The Estonian taxation system is made of direct and indirect taxes. The income tax which is imposed to individuals and companies is the most important direct levy, while the value added tax (VAT) is the most important indirect tax.
The value added tax is collected by Estonian companies producing and supplying goods and services, however, it is charged on the final consumer, which is why it is called an indirect tax. In order to collect the VAT, companies must first register with the tax authorities and obtain VAT numbers.
Below, our company formation agents in Estonia provide a thorough description of the VAT registration procedure. We can assist foreign investors setting up companies here with the Estonia VAT registration procedure as part of the business incorporation process.
Estonia VAT registration - applicability of this tax
The value added tax is an indirect or consumption tax and it is levied on all goods and services produced and sold in Estonia, as well as to those imported into the country. Considering most companies in Estonia are required to apply for VAT registration, they must also meet specific requirements prior to applying for the VAT number.
The VAT is levied at a standard rate while reduced rates apply to various goods and services, however, the registration requirements remain the same no matter the rate the tax is collected at.
Special attention must be paid to VAT-exempt goods, however, there are cases in which companies are required to file for Estonia VAT registration in order to prove the exemption from this tax.
Once registered for VAT, a company is required to collect the tax and then direct it to the tax authorities in Estonia.
Estonia VAT registration can be easily completed with the help of our specialists.
VAT in Estonia
The standard VAT rate in Estonia rate is 20% from 1 July 2009 and applies for a wide range of goods and services. A reduced rate of 9% applies to several products like books, newspapers, accommodation and medicine. Intra-community supply of goods and export of goods are subject to a zero-rated VAT in Estonia. The same is available for services like health, insurance or postal services.
Estonia applies an extended VAT reverse charge mechanism. If an Estonian VAT taxable person wants to conduct B2B transactions with a foreign entity it can issue an invoice with a zero VAT rate that must contain an explanation or a reference to a legal norm that allows for zero rate application.
What does VAT registration imply for an Estonian company?
Upon starting a business in Estonia, VAT registration is not part of the mandatory steps required upon incorporation, therefore, company owners must pay attention to this aspect. Estonia VAT registration can be completed voluntarily when applying for the tax identification number, this way, avoiding the mandatory registration procedure later. Companies that do not want to register for VAT at the beginning of their operations, however, can wait until the mandatory turnover is reached and then obtain the VAT number. Either way, business owners must know from the start if they will produce, sell and/or provide VAT-taxable goods, respectively services and comply with the accounting requirements imposed in this country.
Estonia VAT registration steps in 2021
Upon registering a company for VAT in Estonia in 2021, the following steps must be completed:
the owner must establish if the company is required to register for the VAT, in accordance with the projected annual taxable turnover;
file the application for VAT registration alongside information about the company;
receive the registration notification and the VAT number.
It should be noted that the notification will be sent to the company’s legal address found in the company’s Articles of Association. If any changes are made with respect to the address, these should be notified to the Trade Register. Our company formation officers in Estonia can assist with these procedures.
Register for VAT in Estonia
If the total value of taxable supplies for a company in Estonia, either foreign or local, exceeds 16,000 EUR that the respective company is required to register for VAT. Voluntary registration is also possible even if the threshold is not reached. Usually, the presence of a VAT representative is only required for the registration of non-EU businesses.
When registering a non-EU company for VAT in Estonia, the company owner must be present, since options like e-mail, post or fax registration are not available. However, if the respective person cannot be physically present, it is possible to use either an authorized person or a tax representative appointed by power of attorney. This person will submit an application for VAT registration in Estonia with the Northern TAX and Customs Center. They will register the new company as a taxable entity.
Once the procedure for VAT registration in Estonia is completed, the company will receive a VAT number with a form consisting of the country code EE followed by nine digits. We can also advise in EORI registration in Estonia.
The scheme below present the main requirements for registering for VAT in Estonia:
Who is required to register for VAT in Estonia?
Estonia VAT registration is not mandatory for all taxpayers in the country, nor is it required to obtain VAT numbers upon the incorporation of a business. The following registration requirements apply in Estonia:
Estonian citizens and sole traders supplying VAT-taxable goods and services in Estonia;
Estonian sole traders involved in import/export activities of goods subject to the VAT;
local companies importing/exporting and supplying VAT-taxable goods and services in Estonia;
foreign companies operating through permanent establishments in Estonia and supplying VAT-taxable goods and services;
non-operating foreign companies offering a VAT-taxable supply of goods and services in Estonia one time only.
Other important aspects to consider when discussing VAT registration is that mandatory it becomes mandatory to obtain a VAT number in Estonia when a certain turnover is reached.
As mentioned above, when opening a company in Estonia, the respective entity does not automatically become liable to pay the VAT. If the business does not register for VAT voluntarily, upon the reaching of a certain turnover, it is required to apply for a VAT number in Estonia.
Once the following thresholds are reached, VAT registration becomes mandatory:
- 40,000 euros for companies with a turnover at the beginning of a calendar year;
- 35,000 euros for foreign companies selling goods over the internet to Estonian customers.
VAT registration must be completed with the Estonian Tax and Customs Board, just like when applying for an EORI number.
Documents required for Estonia VAT registration in 2021
There are several documents to be filed when applying for a VAT number in Estonia, depending on whether the taxpayer is a natural person, a local or foreign business entity operating here. No matter the legal personality of the applicant, the documents to be filed are:
- the Articles of Association in the case of companies, and business license in the case of sole traders;
- an extract issued by the Estonian Trade Register which must contain information about the company;
- documents proving the company will provide taxable supplies in Estonia;
- identification documents of the person representing the company.
In the case of foreign companies, VAT certificates issued in their home countries are required when registering for this tax in Estonia.
Foreign companies requesting VAT registration in Estonia in 2021 must file their application forms with the Tax Management Department at the Northern Tax and Customs Centre.
Foreign companies in Estonia and VAT registration
Foreign companies can operate through branch offices and subsidiaries in Estonia. While the latter will be treated as a domestic business, the former is required to complete the Estonia VAT registration procedure.
VAT registration in the case of foreign companies operating through branches in Estonia is the same as for local businesses, however, additional documents about the parent company will be required by the tax authorities.
Another important aspect to consider about Estonia VAT registration is related to e-commerce companies which are now required to obtain such numbers under specific conditions imposed by the EU.
You can rely on our Estonian company formation agents for support in running an e-commerce business under the new tax regulations.
Exceptions from VAT registration in Estonia
Not all Estonian companies are required to register for VAT, and among we mention the following:
- companies with annual taxable turnover derived from zero-rated supplies of goods and services;
- companies that do not meet the mandatory registration turnover;
- companies projecting their turnover to be lower due to various reasons.
Even if in these cases Estonia VAT registration is not required, must monitor their annual turnover and in case of changes apply for VAT numbers.
If you want to open an Estonian company and do not know if to register for VAT from the beginning, you can ask our local representatives for information.
Advantages of registering for VAT in Estonia
Even if VAT registration is not imposed upon company formation in Estonia, it has certain advantages. Among these, the possibility of applying for VAT refunds and claim the amounts of money paid in the account of this tax is one of the most important. Also, tourists buying goods from VAT-registered companies in Estonia have the possibility of claiming VAT refunds.
Voluntary VAT registration in Estonia is based on the filing of a business plan which indicates reaching the expected turnover which leads to mandatory registration.
Our Estonian company formation representatives can offer more information on the advantages of obtaining VAT numbers.
Aspects to consider when applying for Estonian VAT registration in 2021
There are a few important aspects to consider when applying for VAT numbers:
- once a company reaches the registration threshold, it has 3 days to apply for a VAT number;
- failing to register for VAT when it becomes mandatory implies a penalty of 1,300 euros;
- failing to file VAT returns in due time results in a penalty of 2,000 euros.
If you have recently opened a business and plan to register it for VAT in Estonia in 2021, our specialists are at your service.
VAT refund in Estonia
Due to Estonia’s membership within the European Union, companies or individuals from EU member states that want to apply for a VAT refund in Estonia can submit an application electronically. The Estonian tax portal accepts claims until the 30th September of the following year. A company applying for VAT refund must provide the proof of VAT registration in Estonia and also copies of the respective invoices. Verification of the documents might last up to 4 months, but after that the company will receive an answer regarding its request for VAT refund.
If you need information on VAT registration of Estonian companies and the benefits of this procedure in 2021, our agents can guide you. You can also watch our video on this subject:
Intra-community VAT in Estonia
Typically, all foreign traders conducting transactions in Estonia must register for VAT. However intra-community acquisition of goods may be tax-free and in that situation, the registered foreign trader will not be charged any VAT in Estonia.
VAT registration in 2021 in Estonia can be used for the intra-community imports and exports and the procedure does not imply additional steps.
Even if it is best to register an Estonian company for VAT alongside the incorporation procedure, those who want to wait until later in 2021 to obtain their VAT numbers, can do that without any problem.
Estonia VAT registration and EORI numbers
Once of the most important advantages of Estonia VAT registration completed on a voluntary basis is the possibility of obtaining an EORI number easier. As an EU member state, Estonia has adhered to the Economic Operators Registration Identification system and trading operations (both import and export activities) must be completed based on EORI numbers with EU customs authorities.
At the level of 2021, Estonian companies engaged in customs operations without having VAT numbers must first register for VAT and then for the EORI system. This is a mandatory requirement, as the EORI number is partially made from the company’s VAT number.
Please contact our company formation specialists in Estonia for more information on VAT registration.