Estonian VAT Information

You have surely noticed that there are many important topics related to VAT that an entrepreneur should know about. On this page, we will take a closer look at VAT in general and learn about the VAT rate in Estonia, what turnover is, and how it operates.

You can always contact our team directly, and we will help you move forward without you having to take care of these things yourself.

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This article in Estonian.

Here you will find an explanation of VAT, one of the most frequently asked questions. VAT is a consumption tax that affects almost all products and services. It is levied at every stage of production and is a visible price increase to the end consumer. The purpose of VAT is to increase state revenues, which are used to finance public services. According to the VAT Act, VAT means the transfer of possession of goods with the right to use the goods and their benefits as an owner, regardless of the proprietary status of the goods. A service is considered to be the provision of a service or the transfer of a right within the framework of business activities, as well as refraining from economic activities for a fee, and waiving the right to use. A service also includes software and information transmitted electronically, and the transfer of data carriers with software or information tailored or customized according to the buyer’s order. VAT is an important part of Estonia’s tax system, affecting all businesses and consumers. Understanding how VAT works and what the obligations are can help you avoid problems and ensure smooth business operations.

Take care of your VAT obligations correctly and on time, and if you need help, contact Riihos.

Turnover is an economic term that refers to the revenues earned by a company over a certain period from the sale of goods or the provision of services. It is the amount that reflects the company’s sales revenue before accounting for costs, taxes, and other deductions. Turnover is an important indicator of a company’s financial condition and business volume. Turnover also includes cases where the taxpayer, their employee, servant, or member of a management or control body consumes goods and services for free for personal or non-business purposes. Such use is taxed as personal consumption. If personal consumption involves the free transfer or free use of goods that are part of the company’s assets, it is considered personal consumption only if the taxpayer has fully or partially deducted input VAT from the goods.

Turnover occurs when a company sells its goods or services and receives payment for them. This means that turnover is realized at the moment when the sales transaction is completed, and the company has received monetary or non-monetary compensation for the sold goods or provided services. The exact timing of turnover may vary depending on the sales contract and accounting rules, but generally, it occurs in the following cases:

1. Sale of goods: Turnover occurs when the goods have been transferred to the buyer, and ownership has passed to the buyer. This can happen immediately upon purchase (e.g., in retail) or when the goods have been delivered to the buyer (e.g., when ordering online).
2. Provision of services: Turnover occurs when the service has been provided and the client has received the service. For example, in the case of a consulting service, turnover may be realized when the consultation has been conducted.
3. Moment of payment: In some cases, turnover may only occur when the company has received payment for its goods or services, especially if the company uses cash-based accounting.

The exact timing of turnover can also depend on the accounting standards followed by the company, such as accrual-based vs. cash-based accounting. In accrual-based accounting, turnover is recorded when the sale has occurred, regardless of whether the money has been received or not. In cash-based accounting, turnover is recorded only when the money has actually been received.

The VAT obligation is a legal obligation to pay VAT to the state for the sale of goods or the provision of services. VAT is a consumption tax that is added to the price of a good or service. Companies whose annual turnover exceeds the threshold set by law must register as VAT payers and add VAT to their sales prices. A VAT payer is required to regularly submit VAT returns and pay the collected VAT to the state, while they are also entitled to deduct VAT paid on goods and services purchased. In Estonia, the standard VAT rate is 22%.

Many factors affect the VAT obligation, the largest of which are the company’s field of activity and the size of the company’s operations.

To register or deregister, an application must be submitted in the environment of the Tax and Customs Board.

Calculating VAT is a relatively simple process. The seller adds VAT to the goods or services, which is reflected in the sales price. The collected VAT is declared and paid to the state. Then you submit a VAT return, showing the total collected VAT and the VAT paid on goods or services purchased. The difference between these two amounts is the payable or refundable VAT to the state. As mentioned in the previous chapter, the standard VAT rate in Estonia is 22%.

More information on VAT rates can be found HERE.

If you want to calculate and estimate the VAT portion, it is worth trying the VAT calculator. With the VAT calculator, you can easily calculate the proportion of the tax and thus think more carefully about the pricing of your product or service. Note that to use the calculator, you need to know the applicable VAT rate for the products or services to be calculated. We discussed different VAT rates in the previous chapter. Here you will find a VAT calculator that will help you make the necessary decisions.

Different VAT rates are used to achieve various economic and social policy goals. Higher rates apply to luxury goods and services to increase state revenues and reduce consumption. Lower rates apply to books and educational literature, press publications, and accommodation to make them more affordable. The use of different rates allows governments to balance economic growth promotion while maintaining social equality and supporting essential services. Depending on your field of activity and operations, you may have many different VAT rates in use. This may seem complicated, but we are happy to advise you on these related issues.

Regarding accounting, it is easy to deal with, and we take care of it all. You can read more about our company here.