EU VAT guide – Estonia

VAT rates in Estonia 

How much is VAT in Estonia? 

The Standard VAT Rate (Käibemaksumäärad (Eestis)) in Estonia is 22%. 

Some supplies are exempt from VAT. This applies to business activities like health care, insurance, and some educational services.

The exact list of taxable transactions and allocated Estonia VAT rate can be found in VAT Estonia regulations. 

VAT thresholds in Estonia 

Valuable information about the VAT threshold in Estonia and applicable provisions can be found in the VAT legislation. Also, a helpful source of information is an interpretation of the appropriate information shared by Tax Authority officials. 

VAT registration threshold for resident businesses: The resident businesses can benefit from the threshold of EUR 40,000, calculated based on the current calendar year. 

VAT registration threshold for non-resident businesses: In most cases, there is no registration threshold for foreign businesses without a permanent establishment in the country. 

VAT registration threshold for intra-EU distance sales of goods and B2C supplies of services: EU-wide harmonized threshold of EUR 10,000.

VAT registration threshold for non-EU established suppliers of Electronically Supplied Services: No registration threshold.

VAT Taxable Activities in Estonia

A taxable person by Estonia VAT Law is a legal person or individual who carries out economic activity independently, whatever the purpose or results. 

Types of taxable activities that trigger the imposition of Estonia VAT: 

• The supply of goods and rendering of services in Estonia for consideration;
• Receipt of reverse-charge services by a taxable person in Estonia;
• Export of goods;
• Import of goods.

Other case scenarios exist where domestic or foreign businesses should impose Estonia VAT on their transactions. 

Tax Representative in Estonia 

For non-EU-established businesses, having a tax representative for all VAT compliance-related activities is often mandatory. Tax persons with tax residence in third countries or territories with mutual assistance agreements signed with Estonia can fulfill their tax obligations without the requirement to contract a tax representative. 

For EU-established companies, having a tax intermediary isn’t compulsory. Still, the economic operator could acquire the professional to ease up and streamline compliance challenges for its operations in the country. 

VAT on Electronically Supplied Services in Estonia 

Electronically Supplied Services 

Taking into account as the prime concept for the Electronically Supplied Services their definition set forth by EU VAT Directive 2006/112/EC, these services represent the type of services that are delivered over the Internet or an equivalent digital network. 

An elementary feature of ESS lies in the fact that their delivery is dependent on the automated system when the service delivery isn’t heavily dependent on automation or minimal human intervention that service cannot be recognized as the ESS. 

Services that are not delivered digitally do not fall under the category of Electronically Supplied Services. In line with the EU VAT Directive and its implementing rules, Estonia has adopted this definition into its national legislation. 

This move guarantees or makes the taxability rules surrounding the ESS less complicated for the taxable persons, as well as for the local tax authorities. This approach reflects Estonia’s efforts to simplify and harmonize its tax system with EU standards, particularly for services that are increasingly delivered digitally.

However, despite this clarification, the terms “digital services,” “digital products,” and “electronic services” are frequently used reciprocally. This approach can cause concern for different parties involved in the transaction regarding how to approach different types of digital products or services from the taxability perspective. 

Taxability Rules for ESS

Starting from July 1, 2021, the E-Commerce VAT package has updated the taxability rules applicable within the Single Market. Thanks to these changes, a new level of tax and legal certainty has been implemented concerning the treatability of the ESS. The reforms specifically enhance the rules around mandatory VAT registration, tax reporting, and tax payments for businesses supplying services to EU customers.

Relevant highlights of the 2021 E-commerce Reform:

• B2B Electronically Supplied Services: For B2B transactions existing general rules for determining the place of supply are used. This alignment with the existing framework simplifies the operational procedure for defining what tax rules should be followed for the concrete transaction.  This ensures more clarity for economic operators under this type of business relationship;
• B2C Electronically Supplied Services: For businesses that have a place of business based outside the EU, the destination principle applies, meaning the place of supply for tax purposes is determined by the customer’s location. This principle aids in clarifying tax responsibilities when selling to EU consumers;
• Distance Sales of Goods and ESS: For EU-based suppliers, reaching an annual turnover threshold of EUR 10,000 is very important. Taxable persons who make turnover below this annual threshold may opt to follow their home country’s VAT rules or report transactions through the One-Stop Shop (OSS) schemes;
• Distance Sales Exceeding the EUR 10,000 Threshold: Merchants established in the EU whose annual turnover exceeds this threshold should apply VAT rates based on the destination principle. 

The comprehensive alignment of VAT regulations. under the umbrella of common rules defined through the EU VAT Directive simplifies compliance procedures for businesses operating within the EU. This policy also supports economic harmony across Member States, fostering a competitive and consistent environment for businesses of all sizes.

How much is VAT in Estonia for Electronically Supplied Services?

VAT rate Estonia: A standard VAT rate of 22% is applied in most cases on sales of Electronically Supplied Services in Estonia.

E-Commerce VAT Rules in Estonia 

On July 1, 2021, the EU adopted substantial modification to the VAT Directive, addressing the long-awaited necessity to make updates to the Directive in the part that concerns E-commerce rules. These changes respond to the growing influence of the digital economy and aim to streamline the administrative process for cross-border transactions, which have become increasingly complex and costly for various taxpayer groups.

Mention-wide changes to the EU VAT Directive concerning E-commerce VAT rules: 

• Cross-Border Sales of Low-Value Goods: The reforms have established a uniform EU threshold for the import of low-value goods from third countries or third territories. Thanks. to the newly established reporting system businesses can fulfill their reporting requirements with more clarity and less stress. 
• Intra-Community Distance Sales: The previous national thresholds for intra-community distance sales have been removed, simplifying VAT obligations for non-resident sellers and reducing compliance complexity.
• Domestic Sales by Deemed Suppliers: In certain scenarios, digital platform operators become the responsible party for charging, collecting, and reporting VAT to tax authorities. When the conditions are met, the VAT duty of the original vendor is transferred to the digital platform operator. 
• Provision of B2C Electronically Supplied Services (ESS): The scope of services that qualify for reporting under the One-Stop Shop (OSS) schemes has been significantly broadened, facilitating easier VAT reporting for businesses engaged in cross-border activities. Revision of the OSS schemes permits the impacted economic operators fewer difficulties in handling their VAT compliance duties within the EU. 

Improvements for uniform reporting systems:

Besides the introduction of new taxability rules, additional equally important rules have been enacted by the 2021 E-commerce package. With this we mean the introduction of the new OSS scheme, the Import-One-Stop-Shop, as well as the broadening of the reporting scope for the users of the OSS schemes. 

The E-Commerce VAT package made the following special schemes available:

• Union One-Stop-Shop Scheme;

• Non-Union One-Stop-Scheme;

• Import One-Stop-Shop Scheme.

Overview of EU VAT Special Schemes

Conditions to be met for the usage of the Non-Union OSS:

This scheme can be used only by taxable persons who have a place of business outside the EU. This simplified reporting mechanism permits non-EU merchants to aggregate their B2C cross-border deliveries of various types of services, under one declaration and file it in their Member State of Identification. 

The value of this simplified scheme is significant, it paves the way for merchants to decrease their yearly budget for VAT compliance challenges across the Single Market. 

Conditions to be met for the usage of the Union OSS:

Taxable persons that have their establishment in some of the Member States can use the Union OSS scheme to report their intra-community distance sales of goods and cross-border B2C services. This simplified reporting method elevates the quality and efficiency of their compliance duties.

The economic operators that don’t have a permanent establishment within one or more Member States, can profit from this simplified scheme for reporting all of their intra-community distance sales of goods, to customers based within the community.

Conditions to be met for the usage of the Import One-Stop-Shop Scheme:

The Import One Stop Shop (IOSS) is open to both EU and non-EU businesses. This scheme is used for reporting the VAT charged for imports of low-value goods from third countries or third territories.  Digital platforms that intervene in the facilitation of the sale of low-value goods bear the tax responsibility instead of online vendors.

These schemes are part of the EU’s effort to reduce the administrative burden on responsible taxpayers while safeguarding the established compliance systems. By providing these options, the EU aims to support the growth of international trade and digital commerce.

OSS Return and Payment 

Estonian national framework doesn’t offer a simplified reporting system for non-resident digital service providers. However, such businesses can still manage their VAT obligations efficiently by participating in the One-Stop Shop (OSS) schemes. 

These schemes allow them to avoid the need for local VAT registration by using a unified reporting framework.

The adoption of the OSS schemes via the EU VAT Directive has drastically reduced the number of cases where foreign providers of digital services needed to follow local registration rules and VAT liabilities.  

However, the scope of these schemes doesn’t give unconditional “freedom” to non-resident suppliers, when it comes to making taxable supplies to customers residing in Estonia. 

In many circumstances, they will be obliged to adhere to domestic rules and follow local registration procedures.

Electronic Platform and Deemed Supplier Rules 

Estonia has adopted into its national framework the concepts introduced by the E-commerce VAT package in July 2021. These revisions of national rules have significantly lowered compliance and administrative expenses for non-resident companies that supply taxable goods and services to Estonian customers.

The new rules have introduced the concept of deemed supplier for digital platform operators. From the practical standpoint, it means that the VAT duties will be shifted from the original vendor to the platform operator. The transfer of VAT responsibilities happens in the following cases:

• When low-value goods that are imported from outside the EU are sold by merchants to end customers, and; 
• When goods that are already within the EU are sold by vendors with a tax residency outside the EU to customers based in different Member States, no matter what their value. The supply needs to be managed by the platform. 

Estonia has implemented the E-commerce VAT package in alignment with the EU VAT Directive, as a necessary move to harmonize its rules to the ones valid across the EU. Among the new provisions, there is a concept of the deemed supplier, when the VAT responsibility is shifted from the original vendor to the digital platform operator.   

When the conditions are met, the VAT compliance duty is shifted from the original supplier to the marketplace, who will then act as a liable party towards the VAT duties that originally should be handled by the merchant. 

This multi-sided transaction scenario is made of two tax-relevant operations:

1. Business-to-Business (B2B): The initial sale from the original vendor to the digital marketplace is treated as a B2B transaction.
2. Business-to-Consumer (B2C): The subsequent sale from the marketplace to the final consumer is treated as a B2C transaction.

This approach outlines that the tax responsibility is transferred from the online merchants to the marketplace operator. This change simplifies VAT obligations for digital platforms and ensures that Estonia’s tax practices are consistent with those across the EU.

Invoice Requirements in Estonia 

General invoice information:

• Date of invoice issuance;
• Date of the supply of goods or provision of services if different from the date of the invoice issuance;
• Unique invoice numbers issued in sequence.

Seller information:

• Company name;
• Full address (head office);
• Billing address if different from company address;
•  VAT number.

Customer information:

• Name;
• Full address;
• VAT number;
• Delivery address;
• The billing address is different from the delivery address.

Fiscal Information:

• Description and breakdown of the goods or services – quantity, discounts, unit price excl. VAT;
• Total without VAT;
• VAT amount;
• The VAT rate(s) applied and the breakdown of VAT per rate;
• Invoice Total.

Additional information required in particular cases:

• Exemption reference – guaranteed by precise norm;
• Reverse charge – term if applicable;
• Self-billing – term if applicable;
• Tax Representative information for non-resident business.

Foreign Currency Invoice in Estonia  

In Estonia, it’s permissible to issue tax invoices in foreign currencies, but the VAT amount on the invoice must be shown in EUR.

VAT Return in Estonia 

Domestic returns

Domestic taxpayers and non-established foreign businesses who conduct business under the national VAT Estonia rules in general submit declarations:

1. Monthly;
2. Quarterly. 

Penalties for late reporting and omitted declarations 

Taxpayers should charge Estonia VAT on their transactions when the responsibility rises and submit the VAT return. If they do the return fillings after the deadline, they can expect to allocate more funds than they would if they had filled the return within the permitted time frame. 

In the case, a legal person makes a late payment, late registration, or erroneous declaration the following range of penalties could be expected:

• The VAT registration conducted after the stipulated deadline – maximum penalty of EUR 3200;
• Late payment or submission of the return – penalty up to EUR 2000;
• Submission of erroneous return – penalty up to EUR 3200.

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