VAT in Estonia, Registration Obligation, Obligations after VAT registration, Using the 0% VAT rate and Claiming overpaid VAT back in Estonia
Estonian Value Added Tax Act (Käibemaksuseadus) is in accordance with EU Sixth VAT Directive.
The sales of most of the goods and services are subject to VAT. The standard VAT rate is 20%; lower rate of 9% applies to specific items. Some specific goods and services are exempt form VAT and export from Estonia is zero-rated.
Registration Obligation in Estonia
VAT registration limit is generally 16 000 EUR.
A foreign trader must register for VAT in the following circumstances:
- When a trader, with no permanent establishment in Estonia and liable to taxation in another country, makes a taxable supply in Estonia that is not taxed by the Estonian taxable person.
- When a trader, liable to VAT in another Member State, makes a distance sale to a person in Estonia who is not registered for VAT purposes (excluding goods subject to excise duties), and the taxable supply of the distance sale exceeds 35 000 EUR as calculated from the beginning of the calendar year.
- When a trader, liable to VAT in another Member State, makes a distance sale of goods subject to excise duties to a natural person in Estonia for personal purposes.
When a trader, liable to VAT in another Member State, makes distance sale to an Estonian (excluding goods subject to excise duties), the trader can register for VAT voluntarily.
A person liable for VAT in another country without a permanent establishment in Estonia may appoint a tax agent. The Tax Board must approve the tax agent.
Obligations after VAT registration in Estonia
Once the company has been registered for VAT in Estonia the formal requirements must be met.
The monthly VAT returns should be submitted to the Tax and Customs Board and VAT paid by the 20th of the next calendar month at the latest. If this is not done the tax officials have the right to impose a fine and/or delete your VAT ID from the register.
NB! Please remember that the tax authority has the right to delete a taxable person from the register if the taxable person has failed to submit a value added tax return for the last six consecutive taxable periods.
Using the 0% VAT rate
Business to business (B2B) transactions made in EU are called as Intra Community Supply and taxed with rate 0% VAT, if the following requirements are met:
- Both businesses are VAT payers;
- The accompanying documents of the goods/services (including invoices) indicate that the receiver of the goods is another Member State taxable person with a valid VAT registration number;
- The goods are dispatched or transported from inland to a destination in another Member State and this is certified by the existing goods transportation documents;
- The sales invoice includes the notification of 0% VAT and the note for Article in Directive 2006/112/EC.
Receiving the invoice with 0% means the recipient of goods/services shall apply VAT Reverse Charge Mechanism, what means that the declaration obligation lies on the recipient of goods/services, but in te reality, the receiver does not cover the VAT in home state.
The Seller in the Intra Community Supply shall submit together with the monthly VAT declaration also the special Intra Community Supply Declaration (VD Deklaratsioon in Estonian).
Claiming overpaid VAT back in Estonia
Overpaid VAT arises, when the VAT paid once with the goods/services purchased for business purposes is higher than VAT charged, selling the goods or services of your business. Overpaid VAT shall be covered by the State, where the business mainly locates and where a company is VAT registered.
There is two ways, claiming the VAT back, if the overpayment is recognized:
- Through monthly VAT declarations the goods/services bought and sold are declared. The overpayment is calculated in the end of declaration form. The declaration, including the overpaid VAT is considered also as the claim of overpaid VAT refund, what means that the additional application for the amount is not required. Estonian Tax and Customs Board examines the declaration, if the refundable amount is high, the Board may ask additional questions about the business and particular invoices/contracts. If the amount is justified, the refundable VAT is transferred to the tax payers bank account within 2 weeks.
- Through Cross-Border Refund System the VAT is overpaid in another EU state. If the goods/services, bought with foreign VAT are used for the business purposes in Estonia, Estonian VAT payer has a right to apply the overpaid VAT back from Estonian Tax and Customs Board, who itself contacts with the foreign tax authority, issues required evidences (scanned invoices are accepted) and applies the overpaid VAT back. The procedure takes longer than Estonian internal procedure (4-8 months).