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VAT

Your company, at the time of entering the Estonian registry, gets a registration number. This number, together with the name of your company, serves to identify it, and must be included in the invoices that you send to your customers or your suppliers send you. It is composed only of numerical digits, such as 123456789.

If your company also gets an intra-community VAT number, and enters the VIES register (included free of charge in our company creation pack) it will also have a VAT number that will start with EE (such as EE123456789). This number is important to include also in invoices, especially European, both customers and suppliers.

Regardless of whether or not your company has VAT, from the moment it has a registration number, you can now invoice any customer and be invoiced by your suppliers.

If you’re opening a company in Estonia, you’ll need to understand what that means for your accountancy. From VAT to annual dividends to paying employee salaries, our straightforward article walks you through the basics – and how Companio handles all of it for you! Click here to learn more.

Sometimes, despite the fact that you have had more expenses than income, you find that you have to pay VAT. This may seem confusing at first. Why do I have to pay VAT if we have had losses?

You have to understand how VAT works. VAT (Value Added Tax) is a tax that is applied to your sales to European customers if your company is VAT liable (that is if it has a VAT number). In these circumstances, VAT is added or not to invoices according to some rules.

Specifically, some operations are exempt from VAT even for VAT-liable companies. Specifically, expenses from non-EU providers (exclude VAT), and EU companies with valid VAT numbers (include 0% VAT). VAT is not added to these purchase invoices VAT, which implies that you are not PAYING VAT on those invoices from your suppliers.

However, if you are collecting VAT on sales invoices to your customers (for example a sale to a German or French individual), the result may be negative (i.e: you need to pay VAT next month), because you collected more VAT than you paid, even if overall your expenses exceeded your sales.

A very common example: your company, with an Estonian VAT number, has many sales to individuals in the European Union (they always include VAT if you are VAT-liable), but all your purchases are made to EU companies with valid VAT (they add 0% VAT to the invoice) or to companies outside the European Union (they do not add VAT to the invoice). In this scenario, you are charging VAT and not paying any VAT, so you will always have to pay the difference in that extra VAT that you have collected, the next month.

This happens even if your expenses are 300 times your income because even then, you are not paying VAT on expenses.

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