Estonia VAT Explained: Rates, Registration Thresholds, and Reporting Requirements

VAT in Estonia - Three Types of Rates

There are three types of VAT rates in Estonia:

1. Standard VAT rate,

2. Reduced VAT rates,

3. Zero VAT rate.

How Much is VAT in Estonia’s Regions?

Estonia VAT law does not impose special or additional VAT Estonia rates in addition to standard, reduced, or zero VAT rates.

VAT Registration Threshold

The VAT legislation and Tax Authority interpretations of main provisions contain valuable information about the VAT threshold in Estonia and its applicable provisions. The regulations define a EUR 40,000 VAT registration threshold for Estonia's established businesses.

Further inspection of the rules and regulations leads to the conclusion that there is no VAT registration threshold for non-Estonian businesses.

Regarding the VAT registration threshold for intra-EU distance sales of goods and B2C supplies of services, Estonia, as an EU Member State, implemented a EUR 10,000 threshold into its national legislation. Additionally, Estonia did not define any VAT registration threshold for electronically supplied services by non-EU suppliers.

Types of Taxable Activities in Estonia

Estonia's VAT Laws provide a precise list of activities that are considered taxable. This means that any legal or natural person who performs or provides these activities is regarded as a taxable person for VAT purposes.

Activities that are treated as taxable under the VAT rules include the supply of goods and provision of services for a fee on Estonian territory, the import of goods, the supply of goods or services exempt from tax to which the taxable person has voluntarily added the amount of value-added tax, and the intra-EU acquisition of goods, except those strictly exempted.

VAT Registration Process

The rules related to the VAT registration threshold in Estonia clearly show that domestic and foreign taxable persons face different rules and obligations under the VAT legislation.

Estonia VAT Registration for Domestic Businesses

Once Estonian businesses exceed the EUR 40,000 VAT registration threshold within the calendar year, they must submit the VAT registration form within three days. In addition to this mandatory VAT registration, domestic businesses can also voluntarily register for VAT. In that case, those businesses must provide proof of business activity in Estonia or prove otherwise that they are about to commence business in Estonia.

Either way, the registration form must be submitted to the Estonian Tax and Customs Board via email or paper.

Estonia VAT Registration for Foreign Businesses 

Unlike domestic businesses, foreign businesses must submit a VAT Estonia registration form in person before engaging in taxable activities, meaning that the application form is submitted by other means, such as email, post, fax, or through the e-Tax or e-Customs are not considered.

However, these non-Estonian businesses can complete this process through a tax representative. Moreover, appointing a tax representative is mandatory for non-EU businesses, whereas it is optional for EU-based businesses.

One exemption from mandatory VAT registration for foreign businesses is when they make zero-rated supplies in Estonia, like supplying goods through the free zone or a customs warehouse.

VAT Returns in Estonia

All VAT-registered taxable persons, domestic and non-resident, must submit VAT returns by the 20th day of the month following the taxable period. The general rule is that monthly VAT returns are filed electronically, but there are also rules related to quarter VAT returns. In addition, a paper VAT return may be filed under exceptional circumstances and upon approval by the Tax Authorities.

Penalties for Failure to File Tax Return

Not acting according to the rules set in VAT law and other connected bylaws will undoubtedly result in penalties and fines being imposed on taxable persons. Fines and penalties vary depending on the type of misconduct. 

Therefore, registering late for VAT may lead to a maximum penalty of EUR 3,200, whereas penalties of up to EUR 2,000 are defined for late submission of a VAT return or late payment. Also, filing an incorrect VAT return may result in a penalty of up to EUR 3,200.

VAT Rules for Electronically Supplied Services 

Services delivered automatically over the Internet or a similar network are considered Electronically Supplied Services (ESS) under the EU VAT Directive. However, the definition includes additional elements such as no human input or minimum input. Services not delivered digitally or those relying heavily on human input are not considered ESS.

Nevertheless, it is essential to note that other terms are related to the ESS. In practice and the national laws of EU Member States, terms like digital services, digital products, and electronic services can be found. However, all of them refer to the EU-wide definition of ESS.

Taxability Rules for ESS:

E-commerce reform in 2021 altered the taxability rules within the EU single market. These changes raised the EU regulatory framework to a higher level and introduced mandatory VAT registration and reporting rules.

B2B supply of ESS rules left a general rule for determining the place of supply in effect, whereas B2C supply of ESS by non-EU businesses rules defined a destination principle as primarily, meaning that the VAT that must be applied is one of the EU countries where a consumer is located, e.g., VAT rate Estonia.

In 2021, a new EU-wide threshold was introduced for distance sales of goods and ESS. The threshold refers to an annual turnover from all EU sales. Businesses above this threshold must apply VAT rates following the destination principle. Those below the EUR 10,000 limit can either apply the VAT rates of the country in which they are established or decide to utilize One Stop Shop (OSS) schemes.

How much is VAT in Estonia on ESS?

The Estonia VAT rate for ESS is 22%.

E-Commerce Rules

The reformatory 2021 EU E-commerce package represents a pivotal moment in reshaping the e-commerce industry. As the industry evolves and more businesses offer their goods and services to EU consumers, the EU government bodies recognize the need to standardize further and harmonize EU-level rules.

These ground-breaking changes brought special rules for importing low-value goods from third countries or third territories, where low-value products are those whose total value is up to EUR 150. Under the newly established rule, digital platforms, as deemed suppliers, became responsible for collecting and remitting VAT when the right conditions are met.

As part of the reform, a 2015 Mini One Stop Shop (MOSS), which paved the way for new rules, was upgraded and adjusted to address new challenges in the digital age. Therefore, the two previously established schemes, unknown as Union and Non-Union schemes, were further defined, and a new Import One Stop Shop (IOSS) scheme was introduced.

Therefore, the E-Commerce VAT package transformed MOSS into OSS, which consists of the following:

• Union Scheme,

• Non-Union Scheme,

• Import Scheme.

VAT EU Reporting

EC Sales List

Like in other EU countries, Estonia's taxable persons must submit monthly EC Sales List (ESL) returns. The ESL provides additional information on all intra-EU sales made by taxable persons and is an additional monitoring tool.

The filing deadline is the same as the standard VAT return, by the 20th day of the month following the reporting period.

Intrastat 

Intrastat is a statistical report on the movement of goods in the EU that must be submitted annually to the Statistic Estonia body once the predefined thresholds are exceeded. The Intrastat thresholds are set at EUR 350,000 for goods arrivals in Estonia and EUR 700,000 for dispatches from Estonia.

Digital Reporting

Local Businesses

Except for mandatory B2G e-invoicing rules, Estonia has no other e-invoicing requirements for local taxable persons, such as local businesses. Although not compulsory, companies can send and receive B2B e-invoices with one condition. The buyer must agree to receive an e-invoices.

However, Estonia did introduce an obligation for taxable persons to report VAT transactional data via the KMD INF form, submitted as the appendix to the standard VAT return. The data provided in this form includes transactions subject to standard or reduced VAT rates when the total amount per transaction is at least EUR 1,000 without VAT.

This form also includes data on B2B and B2G transactions, sales and purchases, and domestic transactions.

Non-Resident Businesses

Like local ones, non-resident businesses are obligated to submit VAT transactional data via the KMD INF form when filing a standard VAT return.