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 24% 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
If a non-resident does not have a permanent establishment in Estonia, they are required to register for VAT if they make a taxable supply in Estonia outside the reverse-charge mechanism. There is no registration threshold for this. Specific rules apply to fixed assets, distance sales, and e-commerce. VAT registration may not be necessary if only zero-rated supplies are made in Estonia.
Voluntary registration
Under Estonian VAT Law, a company is not obliged to register for VAT, but can do so at its own discretion. The company should have actual or planned economic activity in Estonia. Voluntary registration helps to recover VAT paid on input (purchases). Makes it easier to cooperate with VAT-registered partners.
Exemption from registration
If all taxable supplies are zero-rated, a person is not obliged to register for VAT. This exception does not apply to some intra-Community supplies of goods and services. In such cases the reverse-charge mechanism may apply. Registration is obligatory only if other taxable transactions occur in Estonia.
Registration procedures
Application for VAT registration can be submitted to the Estonian Tax and Customs Board (ETCB). Usually the application is submitted electronically via e-Tax / e-Customs portal. ETCB can require additional documents on business activity. ETCB makes a decision on granting of VAT number after considering the application.
VAT representatives
Non-EU companies without an Estonian permanent establishment may have to designate a VAT representative. This is required for businesses from countries without VAT fraud prevention agreements with the EU. The representative handles the company’s VAT liabilities in Estonia. This does not apply in OSS scheme (except IOSS).
