VAT is among the most important questions from our clients. Due to complex regulation, it might be challenging to understand when a company must obtain a VAT number when it might be beneficial and what are the main takeouts.
We’ve tried to answer the most frequently asked questions and help you figure everything out easily. Let’s dive right in!
We’ve tried to answer the most frequently asked questions and help you figure everything out easily. Let’s dive right in!
What is VAT?
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.
VAT Rate in Estonia
The standard VAT rate in Estonia is 20%. In some cases, it might be reduced to 9% or 0%. Let’s take a quick look at cases when reduced VAT is applied.
| Rate | Type of Goods and Services |
|---|---|
| 20% | All other goods and services |
| 9% | Pharmaceutical products, medical equipment for disabled persons, books (excluding e-books), newspapers and periodicals, hotel accommodation |
| 0% | Intra-community and international transport |
When Does a Company Needs a VAT Number?
A company becomes VAT liable (obliged to get a VAT number) as soon as it earns more than €40,000 annually.
So what happens if a company reaches this threshold but doesn’t register as a VAT payer?
If a company doesn’t register for a VAT number before reaching the €40,000 mark, there will be only 5 days to complete the procedure. Otherwise, a company will be fined €1,300 by the Estonian government.
There is also another case when a company becomes VAT liable — if it participates in OSS or IOSS schemes. As companies must be subject to VAT in all countries from which goods are sent and customers are based.
There are also some cases when VAT number might be beneficial for a company. In order to help our clients realize whether they need to obtain VAT number, we’ve developed a free quiz-type tool that will tell you whether your company needs to obtain or might benefit from obtaining VAT number. If this tool won’t help you, you can also ask your personal manager and they will help you figure out everything regarding VAT.
If a company doesn’t register for a VAT number before reaching the €40,000 mark, there will be only 5 days to complete the procedure. Otherwise, a company will be fined €1,300 by the Estonian government.
There is also another case when a company becomes VAT liable — if it participates in OSS or IOSS schemes. As companies must be subject to VAT in all countries from which goods are sent and customers are based.
There are also some cases when VAT number might be beneficial for a company. In order to help our clients realize whether they need to obtain VAT number, we’ve developed a free quiz-type tool that will tell you whether your company needs to obtain or might benefit from obtaining VAT number. If this tool won’t help you, you can also ask your personal manager and they will help you figure out everything regarding VAT.
Monthly Accounting Reports are Mandatory for Companies With VAT Number
Generally, Estonian companies are required to file accounting reports to regulators once a year. But companies with a VAT number are required to complete the same procedure monthly.
MBS 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, legal, and other back-office processes under a single subscription.
MBS 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, legal, and other back-office processes under a single subscription.
— What if a company earned €0? Will it be necessary to file a report?
Yes, VAT declarations are mandatory even if your company earned nothing.
— So, if my company obtained a VAT number and realized that I’ve realized that I don’t need it?
No problem, in this case, you can withdraw from VAT number. Your company won’t need to file monthly reports after that.
How to Apply VAT
A VAT liable company is required to apply VAT to invoices. However, there are cases when VAT is applied at a 0% rate. Let’s figure out when you should apply VAT at 20% and when it must be applied at a 0% rate.
| 0% | When a service or a product is sold to a VAT liable EU-based client outside of Estonia |
| When a service or a product is sold to a client outside the EU | |
| Please note that when a 0% tax rate is applied, a company is obliged to identify the reason for this in an invoice | |
| Example: This export transaction is exempt from VAT as per Article 146 of the EU VAT Directive |
| 20% | All trades in Estonia |
| When a service or a product is sold to an EU-based company without a VAT number or an individual |
MBS Will Take Care of All VAT-Related Issues for Your Company
So, everything related to VAT is quite complex and it’s almost impossible to get everything done correctly on your own (yeah, it’s even possible that you’re gonna break down and cry).
MBS is here to take care of this monkey business! We will help you figure out whether your company should get a VAT number, apply for it, will take care of invoices, accounting reporting, and declarations. Outside that, the same subscription will also include over 5 other services that will allow you to manage your company with ease.
We care about you, we will give you a warning if needed and will be there for you. Join Enty today to start the good times of your company!
MBS is here to take care of this monkey business! We will help you figure out whether your company should get a VAT number, apply for it, will take care of invoices, accounting reporting, and declarations. Outside that, the same subscription will also include over 5 other services that will allow you to manage your company with ease.
We care about you, we will give you a warning if needed and will be there for you. Join Enty today to start the good times of your company!