VAT in Estonia for IT companies


    In continuation of the article on the registration of a tax-free company in Estonia, I want to share with you information related to VAT (Value-added tax - an analogue of our VAT).

    If you have registered, or plan to register a company in Estonia for IT business, namely for the provision of services , you are most likely to think about the question: “Do I need a VAT number”?

    Based on the practice and communication with my clients , I can tell you that you are not the only one who is looking for the answer to this question.
    Given this fact, I will try to give a public answer to this question here on Megamind.

    Useful information for those who first hear about VAT, or are not sure they understand what it is:

    So, what is VAT can be read on Wikipedia .
    More specifically about EU VAT can also be read on Wikipedia .
    What is a VAT number (a synonym for VAT ID) can be seen here .

    Today, practice in Estonia shows that you will not receive a VAT number if:
    1. You are not a resident of Estonia or at least the EU ( * unofficial source )
    2. You do not do business in Estonia (real office and employees)
    3. You do not have a taxable VAT turnover in Estonia (you must have real transactions with counterparties from Estonia)

    And if you get it using tricks, for example, buy a ready-made company with a VAT number, they can pick it up from you on the basis of the above, or if you:
    1. You will not file monthly VAT returns.
    2. will not file monthly payroll returns
    3. You will submit the declarations indicated in clauses “a” and “b”, but zero.

    But do not rush to be upset, as you can work with your counterparties even without a VAT number.

    As a general rule approved by COUNCIL DIRECTIVE 2006/112 / EC on the common system of value added tax when exporting services from the territory of the European Union, EU VAT is not applicable. According to this Directive, the place of provision of services is the place of registration of the customer.

    That is, sales of IT services by a company registered in Estonia outside the Eurozone are not subject to VAT and receiving a VAT number is not mandatory.

    Now let's look at the need to get a VAT number when selling IT services to a company registered in Estonia for customers registered in the European Union (but not in Estonia):
    According to clause 1, paragraph 19 of the Estonian Value-Added Tax Act , you are exempted from receiving a VAT number for such sales.
    The existing limit of 16,000 euros per year within which you can conduct activities without receiving a VAT number does not apply.

    And finally, if your company and your customer’s company are registered in Estonia, then after reaching the income limit in Estonia of 16,000 euros per year, you will be required to receive a VAT number.

    We simulate situations:

    So, let's assume that you have registered a company in Estonia and are developing software for external customers (outsourcing).
    You have a team of developers in Ukraine, Belarus, and the Russian Federation.

    Your customers are legal entities in:
    • USA, Canada, Latin America, Asia, Offshore.
    • UK, EU (but not in Estonia).
    • Estonia.

    USA, Canada, Latin America, Asia, Offshore
    You bill without VAT.
    You are not required to receive a VAT number in Estonia.

    UK, EU (but not Estonia)
    You bill without VAT.
    You are not required to receive a VAT number in Estonia.

    Up to 16,000 euros per year, you have the right to invoice without VAT and not receive a VAT number.
    After reaching the limit, you must get a VAT number.
    Before reaching the limit, you bill without VAT.

    Regarding payments to the team of money for their local IP (in Ukraine - FLP):

    Such payments are not subject to Estonian (European) VAT.

    Having an Estonian company, you can provide services (for example, outsourcing) without receiving a VAT number for customers from all over the world, except Estonia, as there is a limit on turnover of 16,000 euros per year.

    I hope the article will be useful to you!

    PS: Please let me know that the content is interesting to you, and in the future I will write an article general on European VAT (on goods and services), and not specifically on Estonian VAT, which arises or does not arise when providing services.

    Only registered users can participate in the survey. Please come in.

    Do you have a company in Estonia?

    • 17.2% Yes 16
    • 23.6% No 22
    • 59.1% No, but I want to register 55

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