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Navigating VAT. A Comprehensive Guide for companies registered in Estonia

  • matiannus
  • May 16
  • 13 min read



This guide aims to simplify the understanding of VAT/GST/Sales requirements for digital services, ordinary services, physical goods and e-commerce, drawing on the latest regulations and best practices.

Find out where your business will have VAT or Sales tax obligations depending on your business model and your clients, what is the difference between Estonian Standard VAT and Limited VAT registrations in Estonia, and which thresholds apply to your business.

 

 

Contents

 


If You Sell Goods by e-commerce (so-called Distance Selling)

Definition: Distance selling involves the sale of physical goods over the Internet, e-commerce marketplaces, drop shipping platforms, print-on-demand platforms, and your own web shop. It is assumed, that goods do not transit via Estonia.

VAT Requirements, split by customer types:

  1. If your customers are EU Consumers, EU Companies or EU Organizations without a VAT Number (or you are not able to verify it on the VIES site):

    • Sales thresholds for all your distance sales combined, incl. goods and services, will apply:

      • Sales below €10,000: Use the Estonian standard VAT number and charge your customer Estonian VAT at the rate of 22%. Charged VAT is to be forwarded to the Estonian Tax authority, whereas you can deduct Estonian inbound VAT that is charged to you by your Estonian suppliers.


        Important! This threshold cannot be used if you have a Permanent Establishment (that applies also to the storage of goods) in any other EU country.

      • Sales above €10,000, or if you have a Permanent Establishment in any other EU country: Charge your customer the VAT rate of the customer’s EU country. For forwarding the charged VAT to the Tax authority of the customer country, you must choose between the following options:

        1. Obtain local VAT number(s) in the EU countries where your customers are located. Local VAT reporting and -administration in each country according to local laws is required.


          The advantage of this option: If your suppliers (e.g. fulfilment centre) have charged you inbound VAT against your local VAT number in their country, then that can be deducted from your payable VAT liabilities in the country. You can reclaim your paid VAT instantly on your local VAT report.


          Important! Local VAT number(s) are mandatory if you have a Permanent Establishment in the given EU country.

        2. Benefit from the One-Stop Shop (OSS) system.


          The advantage of this option: You won’t need VAT numbers from other EU countries and all your EU VAT is administered through the OSS system in Estonia.


          Important:


          1) OSS cannot be used for countries where you have a local VAT number, Permanent Establishment or intra-country sales. E.g. if your goods are stored in a warehouse in Germany, and shipped to a consumer in Germany, then you must apply your German VAT number, charge German VAT and report it on German VAT return.


          2) If your suppliers from other EU countries have charged their VAT to you against your local VAT number, then you cannot deduct it from your OSS report. To reclaim the VAT that your suppliers have charged you from other EU countries against your Estonian VAT number, you can apply for VAT reclaim through the Estonian Tax Authority. The processing of applications is done by EU countries and applications are subject to their terms and conditions. Upon processing, the reclaim takes usually between 4-8 months for the money to arrive in your account.


          VAT refund can be applied for a minimum of €50 refund, and can be applied annually for the previous calendar year. VAT refunds for more than €400 can be applied throughout the year.

  2. If your customers are EU Companies with a VAT Number and if you have verified it on the VIES site:

    • To benefit from a reverse charge mechanism where you can sell goods on a B2B without charging VAT from your customer, your company must have a VAT number of the country where the goods are stored. Label your invoice with a reverse charge note, ensure that your customer's valid VAT number is shown on your sales invoice or sales report, and charge a VAT Rate of 0%. Most e-commerce systems enable customers to enter their company details, including VAT number, on their purchase check-out.

    • If any of this information or VAT number is missing/invalid, you may not use reverse charge or 0% VAT rate. Then a VAT rate of the country where your goods are stored must be charged from your B2B customer. Report the sale and forward the collected VAT to the local Tax Authority. You can deduct locally paid VAT from your VAT liability.

  3. If your customers are Non-EU Consumers, Non-EU Companies or Non-EU Organizations:

    • Report your sales to the Estonian Tax Authority on your VAT return and use a VAT rate of 0%. A VAT threshold of €40,000 can be applied.

    • Important: You must report your sales and charge your non-EU consumers local VAT/GST/Sales tax according to local laws of the country of your non-customers. The collected tax has to be forwarded to the local Tax Authority. You would typically need a local tax service provider for administrating your tax liabilities.

If You Sell Digital Services

Definition: Telecommunications, broadcasting and electronic services -TBE. Also called digital or electronically supplied services include a wide range of activities transmitted over the internet, where human intervention is nil or minimal, and the transmission process is automatic. This includes offering of following services, but are not limited to:

  • SaaS (software as a service) subscription

  • Mobile app subscription

  • Software and its updates downloading and maintenance

  • Online platform services to consumers, merchants, freelancers

  • Provision of images, videos, text, information

  • Provision of music, films, games

  • Provision of broadcasts, influences and referrals, e.g. social media channels

  • Website supply and web-hosting

  • Online ads, AdWords

  • Distance education, training, and coaching by pre-recorded classes that users can access

Important: Providing similar services on an ad-hoc basis over the phone/video call, over e-mail-, chat- or messaging communication, is not considered a provision of Digital Services. These would qualify under the Ordinary Services.

VAT Requirements, split by customer types:

If Your Customers Are EU Consumers, EU Companies, or EU Organizations without VAT Number (or you are not able to verify it on the VIES site):

  1. Sales Thresholds (all your distance sales combined, incl. goods and services):



    • Sales below €10,000: Use the Estonian standard VAT number and charge your customer Estonian VAT at the rate of 22%. Charged VAT is to be forwarded to the Estonian Tax authority.

    • Sales above €10,000: Charge your customer the VAT rate of the customer’s EU country. For forwarding the charged VAT to the Tax authority of the customer country, you must choose between the following options:



      1. Obtain local VAT number(s) in the EU countries where your customers are located. Local VAT reporting and -administration in each country according to local laws is required.


        The advantage of this option: If your suppliers have charged you inbound VAT against your local VAT number in their country, then that can be deducted from your payable VAT liabilities in the country. You can reclaim your paid VAT instantly on your local VAT report.


        Important! Local VAT number(s) are mandatory if you have a Permanent Establishment in the given EU country.

      2. Benefit from the One-Stop Shop (OSS) system.


        The advantage of this option: You won’t need VAT numbers from other EU countries and all your EU VAT is administered through the OSS system in Estonia.


        Important: OSS cannot be used for countries where you have a local VAT number, Permanent Establishment or intra-country sales. If your suppliers from other EU countries have charged their VAT to you against your local VAT number, then you can not deduct it from your OSS report. To reclaim the VAT that your suppliers have charged you from other EU countries against your Estonian VAT number, you can apply for VAT reclaim through the Estonian Tax Authority. The processing of applications is done by EU countries and applications are subject to their terms and conditions. Upon processing, the reclaim takes usually between 4-8 months for the money to arrive in your account.

2. If your customer is an EU Company with a VAT Number, and you have verified it on the VIES site:

  • If you have an Estonian valid standard VAT number:



    • Label your invoice with a reverse charge note, ensure that their valid VAT number is shown on your sales invoice, and charge VAT Rate of 0%

    • If the reverse charge is not used, charge the Estonian VAT rate of 22%

    • Reporting: VAT report to Estonian Tax Authorities

  • If you do not have an Estonian valid standard VAT number:



    • Do not apply any VAT rate, it is forbidden. Your invoice should indicate that the company is not subject to VAT.

3. If your customers are Non-EU Consumers, Non-EU Organizations, or Non-EU Companies:


  2. Subject to local laws in each country, but typically you should register for VAT/GST/Sales tax number or file for tax registration in the country of your client(s). Collect local tax as applicable in a given state/country and forward it to the local Tax authority. You would need a tax service for this administration.

  3. If you have an Estonian valid standard VAT number, charge an Estonian VAT rate of 0%. Report sales to the Estonian Tax Authority on your VAT return.

  4. Threshold: The Estonian standard VAT number is mandatory upon reaching the sales threshold of €40 000 in a calendar year.

4. If your customers are Estonian Consumers, Organizations, or Companies:

If you have an Estonian valid standard VAT number, always charge an Estonian VAT Rate of 22%. Report your sales to the Estonian Tax Authority on your VAT return.

  • Threshold: The Estonian standard VAT number is mandatory upon reaching the sales threshold of €40 000 in a calendar year.

 

 

If You Sell Ordinary Services from Estonia

Definition: Ordinary services are those provided with manual intervention where humans play an active role in delivering the benefit to the customer. This would include, but not be limited to services provided on-spot such as cleaning, design works, computer repair, movie theatre, restaurant and catering, consultation, office- and business services, etc. Consultation, training, coaching, etc. given over the phone/video call, over e-mail-, chat- or messaging communication also qualify as ordinary services. This excludes digital, travel-, transport-, and real estate-related services, with some more exceptions.

VAT Requirements, split by customer types:

  1. If your customers are EU Consumers, EU Organizations or EU Companies without VAT Number (or you are not able to verify it on VIES site):

  2. If you have an Estonian valid standard VAT number, charge an Estonian VAT rate of 22% and report your sales to Estonian Tax Authorities on your VAT return.

  3. If you do not have an Estonian valid standard VAT number (or have an Estonian limited VAT number), do not apply any VAT rate, it is forbidden. Your invoice should indicate that the company is not subject to VAT.

2. If your customers are EU Clients with VAT Number:


  2. If you have an Estonian valid standard VAT number, label your invoice with a reverse charge note, ensure that their valid VAT number is shown on your sales invoice, verify it on the VIES site, and charge a VAT Rate of 0%. Alternatively, you may also charge Estonian VAT 22% and your customer can reclaim it via their Tax Authority. In either case, you will report it to the Estonian Tax Authority on your VAT return.


3. If your customers are Non-EU Business Clients:


Regardless of your Estonian VAT number status, do not charge any VAT (do not even use the 0% VAT rate). If you have an Estonian standard VAT number, report it to the Estonian Tax Authority as an export on your VAT return.

4. If your customers are Non-EU Consumers:


  2. If you have an Estonian valid standard VAT number, charge an Estonian VAT rate of 22% and report it to the Estonian Tax Authority on your VAT return.

 

 

If You Sell Local Services and Physical Goods Locally

Definition: These include many services, just to name a few - travel, tour guide, tickets to events, transport, real estate-related services, beauty, catering, restaurant, etc. services, that you provide outside of Estonia, and the sale of physical goods through traditional means such as retail shops, markets, fairs, and wholesale where goods exchange hands outside of Estonia.

VAT Requirements:

  1. All Clients:

  2. VAT Rate: Subject to local VAT, GST, or Sales tax laws in the country where the goods are sold or services provided

  3. Reporting: VAT registration and reporting is to be done according to local laws

If you purchase Digital Services

  • Definition: Purchasing digital services involves transactions where the services to you are provided automatically (electronically), such as your website hosting, online ads, AdWords, SaaS (software as a service) subscription, e-commerce platform services, images, videos, text, AI chat services, etc.


    E.g. when your business subscribes for a domain- or website hosting, buys some AdWords from Google, buys ads from Meta, buys a ChatGPT subscription or sets up a seller account at Amazon, then each of these services will initiate the requirement to register for Estonian Limited VAT.

VAT Requirements:

  1. If you purchase digital services from an EU or Non-EU Supplier with a VAT Number Outside Estonia or with an EU VAT number starting with the prefix EU:

  2. If you are not registered for standard VAT in Estonia



    1. Your supplier charges you Estonian VAT at the rate of 22%, you cannot deduct it and you have to pay another 22% of the VAT on the gross amount to Estonian Tax Authorities (yes, it is a double VAT charge in this case), or

    2. You report your purchase to the Estonian Tax Authority on your VAT return and pay 22% VAT on your purchase

  3. Important: You must register for an Estonian limited VAT from the date of purchase if you are not registered for standard

  4. If you are registered for standard VAT in Estonia



    1. Your supplier charges you Estonian VAT at the rate of 22% and you deduct paid VAT on your VAT return, or

    2. Your supplier invoice has your Estonian standard VAT number printed, is labelled with a reverse charge note, and has a VAT charge of 0%. You report your purchase to the Estonian Tax Authority on your VAT return and won’t pay VAT on your purchase.

Other Most Common Situations Where VAT is Misunderstood:

Understanding, what is the EU VAT number

In the EU each country issues their own VAT numbers. Their numbers are 9-digit, beginning with a two-letter country code. For example, the VAT number format in Austria would be AT123456789 and in Estonia it is EE234567890. For cross-border sales and depending on your business model, your revenue may be taxable in different EU countries or your inbound paid VAT may be deductible in different EU countries. And that is where the country-based VAT numbers come into play.

When opening a cross-border business, you should consider which countries you should register for VAT in. Your company's registration may not necessarily be in Estonia.

Sometimes you may come across a VAT number that begins with the prefix EU. For example, the VAT number of Google LLC is EU372000041, OpenAI LLC has EU372041333 and GoDaddy LLC has EU826010755. The VAT number with the prefix EU is issued to non-EU entities. Companies incorporated in the EU, will not receive a VAT number with the prefix ‘EU’.

The VAT that your suppliers have charged you under their VAT number starting with the prefix ‘EU’ cannot be reclaimed or deducted from your VAT liability. However, you will report it on your Estonian VAT return.     

If your suppliers have not charged you VAT, despite providing their EU VAT number on the invoice, you report it on your Estonian VAT return both, as an inbound and outbound charge.

If your Estonian company imports goods into the EU in other countries than Estonia

The EU customs is done in a country where your goods enter the EU. Unless your shipping company does the import on your behalf or you have a drop-shipping model where your consumer pays the VAT at the time of receiving the goods, your company is suggested to have a valid VAT number of that country, to process the import procedures, the import duty (if any) and the VAT on import. Such import VAT can be reclaimed via the Estonian Tax Authority in case you do not have any sales in the importing country. If goods are sold from the importing country, then reclaiming the import VAT requires the VAT number in the importing country. If goods are not sold in the importing country, the VAT number is not required for reclaiming import VAT via the Estonian Tax Authority.

For import and customs procedures, your company must also have an EORI number, that is issued by Estonian Tax authorities.     

The Estonian VAT threshold of € 40,000 is misunderstood

The €40,000 VAT threshold often mentioned only applies if your business supplies services in Estonia (place of supply is Estonia) or sells goods to Estonia or outside of the EU without an e-commerce model. Companies of e-residents typically serve clients outside of Estonia, and VAT could be due in the client's country, not Estonia. For example, the €40,000 threshold does not apply to e-commerce B2C sales into the EU. Depending on the country, the service, the goods, the method of sale, and the nature of the customer, the local VAT often becomes due from the very first sale or from a threshold of €10,000.

When you sell goods on e-commerce and/or Digital Services to the EU, your VAT threshold is €10,000. This is a combined threshold for all EU countries.

Standard- and Limited VAT liability

  1. Regardless if your company has a VAT number or not, it must file all purchases that it acquires from vendors and suppliers who have EU VAT. These purchases must be reported to the Estonian tax authority monthly. Frequent failures in reporting appear with purchases from various online services, such as your webpage hosting, Google and Apple services, and account fees from various platforms or other online services. As soon as your company purchases any of such services, it must register for a limited VAT liability in Estonia in the same month when the purchase was made.

  2. Your company sells goods or services on a B2C, meaning your clients are consumers or organizations who do not have VAT numbers. This sale is a taxable turnover in the country of your client, not in Estonia. Thus, you must collect the VAT from your client according to the VAT rate in their country, and report that VAT in their country. In many cases, this reporting can be made with the OSS/IOSS scheme through the Estonian tax authority.

  3. It is also common that the business may be due for VAT in multiple countries if its clients are spread around.

Above is a list of the most common failures in considering CIT and VAT, however, some more nuances and liabilities may come up, depending on the business model and specifics of your trades.

Conclusion

This guide provides Estonian registered companies a roadmap for navigating VAT for various services and goods. For businesses operating across borders, understanding these requirements is crucial to ensure compliance and avoid potential penalties.

All major e-commerce platforms and website providers support worldwide VAT/Sales tax charging. With a proper account setup of the e-commerce system you use, you can charge consumers the correct tax on your products and services in each market you sell to. Should you sell to consumers in the USA, the Sales taxes vary by state.

Important! One-stop VAT administration with an OSS/IOSS regime can only be utilised within the European Union. For administration of Sales tax, GST, or VAT in other markets than the European Union, you will need to file local reporting according to local laws and forward the taxes that you have collected from your consumers in that country, to the tax authority of the respective country.

For worldwide sales, you should inevitably engage a tax service provider who covers your markets and will process your tax reports together with handling the payment of your taxes in respective countries.

Always consult with a tax professional or your e-commerce provider to support local tax administration and for the latest updates on VAT/GST/Sales tax regulations.

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Disclaimer: The information provided is adequate at the time of publishing but may not apply to every business situation. Sunny Business Services assumes no liability for the use of this information. All rights reserved ©. Not to be reproduced without written consent from Sunny Business Services.

 



 
 
 

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