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Over the years, we’ve gained a lot of experience helping clients manage their accounting and tax compliance. This includes guiding businesses through the VAT registration process in Estonia and across the EU, as well as handling VAT returns.
Once you’ve set up your company in Estonia, one of your top priorities should be getting a valid VAT number for your business. In this article, we’ll share some useful tips to help you through the process, along with one key mistake you’ll definitely want to avoid. It’s always better to be safe than sorry!
There’s something really important we like to point out to new clients right away: Under the current VAT rules, it can be a big disadvantage for Estonian companies that don’t have a VAT number to buy services from outside of Estonia. VAT laws cover a wide range of services, from consulting to brokerage, which are often part of regular business operations.
If your Estonian company buys services from abroad without a VAT number, you’re required to register as a limited VAT payer from the very first transaction. Unfortunately, this means you can’t reclaim input VAT, and you’ll have to pay VAT to the state on the value of those services, regardless of how much or how little you spend. This can quickly become burdensome if the transactions are large.
What many entrepreneurs don’t realize is that even if your business isn’t actively operating, you may still be liable for VAT on services purchased from abroad. This includes:
- Advertising services, such as paying for ads on platforms like Facebook or Google.
- Data processing services, like a Dropbox subscription for file sharing.
- Electronically supplied services, which are digital services provided with minimal human involvement. Examples include buying software that you can download instantly, mobile apps, e-books, online courses, web hosting, and much more.
Even if your business isn’t registered for VAT in Estonia, purchasing these services can trigger VAT obligations, which can lead to unexpected costs and extra paperwork.
Of course, the most common service purchases include consulting from a business partner, legal services, transportation, or accounting help. The list goes on.
For each of these service purchases, your Estonian company has to register as a limited VAT payer, report the purchase, and pay VAT on the amount, following Estonia’s tax rates. It’s also important to note that, under this limited VAT status, you won’t be able to reclaim any VAT paid on services purchased within Estonia.
We’ve seen complex cases where clients thought they weren’t actively running their business and didn’t file monthly documents. But during the annual report preparation, it turned out they had ongoing contracts with foreign suppliers, like one client who paid a consultancy fee to a Danish provider. The amounts were significant, and because they didn’t seek advice early on, they ended up facing a major tax issue. Timing really matters when it comes to tax planning!
We’ve also seen similar situations with clients from Lithuania, Poland, and Spain, where payments for legal and advertising services caused unexpected VAT complications.
In short, limited VAT liability can be a real challenge for your business. Companies under this status are required to pay VAT on services bought from abroad, without the option to reclaim input VAT. This can add significant costs, especially for larger transactions, and make VAT management more complex.
In today’s fast-paced business environment, tax mistakes can be costly. That’s where we come in—we’re here to guide you through tax compliance, helping you avoid common pitfalls that can catch others by surprise. With our expertise, we’ll ensure your business stays fully tax compliant and safe from unnecessary risks.
Don’t wait for problems to pop up—contact us today to learn about how we can keep your business on track. Let us help you navigate the complicated world of tax regulations with ease!
Get in touch now to stay compliant, avoid costly mistakes, and protect your hard-earned success!
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