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VAT Payer with Limited Liability: How to Act If It Happens to Be Your Company in Estonia

May 23, 2022 · 2 min read

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Estonian law says that when your company’s taxable supply per year exceeds 40.000 euros, you become liable for VAT. You then register your company for VAT purposes and pay VAT. Normally, you calculate a supply from the beginning of the year guided by a 40K threshold.

However, VAT liability may reach you earlier. There is an occasion in the Estonian law called VAT payer with limited liability. A supply threshold for limited VAT registration does not exist, while the situation could apply to many companies working with foreign partners.
If a company purchases goods in quite significant amounts or some services provided by some foreign person who is not an Estonian VAT payer, it becomes a VAT payer with limited liability. This article tells when it happens, what to do, and how to exit this status when your business’s back to normal conditions.

When VAT with Limited Liability Comes

There are two basic cases where a legal person in Estonia begins to be obliged to pay VAT to a limited extent:

  • a company purchases goods with a taxable value of more than 10.000 euros from a company that is registered for VAT in another country;

A list of goods does not include new means of transport (motor vehicle, boat, or aircraft) and excise goods (wine, spirits, tobacco, etc).

  • a company receives certain services from a foreign person who is not registered for VAT in Estonia.

A list of services includes advertising, consulting, financial services, all the electronically supplied services, transferring rights to use the intellectual property, and others (full list).

How Should a Person [Partly] Liable to VAT Act

While there’s not anything nice about finding yourself liable for one more tax, however, limited VAT liability is still a softer version of VAT.
First, a company must submit an application to the Estonian Tax and Customs Board and get the registration as a VAT payer with limited liability. A deadline for submission is the third working day after the date on which your VAT obligation arises.

Second, a company must pay VAT. Sometimes. To be precise, a VAT payer with limited liability pays only when acquiring goods on the intra-Community (EU) market, and receiving the services from a foreign person.

Third, a company definitely should maintain records and keep the documents relevant to bookkeeping standards for limited VAT payers.

Concerning the rest of the business activities, a company continues operating as it used to do. You don’t add VAT to the prices of the goods sold or services provided and you don’t obtain the right to deduct input VAT as well. Still, there’re some legal exceptions to this described here.

How to Way Out of Limited Liability VAT

To stop being a VAT payer with limited liability, a company has to lodge an application to the Estonian Tax and Customs Board, i.e. the same institution that does a registration.

For the deletion from the register, a company should be registered there for at least two years and during the last two years, the value of the goods acquired from another EU Member State should not exceed 10.000 euros per year. You can find the detailed guide on the EMTA website.

We advise you to be careful with VAT, and comply with all these rules to avoid tax issues. But you can just purchase a subscription on Enty and we will take care of all VAT-related issues for your company. Best of luck!
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