Learn and Level Up

Invoicing

If you’re starting your business in Estonia – or don’t have much experience invoicing customers – you may be wondering how to invoice your customers. What should I add? should you include VAT? This article guides you through the accounting basics like where you should send VAT invoices when you should include VAT, and what this all means for your company’s taxes.

The rule is quite simple, and it depends on the type of service your company offers, and if it’s VAT liable or not.

First and foremost, if your company is NOT VAT liable, meaning, you don’t have a VAT number starting with EE, you NEVER add VAT to your invoices.

If your services require your direct intervention (such as software development, consulting, marketing, etc.), then:

  • If your customer is B2B (a company) in Europe, with a VAT number, you do not add VAT to the invoice (0%). Instead, you add a clause to your bill like this: “The purchase is reliable to Intra-Community supply 0%, Reverse charge”. Here is a link where you can check if the VAT of one of your customers is valid or not.
  • If your customer is B2C (an individual, go), or B2B without a VAT number, you add Estonian VAT (20%) to the invoice.
  • Finally, if your client is outside Europe (ex: United States), you do not add VAT (0%).

On the contrary, 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%).

As an important exception, remember that your company needs to add Estonian VAT (20%) to any invoice you make to another Estonia company (since it is an internal operation within the Estonian tax system).

More information here.

Every time you send an invoice to one of your clients, do not forget to upload them to our platform. Simply log in with your email via a magic link, or your e-Resident card (if you have enabled it), go to the “Sales” section on Companio, and drag&drop the invoice PDF in the right place. We will take care of the rest.

Another option is to upload all invoices for the month at the end of the month. Remember that we need to have them ready to do your accounting for that month before the 5th of the following month.

Estonia’s e-Residency program allows you to have a truly location-independent company. As a result, it will do business with all kinds of companies, customers, and suppliers. The invoicing tool included in Companio allows you to automatically generate and send invoices to your customers. From now on, you can also generate these invoices in any currency, not just in euros.

Adding an invoice in a specific currency

To generate an invoice in a specific currency, go to the Sales section on Companio’s dashboard. Then, click on the “New invoice” button at the top right.

Then choose a contact to issue the invoice to or add a new one, and click on “Next”.

Now you can choose the invoice items. Notice that there is a “Currency” field. Use that field to choose the right currency for the invoice. Then, when you have finished, the system will generate the invoice document in PDF, specifying the correct currency.

Make sure to apply the right VAT to the invoice. If you are invoicing a company outside the EU, which is quite common if your invoice is not in EUR, you should not add VAT to the invoice.

Imagine this scenario: your company is paying a subscription for a service that sends you invoices every month by email.

This means that every month you have to receive the email, download the invoice, access Companio and upload the invoice to the Expenses section. Now imagine another scenario: your online store generates an email with a sales invoice every time a customer buys one of your products. Upon receiving this email, you have to save the document on your computer and upload it later to Companio.

What do these two scenarios have in common? A repetitive process of receiving invoices via email and uploading them to a platform that could be automated. To solve this problem, we have created the automation of invoices via email.

How does it work?

Very simple, go to the Settings section in the user menu at the top right. Once there, click on the “Automation” tab.

You will see two buttons, one to generate and copy the email address to which you should send your expenses invoices, and the other to generate and copy the email address to which you should send your sales invoices. So, for example, if you want to send all your invoices generated in Uber automatically as expense invoices, simply click on the expense invoices button. A unique email address will be auto-generated for your user and copied directly. Now all you have to do is paste that email address into the Uber app.

In addition to being useful, automation will save you a lot of time. To prevent this feature from being subject to abuse, there is a one-email per minute limit per customer. In other words, multiple emails in less than a minute will be ignored. Please make responsible use of this tool and do not share those email addresses publicly.

The Estonian business system is very flexible and offers many advantages for entrepreneurs. Imagine that Ana forgets her business card on her trip to San Francisco, and needs to pay a business expense with it. What can she do?

No problem, Ana can pay that expense with her personal credit card, or even in cash, but ask for an invoice for her company, and then tell us that she paid that with her personal money. We will declare that expense as “out of pocket expenses”, and Ana can refund that money back into her personal bank account without paying taxes for it.

Who can declare out-of-pocket expenses?

Any member of the board of an Estonian company can pay expenses with their personal money and then declare them as out-of-pocket expenses. Later, they will be able to refund that money back into their personal accounts.

How to declare Out Of Pocket Expenses?

It’s important that you ask for an invoice for your company, even if you are going to pay that expense with your own money. Then, before refunding the money back to your account, you need to let us know that these expenses were paid with your personal finances.

In order to do so, you need to log in to the dashboard and go to your purchase invoices. If you haven’t already, upload the purchase invoice. Next, you just need to click on the “Out of pocket” switch for that entry in the table of expenses.
Here’s an animation showing you how to do it.

Now we will acknowledge the fact that you paid that expense with your personal finances. So we won’t look for a bank payment from your company’s account for that invoice.

Then, you can safely do a transfer from your company’s bank account to your personal one, stating “refund for out of pocket expenses” in the concept of the transfer.

One sales invoice and its matching payment do not have to be strictly simultaneous in time. Sometimes, after sending the invoice, it may take a few days or even a week until you receive the payment. That’s normal.

It is important that this period is reasonable (less than one month), and the payment is issued the same day or before the payment is made.

For customers who don’t pay in time, our recommendation is to take some precautions when issuing invoices, and also include a late payment surcharge clause. These clauses are perfectly legal and quite common in Estonia.

Basically, you include in the invoice the date of issue, the due date (a recommended maximum of one week later), and a late payment clause that is usually 0.5% per day once the payment period expires. So if payment gets delayed three days after the due date, a 1.5% surcharge would apply. For an invoice of € 100, it would be € 1.5€, which is not so much, but it is an important reminder for your customers to pay in time.

In the end, it is all about educating your clients to respect your work or the services or products you offer in a professional way.

Unfortunately, every business will suffer from chargebacks or will need to issue a refund to a customer sooner or later.

After a chargeback or a refund, you may be left wondering what to do, accountancy-wise. You charged the customer and issued an invoice, but the order was canceled or refunded, or the chargeback happened, and now the money is gone. What should you do with the invoice?

If you have already uploaded the invoice to the dashboard, no problem, you need to issue a credit invoice to compensate for the refund or chargeback. Don’t worry, it is quite easy.

In both scenarios, we have the following situation: There is an initial payment from the customer, say, 100€, and you issue an invoice for the customer for 100€, with invoice number xxxx, that got paid to your corporate bank account.

Then, sometime later, there is a chargeback or you refund all or part of the money to the customer. In both cases, you will issue a “credit” invoice. It is similar to a normal invoice but in negative numbers, and takes into account VAT if necessary.

So for a total refund, you will create an invoice with a different invoice number, yyyy, but the exact same data of the customer (name, address, registration code if it was a company, etc), for -100€. You will specify “refund for invoice xxxx” or “chargeback from invoice xxxx” as the invoice’s subject or concept.

If it was a partial refund, say, 20€, you will issue an invoice for -20€.

Take into account that if you applied VAT to the original invoice, then VAT has to be taken into account in the credit invoice. So if you had VAT, and the invoice was 100€+20€ VAT (for example, 20%), then if you refund a total of 24€, 20€ is the subtotal, and 4€ corresponds to the VAT, so you will specify in the credit invoice:

—————————————————
Subtotal -20€
VAT (20%) -4€
Total (including VAT) -24€
After generating this credit invoice, just upload it to Companio’s dashboard.

Accounting in Estonia is done on a monthly basis, especially if you have a VAT number. That means you must upload all purchase and sale invoices of one month to our dashboard before the 5th of the following month so that we can process them correctly.

However, sometimes it can happen that your company buys something and does not receive an invoice until some time later. What should you do if it becomes a significant amount of time, such as one or two months?
Ideally, this should not happen, and you should avoid doing business or buying from this type of provider. A provider should issue an invoice short after paying the expense.

However, if this situation occurs occasionally, it is not so problematic. This is the official position of the Estonian Tax Office:
If the expense document (which meets the requirements of § 37 of the VAT Act) is submitted to the business name for taxable turnover, the VAT paid as input VAT can be deducted from the VAT invoice for the month in which it is received/posted. The same with receipts without VAT.

In other words, it is fine if it happens occasionally, but your company must pay VAT on the invoice beforehand and cannot recover it until the corresponding invoice is submitted.

The first thing to consider is the status of these people. Are they professionals or are they just individuals?

Freelancers and professionals

In that case, it’s as simple for them as issuing an invoice to your Estonian company. Our suggestion is, if they are Europeans, that they obtain a VAT number. Then, if your Estonian company has a VAT number too, their invoice will indicate VAT 0%.

Individuals

In this case, charging for services offered to your company, depending on the country, may not be allowed for individuals.

For the company to prevent any problem, a work or services agreement must always be signed with them. This contract must include at least the following elements:

  • The complete information of the provider of the service, including full name, full address, and (important) tax identification number.
  • The service to be performed.
  • The hours to be allocated, either periodic (ex: 2h / week) or total (a total of 30 hours).
  • A clause that clearly specifies that the provider of the service is responsible for declaring and paying the taxes corresponding to that activity in their country of residence.
  • This contract should be written in English, as far as possible, to be able to integrate it into your company’s accounting and show it to the authorities if required.

Here you can read more in-depth explanations about how to pay freelancers and contractors for their services.

As part of being our customer, you have access to Companio’s dashboard, allowing you to upload your sales and purchase invoices, as well as bank statements, every month, and forget about the rest. Our goal is to prevent you from having to deal with paperwork, bureaucracy, and spreadsheets and focus on growing your business.

However, you can use any billing program you want. Only, do not forget that we need you to upload invoices and bank statements anyway to our portal, before the 5th of the following month, as we specify in our terms and conditions of use.

Consulting

Book a consulting session

Our team of business experts is here to answer any questions about starting your business in Estonia.

Book a one-hour consulting session for just €199+VAT.

Show me how!
Consulting

Can’t Find Answers?

Our amazing customer support team can answer your questions in English, French, Portuguese, Russian, Spanish, Turkish, and Ukrainian. Just open a ticket with your questions and they will help you within 72 business hours.

Open a ticket