Browse our FAQ for typical questions
What is VAT?
Value Added Tax (VAT) is a consumption tax applied to the sale of goods and services, but it does not apply to other types of payments, such as loans, capital, or financial instruments. Businesses collect VAT from their clients, deduct the VAT they have paid on their own purchases, and transfer the difference to the tax authority. However, many nuances are involved with VAT, especially when cross-border sales come into play.
What types of VAT registration are available in Estonia?
Estonia offers two main types of VAT registration:
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Standard VAT Registration: For companies making taxable supplies in Estonia, such as domestic sales of goods or services.
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Limited VAT Registration: For businesses involved in intra-community acquisitions (e.g., buying goods from other EU countries) or receiving specific services from abroad, even if they don’t sell in Estonia.
How does VAT apply to cross-border sales within the EU?
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B2B (Business-to-Business) Sales: The reverse charge mechanism typically applies, where the buyer accounts for VAT in their own country, simplifying the seller’s obligations.
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B2C (Business-to-Consumer) Sales: VAT is charged at the rate of the customer’s country. However, if your total EU sales are below €10,000 (e.g., for digital services), you can charge Estonian VAT instead, unless you exceed distance selling thresholds in specific countries.
How does VAT apply to cross-border sales within the EU?
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B2B (Business-to-Business) Sales: The reverse charge mechanism typically applies, where the buyer accounts for VAT in their own country, simplifying the seller’s obligations.
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B2C (Business-to-Consumer) Sales: VAT is charged at the rate of the customer’s country. However, if your total EU sales are below €10,000 (e.g., for digital services), you can charge Estonian VAT instead, unless you exceed distance selling thresholds in specific countries.
What is the One Stop Shop (OSS) scheme and how does it help?
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The One Stop Shop (OSS) scheme allows businesses to report and pay VAT for all EU sales through a single quarterly return filed in Estonia. This simplifies compliance for companies selling across multiple EU countries, eliminating the need to register for VAT in each country individually.
What is the VAT registration threshold for Estonian companies?
Threshold can effectively vary depending on several factors:
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Type of services: For instance, digital services sold to consumers in other EU countries may require VAT registration in those countries if sales exceed €10,000 across the EU, regardless of the Estonian threshold.
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Location of goods: Goods stored or sold in another EU country may necessitate local VAT registration, particularly for intra-community trade or warehousing scenarios.
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Method of delivery: Businesses involved in distance selling (e.g., shipping goods to consumers in other EU countries) must comply with country-specific thresholds. While these historically ranged from €35,000 to €100,000, the EU’s One Stop Shop (OSS) scheme now allows centralized reporting, altering the registration dynamic.
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Type of customers: Sales to businesses (B2B) often use the reverse charge mechanism, shifting VAT liability, whereas sales to consumers (B2C) may trigger local VAT obligations in the customer’s country.
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Reverse charge mechanism can be used only when the other party has a valid VAT number and it has been validated at VIES database.
How often do Estonian companies need to file VAT returns?
VAT returns in Estonia are filed monthly by the 20th of the following month. Businesses using the OSS scheme additionally file quarterly OSS returns.
If a VAT numbers a´have been obtained in other countries, then local filing requirements will apply.VAT rate in 2025 and beyond
Standard Rate Increase: The standard VAT rate will increase from 22% to 24% starting July 1, 2025, following an earlier rise from 20% to 22% in 2024. This temporary hike, expiring January 1, 2029
How can Sunio assist with VAT compliance?
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If your business requires local VAT numbers in other EU countries (e.g., for having a warehouse or other type of permanent establishment, selling goods or services directly to customers in those markets), Sunio will refer you to our partner Hellotax. Hellotax can arrange VAT number registrations and handle compliance in various EU countries, ensuring you meet all local tax obligations. Fees for Hellotax services apply and will be outlined during the referral process.
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Corporate Income Tax on Distributed Profits
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The corporate income tax rate on distributed profits is 22%, effective January 1, 2025. This tax applies only when companies distribute profits as dividends, maintaining Estonia’s unique system where undistributed profits are not subject to corporate income tax in the year they are earned.
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Calculation: The tax is levied on the net distribution amount. For a net dividend of D, the tax is calculated as T = (22/78) × D, approximately 0.282 × D, with the total amount paid from company profits being D + T.
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Abolition of Reduced Rate: The reduced tax rate of 14% previously available for regular dividend payments was eliminated starting in 2025.
Security Tax on Corporate Profits
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Introduction: A new 2% security tax on annual corporate profits will take effect from 2026, applicable to profits earned in 2025. This tax is temporary, set to run from 2026 to 2028, and is part of Estonia’s national security funding measures. IMPORTANT UPDATE: AS OF MARCH 2025, THE NEW GOVERNMENT HAS WITHDRAWN THE SECURITY TAX IMPLEMENTATION
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Details: The tax is based on the previous fiscal year’s accounting profits before income tax. Companies with no profits will have no tax liability. Advance payments will be made quarterly in 2026, determined by the profits generated in 2025.
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Impact in 2025: While the tax is not payable in 2025, companies must account for this future liability in their 2025 financial planning, as it applies to profits earned during that year.
Fringe Benefit Tax & Non-Deductible Expenses
Fringe Benefit Tax
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Non-monetary benefits (e.g., personal use of a company car, free housing, or personal expenses covered by the company) are subject to fringe benefit tax.
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The tax rate is 22/78 on the value of the benefit.
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Additionally, social tax (33%) is applied on the taxed benefit.
Non-Deductible & Improperly Documented Expenses -
Expenses that are not business-related, lack proper documentation, or are considered personal in nature are treated similarly to fringe benefits and subject to taxation.
Examples of non-deductible expenses subject to tax: -
Undocumented (Missing Receipt) Expenses
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If an expense lacks a proper invoice or receipt, it is treated as a non-business expense and taxed at 22/78.
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Social tax (33%) also applies.
Non-Business-Related Purchases -
If an expense is not directly related to business operations (e.g., luxury items, personal electronics), it is not deductible.
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The company must pay 22/78 tax on the expense plus 33% social tax.
Improperly Classified or Personal Expenses -
If a company covers an employee's personal expenses (e.g., gym memberships, vacations, private dinners) without these qualifying as business-related, they are taxed as fringe benefits.
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The company pays 22/78 corporate tax plus 33% social tax.
Cash Withdrawals & Undocumented Payouts -
If a company withdraws cash from its account without clear justification, this amount may be classified as a taxable non-business payout.
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The tax rate is 22/78, plus 33% social tax if considered a fringe benefit.
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Employees, if place of work is Estonia
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Social Tax: 33% (20% pension + 13% health), paid by employer.
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Unemployment Insurance:
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Employer: 0.5%
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Employee: 1.6%
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Personal Income Tax (PIT): 20% flat rate, withheld from salaries.
Employees, if place of work is another country
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Taxes and regulations of the country apply where the work is physically performed.
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No employment taxes are due in Estonia.
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Employee must provide A1 certificate from their tax authority, verifying their valid tax status.
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Employee must report received fees on their private tax return in their country of residency.
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Typically a Company should register for local employer and taxpayer in the relevant country.
Freelancers, if place of work is another country
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If the freelancer is registered as an entrepreneur at their local authority and provides a copy of valid business registration (licence), then they should invoice for their services. Estonian tax does not apply.
Management Board Members
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Social Tax: 33% (20% pension + 13% health), paid by employer.
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Personal Income Tax (PIT): 22% flat rate, withheld from fees.
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If a board member provides the A1 certificate from their tax authority, verifying their valid tax status, then social tax in Estonia does not apply.
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Board member must report received fees on their private tax return in their country of residency.
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Tax treaties or Double Taxation Agreements
Tax treaties enable people and businesses to reduce tax burden when operating in multiple countries, thus making cross-border business efficient.
The concepts and principles of the agreements between different countries are generally similar. However, country-specific details occur in each agreement.Estonia has concluded double taxation agreements with more than 60 countries, plus several more are in the pipeline.
See the updated list of double taxation agreements.