If you are starting your business in Estonia, or do not have much experience invoicing customers, you may find the topic confusing. Should I include VAT? What data should I include in my invoices? In this article, we describe how to invoice and present the invoices of your company in Estonia.
It is important to point out that we are not going to talk about cryptocurrency companies here, since they have a series of very special conditions. That is, this post only talks about “standard” companies, which carry out all their activity in fiat money (euros, dollars, etc).
To begin it is necessary to have a series of basic concepts about the accounting of a company.
In its simplest form, a company operates with some earnings (money that enters) and expenses (money that goes out). In order to perform the bookkeeping properly, each expense or income must be justified.
That means that it makes sense at the level of the company’s activity. The golden rule is: for every banking movement in your company, there must be an invoice, salary, dividends distribution or any other justification for that movement, and vice-versa.
That means you can not simply buy a sandwich using your company’s card. The money belongs to the company, not you, even if you are the only shareholder and board member.
The earnings of your company are justified by income invoices. These invoices are issued by your company and sent to your customers for purchasing your products or services. Below we explain how to build these invoices correctly.
Expenses can be of many types:
They can be justifiable expenses of your business (we explain below what they are). In that case, you need to always ask for an invoice in the name of your company, with your company name, registration number and VAT number if you have one. It is advisable also to give the address of your company so that they include it in the invoice.
If a professional or company invoices your company for services offered to it, they must send you a correct invoice to justify the payment your business makes.
When you assign salary or dividends to an employee of your company, that money that leaves your company is justified also and pays taxes in Estonia. Here we explain how.
Finally, the Daily Allowance is another type of justified expense of your business, exempt from taxes.
What’s a justifiable expense
In Estonia, the justifiable expenses of your business are exempt from taxes, since taxation is applied when assigning salaries or distributing dividends. So what are those?
- Web domain, hosting and other services for your web page.
- All public transport when it is due to work (visit customers, go to a co-working center …).
- The telephone bill, as long as you clearly separate your personal and business numbers. A good practice is having your business number in an Estonian phone company (in Telia you can make a telephone account with Estonian number for your company with fairly cheap rates).
- The fee for any co-working center.
- Office supplies (pens, paper, notebooks, etc).
- Your laptop, tablet and work phone.
Of course, for each of these expenses, you must request, at the time of purchase or payment of the service, an invoice in the name of your company.
So, what expenses are not valid? Basically, any personal expenditure such as:
- Gifts for your family
- Your car and gas (since it can not be verified that it’s a justifiable business expense)
- Pleasure trips, or vacations
- Food, etc
Do I need a VAT number?
The short answer is: probably yes.
The long answer is: Your company needs an intra-community VAT number if any of these conditions apply:
- Essentially, if your company offers services such as development, design, consulting, marketing, etc., to EU clients, and makes more than 40,000 euros per year.
- Second, if you offer digital services or products (software, automatic subscriptions, or digital content) to B2C EU customers (final consumers) from the first sale.
- Finally, if you offer digital services or products (software, automatic subscriptions, or digital content) to B2B EU clients (company to company) and you make more than 40,000 euros per year.
As you can see, since your company in Estonia must offer digital services or products, if you sell to individuals in the European Union, you probably will need a VAT number. If you sell only to companies, it is also likely that you will need it in the long run. Our recommendation is to register as an intra-community VAT operator.
What data should the invoice include?
Here we explain what data you need to include in your invoices, both the ones you send and the ones you receive.
Data to include in sales invoices
First, we will look at the data that must be in the invoices that you issue (sales invoices).
To invoice an individual correctly, you should include at least the full name of that person. In addition to that, you should also include the address of that person. If you do not have it, you can include another identifying information, such as his ID.
Important too, any invoice you issue must have an invoice number, which is unique and preferably sequential.
Apart from that, you must include two dates on the invoice: the date of issue of the invoice (issue date), and the due date of the invoice (due date). The first is the date you generate the invoice, and the second, the latest date when the customer can pay that invoice to your company (can be specified as a number of days instead of a date).
In addition, you must specify the price WITHOUT VAT (VAT), and if the invoice should include VAT, clearly specify that VAT separately, first in percentage, and then, the amount. If the invoice does not include VAT, you must clearly specify why (below we will explain this more in detail).
Finally, the total cost for the products or services must appear, including VAT and any other tax or modification applicable to the cost. The currency in operation must also appear clearly indicated (euros, dollars, etc …).
To invoice a company, you must specify the data of the company, including its name, registration number and VAT number if you have it, and if possible their physical address.
Data to be included in purchase invoices
The invoices you receive (purchase invoices) must follow the same rules. They must clearly specify your company as the recipient (receiver) of the invoice, including your company name (with the OÜ), the registration number, VAT number (if you have it), and preferably the physical address of the same.
The invoice must clearly state the total cost without VAT, the applicable VAT (if any), and the total including any VAT, tax or extra charge applicable to the cost. The currency in operation must also appear clearly indicated (euros, dollars, etc …).
It is also important that the invoice includes a unique invoice number and two dates: the date of issue (issue date) and the due date (due date).
In addition, if you receive an invoice from a company, it should clearly indicate the data of the company that issues the invoice, including its name, address, registration number, and the intra-community VAT number (if any).
When to include VAT on the invoice
The inclusion or not of VAT in the invoice and its value depends on two factors: the type of activity of your company, and the customer being invoiced. But the main factor is if your company is VAT liable or not (i.e: has a VAT number or not).
If your company DOES NOT HAVE a VAT number
If your company is NOT VAT liable, meaning, you don’t have a VAT number, then…
- You never add VAT to your invoices, not even 0% VAT. You specify a clause under the total cost stating “XXXXXX OÜ is a non-VAT liable company, no VAT needs to be added”.
- Other EU companies that are VAT liable will add VAT to their invoices for their services or products. You may deduct this VAT at the end of the year.
If your company HAS a VAT number
In that case, we differentiate between services that require or not human intervention.
Selling services that require human interaction
If your services require human interaction (development, design, consultancy, interactive courses …), you apply these rules:
- For customers that are EU companies with a valid VAT number, you specify zero VAT (0%) and write “This purchase is liable to Intra-Community supply 0%, Reverse charge.”
- If your customers are private or companies in Europe without a valid VAT number, you apply the Estonian VAT (20%) to the invoice.
- If your customers are outside Europe, you apply zero VAT (0%) to the invoice.
As an important exception, if your customers are Estonian, companies or individuals, you apply the Estonian VAT (20%) to the invoice
Selling digital products and the MOSS
If you sell digital services or products to EU customers that do not need human intervention, special legislation applies.
What does it mean that they do not need human interaction? It means products that have been created in the past, and they have been posted on a website where they are automatically downloaded by your customers. It also means services that have been developed and deployed once, but can be used by your customers without any work from you repeatedly. Some examples include:
- Audio-visual products such as E-books, images, films, and videos.
- Downloads and streaming of music online, either buy a song in mp3 or a Spotify type service.
- Services in the cloud type software (SaaS) or platforms (PaaS). For example, if you offer an accounting tool for online writers with a monthly payment that works completely automatically.
- Hosting providers, cloud storage, domains or internet service providers.
- Automated online advertising services or platforms (which are not reviewed or monitored by a human).
In these cases, the VAT of the customer’s country of origin must be applied, and a VAT declaration must be made for each country of origin.
As you can imagine, this can become a real nightmare. To avoid this, an EU regulation called MOSS (Mini One-Stop-Shop) was approved, greatly simplifying the process. The idea is that you can register as a MOSS operator in Estonia, signing a document certifying that your products and services fall into this category of digital downloads or automated services.
Then, we will register you in the MOSS registry, and from there on you should simply remember to invoice using the VAT of the country of each one of your customers. In order to do that, you will obviously need to request the physical addresses of all your customers in the platform or service you offer.
Do I need to include other types of taxes on the invoice?
No. This is a very common error if you come from the complex fiscal world of the other EU countries (especially from the south of Europe), where a number of exceptions and extra taxes exist and apply to some types of invoices.
Do not add any extra tax beyond the VAT to your invoices for your company in Estonia.
So, how should you invoice your company in Estonia?
Let’s see some simple examples of invoices that you could issue (sales invoice) or receive (purchase bill) at your company.
Invoicing an individual in Germany for a business consultancy
This activity is considered to need your human intervention, so for this customer, you should add the Estonian VAT (20%) to the invoice.
Invoicing a US customer for software development
When the customer is outside Europe, the invoice will include zero VAT (0%). You should make sure to obtain a customer registration number and address (if it is a company) or a physical address (if it is individual) to verify that it is actually where it says it is.
Invoicing European Union customers upon downloading your fitness e-Book
In this scenario, those downloads are considered digital, automated downloads, so you need to sign up for the MOSS scheme, and then apply the VAT of each client’s country to the invoice.
As an example, imagine that your e-Commerce platform is a WordPress blog with the WooCommerce plugin. During the checkout, you should ask your customers for their address, and apply the VAT of each one of them depending on their country of residence, if they are from the European Union.
Fortunately, most software and plugins for online stores (WooCommerce, Prestashop, Shopify, etc), include this functionality.
Invoicing Google AdSense for advertising revenue on one of your websites
Google AdSense is registered in Europe and has a VAT number, therefore, the invoice you make must include VAT 0%, specifying “This purchase is liable to Intra-Community supply 0%, Reverse charge”.
Make sure you get Google’s business data, VAT number, and physical address.
Invoicing an Estonian client for the design of a logo
Although both of you have VAT, since it is a “national” service between Estonian entities/individuals, you must include the Estonian VAT (20%) clearly on the invoice.
A French company with VAT number invoices you for copywriting services
The company has to include its data (including VAT) and your data (including VAT) on the invoice. As both of you have VAT numbers, and the company is not in Estonia, the invoice will clearly specify VAT 0% (€ 0), indicating that the invoice is subject to “Intra-Community supply 0%, Reverse charge”.
How do I know if a company or freelance has a valid VAT number?
You must make sure when dealing with a European company, that they are really registered as VAT operators and have a valid VAT number. Some companies or professionals may lie in order to avoid VAT.
There is an official website of the EU Commission (VIES) where you can check if a VAT number is valid. If not, you should check with the company and ask them to give you their valid VAT number, or you will have to include Estonian VAT to the invoice (20%).
Where do I send my invoices?
That’s the best part. Every time you create a sales invoice or receive a purchase invoice, you simply need to log into our Companio® dashboard -either with your e-Resident card or with a magic link- and upload it by dragging and dropping them, as the figure above shows. Please note there are three main categories at the left: Purchases, Sales and Bank Statements. Make sure to upload your documents in the right place, i.e: purchase invoices in the Purchases section, sales invoices in the Sales section, and so on. That will help us identify them and prepare your accountancy faster.
As simple as that! If you get used to doing that with each invoice, managing your company will take you less than five minutes a day.
Official invoice templates for your company
To make your life easier, we have created some templates for your income invoices. You can download them here:
- Invoice issued to EU companies with a valid VAT number (0% VAT): [DOC | PAGES | PDF]
- Invoice issued to EU companies without VAT or individuals for services with human intervention (Estonian VAT 20%) [DOC | PAGES | PDF]
On this post, we describe how to invoice and present the invoices of your company in Estonia. Invoicing, and preparing your invoices correctly, can be a bit confusing for beginners. That’s why we created this simple guide to help you start working with your business without headaches.