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Dropshipping & Digital Downloads

If your services do not require your intervention, that is, they are automated (such as a web application that you have developed, or the download of an eBook you wrote a long time ago), these rules apply:

  • If your customer is a European B2B (a company) with a valid VAT number, you do not add VAT (0%) and put the same clause.
  • On the contrary, if your client does not have a VAT number, but is from Europe (individual or company), you add the VAT of your country of origin to the invoice. For a Spanish customer, that would be 21%.
  • Finally, if your client is outside Europe, you do not add VAT (0%).

When your product is sold to individuals and is downloaded by them automatically, without human intervention, it is considered to fall into the “digital downloads” category.

As it would be unfeasible to pay the collected VAT to the countries of each one of your clients, a scheme called OSS was created. This scheme declares all VAT charged to all your European customers to the Estonian authorities only. Then, once a quarter, the Estonian government asks you to pay the whole amount of VAT you collected that quarter and then distribute it to each European country appropriately. This procedure is quite convenient to avoid costs and time for the companies.

Therefore, if you enter the category of digital downloads, it is necessary to register in the OSS (One Stop Shop) scheme, specifying which of your products fall into that category, and make quarterly VAT returns. You must inform us to request the documentation and have you sign the OSS statement.

If your total sales don’t exceed 10,000 euros per year, you are exempt from joining the OSS. Therefore, our recommendation is that until you exceed € 10,000 a year in any country, you don’t sign up for OSS, and in that case, you will charge your customers the Estonian VAT (20%).

Here you have the link to European regulations.

Any digital product or service that is served automatically to the customer without human intervention.

From digital downloads, ebooks, video courses (prerecorded) to dropshipping (order is services by the supplier), to SaaS businesses (think Uber, Netflix).

The EORI number is an identifier that is required by certain entities that deal with export and import operations in Europe. From the European course on EORI:

“Economic operators”, meaning, individuals and companies engaged in customs-related activities in the EU, need to register under the Economic Operators Registration and Identification system and be assigned a unique EORI number under certain circumstances. To qualify for EORI registration, individuals or organizations need to be an “Economic operator” (EO) as defined by their legal status and the activities they carry out.

This affects companies established in the EU if they deal with customs or import/export of physical goods.
Each EU member state (through its customs authority) is responsible for issuing EORI numbers to EOs that qualify. In the case of companies, that is a legal entity, such as a limited company, incorporated in a particular EU member state. A ‘legal person’ entity must register in only one member state.

And of course, it implies that the activities of the company involve importing or exporting goods into our outside the EU.

To qualify, a company needs to carry out activities that involve importing goods into the EU, exporting goods from the EU or making transit through the EU and also running a customs warehouse, or applying for the Biding Tariff information.

Does it affect me?

In practice, this only affects companies that deal with the goods directly, meaning, they are involved in customs operations with these goods (import or export them directly). As you may know, the e-Residency program of Estonia is only a good fit for digital businesses. The only business model we support that has anything to do with physical goods or an online shop is the pure dropshipping model, or also the FBA model. In these models, there is an external supplier who sends the goods to the customer directly. In other words, the Estonian company does not keep, store in a warehouse, export, or import any goods.

As such, you won’t probably need an EORI number. If you are required to get it by the authorities, though, it is easy to do so on the EMTA website (Estonian Tax Office). In this article, we explain how to apply for your EORI number completely online.

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