Obtaining a VAT Number in Estonia: The Detailed Guide

Jan 14, 2021 · 5 min read

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Estonia is an attractive destination to register a business for two main reasons. Firstly, it is in the European Union, and therefore an Estonian business can access the entire single-market with ease, in addition to relying on the stability of the Euro. Secondly, their tax laws encourage the initiation of businesses.

Estonia's tax laws are quite complex but there is no direct corporation tax — they only tax income, and capital gains. If a company registered a profit of $100, they would only be taxed on this if they distributed this money to its shareholders — if the company reinvests the money, then they do not pay tax. This encourages re-investment and makes Estonia a very attractive nation for start-up businesses.

But one of the main questions asked by our clients is about the procedure of obtaining a VAT Number. This can be complicated to understand for new business owners, as typically this falls outside their area of expertise. In this article, we aim to explain what a VAT number IS, and in what circumstances you need to register for one, to help reduce the confusion around this topic.

VAT in Estonia: Basics

VAT (value-added tax) is a consumption tax placed on a product whenever a value is added at each stage of the supply chain, from production to the point of sale. The amount of VAT that the user pays is on the cost of the product, minus any of the costs of materials used in the product that has already been taxed.

When do you need to register for a VAT number?

Estonia currently ranks first in the International Tax Competitiveness Index and, almost everything can be uploaded online. Estonia's tax system uses an 'E-tax' system -, which means that 98% of taxes in Estonia are registered electronically. A VAT number is assigned to businesses in Estonia after they have registered to pay tax. The general rule dictates that it is obligatory to register for a VAT number in Estonia if your company earns more than €40,000 annually. As the Republic of Estonia's taxation website says:
If you do not register for a VAT number before you reach the €40,000 mark, you will only have 5 days to complete the procedure. Otherwise, your company will be fined €1,300 by the Estonian government.

What rate of VAT does Estonia charge?

Estonia charges VAT at 20%, but there are many exceptions to this rule. The biggest advantage to Estonia's VAT laws is that the 20% rate only applies if the services are sold to an Estonian business or an individual:

  • Certain products only have a 9% VAT rate, such as books, and medical products
  • If the services are sold to a legally registered entity within the EU, or to a non-EU entity, then 0% VAT is paid (if both entities already have VAT numbers)
  • This does not apply to physical goods, however, — if physical goods are sold to a different EU state, then they are declared and taxed there.

How to Obtain the VAT Number

The process of obtaining a VAT number in Estonia is done fully online quite fast for e-Residents. For those that don't have a e-Residency card, the process can be completed through the notary. Companies will need to provide supplementary documents about the business' commercial activities, and state whether you are applying voluntarily, or out of necessity (having passed the €40,000 limit).

An entity needs to add VAT to invoices, firstly, if it has a VAT number. If it does not have a VAT number, then the business should simply state that it is not liable to pay VAT, and therefore no VAT is to be added. If a company does have a VAT number and is selling either a digital product or a service, then it needs to add VAT to the transaction. This applies even if the VAT is 0% — the company still must state this when writing the invoice.

Are There any Specific Rules for Companies That Obtained the VAT Number?

Estonian VAT returns are required to be reported on the 20th of each month, unlike many European countries, which require them annually. Further, Estonian VAT must be paid when the tax returns are submitted, and they are paid to the Estonian Tax and Customs board. Even in months when there is no VAT to be paid, it still must be declared to the authorities, or fines can follow.

Estonia's tax laws offer exciting opportunities for businesses, and with business becoming less and less location-dependent, Estonia's potential seems large. The complexity of these laws, and the potentially large fines that can follow, can be difficult for businesses, especially for start-ups with little experience in these fields. Furthermore, entrepreneurs are passionate about their start-ups, and their original ideas, but they can be bogged down by complex paper-work that they are not accustomed to. This is where Enty can help.

How Enty Can Help Your Company With This Process

Our team can assist you with obtaining the VAT number at all stages — all you have to do is to leave the request in your profile on our website. Our specialists will help you realize whether you should obtain a VAT number at all, and will help you with the application process. We can also complete the whole process on your behalf, depending on what best fits your needs.
an interface of the Control Panel
Most importantly, companies that obtain the VAT number are required to complete monthly reporting in regard to accounting. Enty offers a convenient and easy way to automate accounting reporting for your company. We provide you with a simple interface that will allow you to simply upload the documents for each quarter of the year. At the same time, our accounting is included in the Control Panel subscription that lets you obtain VAT, EORI, IBAN, manage banking, invoicing legal, and other back-office processes under a single subscription. Manage your back-office from one place without a hassle.

Monthly accounting for a small or medium business can distract from the lengthy process of establishing a new business, and with the fines system that the Estonian government has in place, errors in paying VAT can be very costly. Enty has a wealth of experience in handling the back-office requirements of businesses, which allows entrepreneurs to focus on their dreams and passions, while we take care of the boring, time-consuming elements of business management.

Create a company's profile today and switch your existing company on Enty to streamline your daily back-office.
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