Value Added Tax (VAT) in an Estonian Company

Obligations of VAT payers

As a VAT payer, you must meet the obligations that persons liable to value-added tax are subjected to from the date of registration, including:

  • Retention of documents, keeping of records and issuance of invoices corresponding to requirements;
  • Filing an income and social tax, contributions to mandatory funded pension and unemployment insurance premium tax return (Form TSD) by the 10th day of each month
  • Payment of taxes and contributions on the basis of the filed Form TSD by the 10th day of each month.
  • Adding value-added tax to the taxable value of any goods sold and services rendered;
  • As a VAT payer, you are entitled to deduct the value-added tax payable on goods and services purchased for the purposes of taxable revenue in the same taxable period from your value-added tax liability (input VAT). If you are not engaged in business or the goods and services have been purchased for the purposes of tax-exempt revenue, you cannot deduct any input VAT.
  • Calculate the payable VAT amount that must be paid into the state budget by the 20th day of the month following the taxable period (generally the calendar month);
  • File a value-added tax return (Form KMD) by the 20th day of each month, including its annex (Form KMD INF). The annex to the VAT return contains information on invoices issued to and received from legal entities, sole proprietors and government, municipal and city agencies if an invoice or total value of invoices excluding VAT is 1,000 euros or more per transaction partner;
  • VAT payers that engage in the sale of goods or rendering of services to VAT payers from other European Union Member States must file a report on Intra-Community revenue (Form VD) by the 20th day of each month.

Filing tax returns

  • The period of taxation with respect to value-added tax is the calendar month. If the number of calendar days in your first taxable period is below 15 (for example if you are registered as VAT payer since the 18th day of the month), you may include the revenue of your first period in the revenue of your next taxable period, filing a single VAT return for the two taxable periods;
  • If a due date for meeting an obligation is a public holiday or other holiday, the due date is deemed to be the first business day following the holiday;
  • The Estonian Tax and Customs Board will notify all new VAT payers on a monthly basis during the first six months following their registration of the due dates for filing tax return forms KMD and TSD via email;
  • It is possible to file all tax returns electronically through the e-Tax Board/e-Customs. You can find out more information for concluding a contract for using e-Tax Board/e-Customs from: http://www.emta.ee/eng/e-taxe-customs/creation-e-services-account-business-client
  • Filing a VAT return (Form KMD) and its annex (Form KMD INF) on paper is only permitted to entities that have been registered as VAT payers for less than 12 months and do not include more than 5 invoices in the annex to the value-added tax return. Entities that have been registered as VAT payers for more than 12 months and/or include more than 5 invoices in the annex to the value-added tax return may file their VAT return and its annex on paper only if they submit a reasoned application to the Estonian Tax and Customs Board;
  • Filing a Form TSD on paper is permitted only if Annex 1 to the Form TSD has up to 5 rows filled out, i.e. the tax return contains up to five payees.

Verification of value-added tax identification numbers of business partners

It is always worth thoroughly examining the other party’s background and the circumstances of the transaction prior to entering into a transaction in order to reduce business risk and tax risk. According to current court precedent, a taxable person that became aware of the actual circumstances (indicating tax fraud) involving a transaction but nevertheless participates in the transaction that may constitute committing tax fraud, may become subject to suspicion in the involvement of tax fraud.

If any doubt persists, we advise you to refrain from such a transaction and consider seeking out a counterparty that is more trustworthy.