About value added tax (VAT) in Estonia
The value added tax is a state tax established to tax goods and services in entrepreneurship, goods imported from third countries and goods acquired in the member states of the European Union. The domain of the value added tax is regulated by the Value Added Tax Act.
The Value Added Tax Act describes the essence of the turnover, the time during which the turnover occurs and the principles, which form the basis for the calculation of the taxable value. The rate of the value added tax in Estonia is 20% of the taxable value of goods or services. In some cases the rate of 9% and 0% is also applied. The turnover of several goods and services of social nature can be tax-free.
The VAT is called the value added tax. An enterprise or a natural person must add the VAT to the sales price; however, one can apply to have the VAT of purchased goods and services be refunded.
A person liable to VAT has to submit a value added declaration to the Tax and Customs Board by the 20th day of every month, to reflect the sales turnover of the previous month and the VAT paid according to the purchase invoices. A program calculates the refunded VAT.
Example: An enterprise purchased goods for 100 € + 20% VAT (which makes 20€) = 120 €. Then the enterprise sold the goods to its clients for 300 € + 20% VAT (which makes 60 €) = 360 €. The Estonian Tax and Customs Board has to be paid the difference between the VAT received from the client and the sum paid by the enterprise 60-20=40 €.
Legal persons may become liable to value added tax (or enterprises and self-employed persons), if their turnover exceeds 40 000 EUR a year since the beginning of the calendar year. In order to be registered as a person liable to value added tax, an application has to be submitted within three days since the day the turnover exceeds the 40 000 EUR limit.
One can register as a person liable to value added tax also on voluntary basis before the corresponding turnover is achieved. It is worth to keep in mind that it is not wise to register as a person liable to VAT before the liability occurs, when the costs are low or the clients are private persons, because the VAT is not refunded in that case. Concurrently, the registration as a person liable to VAT means that you have to keep records of the VAT accounting and submit the value added tax form.
Additional information about the value added tax is available in section “VAT” on the homepage of the Tax and Customs Board.
