be performed, etc.

If the person cannot convincingly prove that he is engaged in business in Estonia or starts business in Estonia. The tax authority decides within five working days after receiving the registration evidence. The tax authority fails to register a person if the person does not engage in business or does not start business (VAT Act § 20 paragraph 4¹ )

If business activity is proven, the person is registered as a taxable person as of the day of receiving the application or at a later date at the request of the petitioner.

If a person indicates a date earlier than the date of submission of the application as the preferred starting date of registration as a taxable person in the application submitted under Section 20(2) of the VAT Act, the person will still be registered as a taxable person according to the VAT Act from the date of submission of the application, not from the earlier date indicated on the application ( Section 20(4 ) of the VAT Act).

A person who is registered as a taxable person must prove that he is engaged in business or starting a business, both when registering on the basis of a voluntary application and when registering in connection with the emergence of the obligation to register.

Control of the activities of the registered VAT payer

The tax authority has the right to check the fulfillment of the tax obligations of a person registered as a VAT payer.

The Value Added Tax Act gives the Tax and Customs Board the right to delete persons who are not engaged in business in Estonia from the VAT register on their own initiative.

The Tax and Customs Board has the right to demand from the taxable person additional proof of business activities, giving the taxable person a deadline to submit the proof. If the person does not prove that he is engaged in business, or if the tax authority has collected sufficient evidence that the person has no real economic activity in Estonia, the Tax and Customs Board deletes the person from the register of taxable persons.

The Tax and Customs Board has the right to delete persons who have not submitted a VAT return for the last six consecutive taxation periods from the VAT register on their own initiative. Before deletion from the register, the tax administrator contacts the taxable person and gives the opportunity to fulfill the obligations afterwards and thus avoid deletion from the register.

Submitting an application for VAT registration

e-MTA

The right to submit an application is

  • the person entitled to sign the legal entity,
  • a legal representative of a state, municipality or city institution,
  • self-employed, and
  • by a person authorized by them.

Video guide to submitting an application at e-MTA

 

The application for VAT registration of an entrepreneur (KMKR) can be submitted through  the e-business register portal as part of the initial application for a private limited company .

Right of access to submit an application

The applicant in e-MTA must have the access right “Submission of VAT registration (VAT) applications”.

To grant access rights, the person with the right of authorization must go to e-MTA in the role of a representative and select “Settings” → “Access rights” → “Access rights of representatives” there. On the access rights administration page, you must enter the personal code of the user who is authorized, and select the access right “Submitting applications for VAT registration (KMKR)” under the “Individual rights” section.

As a private user, under the heading “My access rights” you can see your access rights (rights to use e-MTA services), you can waive them and delegate them (if there is a delegable access right), i.e. transfer the access right to another person to represent you.

Submission of application

To submit an application as an authorized person, select “Registries and inquiries” → “Registration” → “VAT registration” → “New application” in e-MTA.

Making a decision

Registration decision

The Tax and Customs Board makes a decision on registration within five working days after receiving the application.

If the start of a business or additional documents proving its existence are required for registration, we will contact you within five working days either by phone or mail. In this case, the registration decision is made within five working days after receiving the documents.

The registration will be notified by e-mail or a short message to a mobile phone number, and the registration decision will be uploaded to e-MTA . The decision can be found both in the section “Communication” → “Documents” and in the section “Registries and inquiries” → “Registration” → “Registration as a VAT payer”.

Decision not to register

If the person does not engage in business or does not start business, the Tax and Customs Board does not register the person as a VAT payer.

The Tax and Customs Board will also not register a person who has not submitted the required additional documents by the deadline.

The decision not to register is made by the Tax and Customs Board within five working days after receiving the documents or after the deadline for submitting the documents has passed. We will upload the decision to e-MTA . A notification about making a document available in e-MTA is sent to an e-mail address or a short message to a mobile phone number. You can find the decision in e-MTA both in the section “Communication” → “Documents” and in the section “Registries and inquiries” → “Registration” → “Registration as a VAT payer”.

In the service office of the Tax and Customs Board

The right to submit a statement is :

  • the person entitled to sign the legal entity,
  • a representative of a state, municipality or city institution,
  • self-employed,
  • authorized person.

Submission of application

Application forms filled in on the computer :

Application forms are also available at service offices .

Present to the attendant

  • statement,
  • identification document,
  • document certifying authority.

Making a decision

Registration decision

The Tax and Customs Board makes a decision on registration within five working days after receiving the application.

If we need to start a business for registration or additional documents proving its existence, we will contact you by phone or mail within five working days. In this case, we will make a registration decision within five working days after receiving the documents.

We inform about the registration by e-mail or by short message to the mobile phone number, and we upload the registration decision to e-MTA. You can find the decision in e-MTA both in the section “Communication” → “Documents” and in the section “Registries and inquiries” → “Registration” → “Registration as a VAT payer”.

Decision not to register

If the person does not engage in business or does not start business, the Tax and Customs Board does not register the person as a VAT payer.
The Tax and Customs Board will also not register a person who has not submitted the required additional documents by the deadline.

The decision not to register is made by the Tax and Customs Board within five working days after receiving the documents or after the deadline for submitting the documents has passed.
We will upload the decision to e-MTA. We will send a notification about making the document available in e-MTA to an e-mail address or a short message to a mobile phone number. You can find the decision in e-MTA both in the section “Communication” → “Documents” and in the section “Registries and inquiries” → “Registration” → “Registration as a VAT payer”.