Frequently Asked Questions

How to receive a VAT registration in Estonia? Does Tax Board make a control of companys accounting when company applies for the VAT number? In what time period Estonian Tax Board gives VAT registration to a company?

They can check accounting documents, because they have to understand is the application for the VAT justified. Usually supporting documents are enough. Balance sheet + P&L statement + bank + invoices + agreements. If a company has real business activity and documents are in order, the decision will come usually in few days.

What level of taxes are in Estonia if company in Estonia buys real-estate in Estonia and takes profits from renting or selling it?

There are no taxes, the company’s income is taxed then dividend is shared, the tax rate will be 20% then. In case the real-estate bought is taxed with VAT, the company must get a VAT registration. If the real estate is used for generating income, the VAT can be refunded.

Can I buy a ready-made company with registered VAT in Estonia? It should be new company without any activity.

In Estonia it is not possible to buy a shelf-company with VAT number. The Tax Board does not give the VAT registration to companies that have no business activity or contracts that prove starting of business. But if you buy a company and make some contracts to show that you will start actual business, they will issue the number in few days. But it depends how convincing you/we can be. Sometimes it can take up to 3 weeks.

I want to know about donation from Estonian company. Can it be done to third persons or to shareholder/ management board?

Donations can be done from the company to NGO-s in case they are on the official list. The donations are limited with 10% of profit or 3% of salaries.

How an Estonian company can buy a car? What taxes apply and can the company deduct VAT from the purchase?

Purchase process:
a) If you buy a car from a private person no VAT will apply, if you buy the car from EU company with VAT number, they invoice you 0% VAT (if you have VAT registration), if you buy the car from Estonian company, you have to pay 20% of VAT, you can get refund 50-100% depending on the purpose of buying the car.
b) If you buy a car from another country, you have to unregister the car from the current register and the car must be transported physically to Estonia. Before the registration the Department of Motor Vehicles will check the car, does it match with the EU standards and is not stolen, etc. This is also possible, that you drive car here, show the car in the DMV and later send the plates and registration documents.
c) If the car is 2009 or later model, there will be a Tax and Custom Departments additional control of vehicle. They will check, is the VAT paid correctly or what is VAT regime. It might take by up to 2 weeks and meanwhile you can´t use the car, because there is no registration.
d) the Tax Department gives an approval to DMV for the registration of the car.

Tax issues
a) There are two regimes: if the company car is used only for work related rides or mixed use when personal rides are also included. Only work related use means, that you get full refund of VAT (in mixed use only 50% of VAT) and no fringe benefit taxes. You have to keep a detailed record on your car usage.
b) The full monthly tax burden on a car is following: the maximum cost of benefit: 256 EUR, taxes apply: social 106,94, income 68,05, VAT 42,67, total 217,66.
c) mixed usage: you have to keep a record on work related and personal usage of the car. You register driven km of personal use and the price of km is €0,30. For example you drive 1000km per month, work related is 500km, personal 500km, the taxable amount is 500*0,30= 150 EUR, now you calculate taxes of the benefit from the benefit price of 150 EUR and you will get: 124.38 EUR payable taxes.

The exempt:
– the car is for rental
– the car is for sale

Costs on car:
– you can deduct the costs 100% and get VAT return 100% if the car is only in business use.
– if the car is in mix use, you either compensate the costs to the company certain % or pay taxes on costs not deductable.

There are more details which can be discussed case by case.