Regardless of where you’re based, you have to deal with Estonian VAT rules if you have clients or work as a freelancer in Estonia. VAT, or Value Added Tax, is a consumption tax levied on the purchase of almost all goods and services in the EU. While you might already know that, you might be unaware of the specific rules surrounding your product, which you should follow if you want to stay tax compliant.
The standard rate of VAT in Estonia is 20% and is administered by the Estonian Tax and Customs Board. This guide includes everything you, as a freelancer, need to know about VAT in Estonia in a nutshell. Let's get started!
Estonian VAT rates for Freelancers
The standard rate of VAT, or käibemaks in Estonian, is 20%. There is, however, also a reduced tax rate of 9%, which applies to certain goods and services. Freelancers must charge the amount that applies to their products and services:
- The Standard Rate - Unless the items or services you offer fall under the reduced rate or zero-rated category, you should charge the standard VAT rate of 20%.
- The Reduced Rate - The reduced rate is set at 9%. It applies to items such as some pharmaceutical products, medical equipment for disabled persons, books (excluding e-books), newspapers and periodicals, hotel accommodation, and so on.
- The Zero Rate - When items are zero-rated, they are still VAT-taxable, but the rate of VAT you must charge your consumers is 0%. This rate usually covers intra-community and international transport. Although there are no charges on zero rates, you should record sales of goods and services and create a report based on your returns.
When to Register for VAT as a Freelancer in Estonia
If your annual turnover exceeds 40,000 Euros, you are obligated to register for VAT. You must first submit an application for registration as a VAT payer to the Estonian Tax and Customs Board within three working days as of the date on which the need for registration arises.
If you have no taxable sales yet, or your turnover doesn’t exceed 40,000 Euros, registration as a VAT payer is voluntary.
The prerequisite for VAT registration is that you must be engaged in business or about to commence business in Estonia.
How to Register for VAT in Estonia
You must first submit an application for registration as a person liable to VAT, either online or in-person at the nearest tax office. Once your application is approved and you receive your VAT number, you must declare VAT every month.
You can also register using the Mini One-Stop-Shop, an EU-wide tax system that allows you to consolidate all of your EU VAT in one single tax return. This scheme is optional but beneficial if you have customers in multiple countries within the EU, including Estonia. In addition, MOSS allows you to avoid registering in each Member State of consumption.
VAT Guide for Expat Freelancers in Estonia
The Estonian business environment of nurturing and encouraging startup growth is perfect for freelancers and self-employed entrepreneurs. Thanks to e-Residency, the country is open for freelancers worldwide to grow their client base, launch innovative products and services, and manage the administrative side of their businesses with minimal bureaucracy.
With an e-Residency, you can enter the EU market with ease, grow your business remotely, and join a global community of like-minded e-resident entrepreneurs and expert service providers.
You can then register for VAT by following the steps mentioned above.
Financial Obligations of VAT Registered Freelancers in Estonia
After registering for VAT, you must make sure to:
- Charge the correct VAT rate
- Pay any VAT owed to the tax office
- File VAT returns
- Maintain VAT invoices and a VAT account
VAT invoices are the official record of how much tax you charge and collect, and therefore the official proof of how much tax you owe the government. In order to completely comply with VAT laws, you must make sure to include the following in your Estonian VAT invoices:
- Your business name and address
- Your business VAT number
- Invoice date
- Invoice sequencing number
- Description of the goods or services
- Rate of VAT applied to each item
- The total amount of VAT
The invoices must be issued within six months of delivering your product or service. You must then store these invoices electronically for ten years.
Does that sound excessive? Xolo can help! We automatically generate, send, and store all your invoices digitally, so you won’t have to worry about misplacing them over the next decade.
Send VAT-compliant Invoices as a Freelancer in Estonia with Xolo
The VAT registration and reporting process can be such a hassle at times, but we hope this guide has helped you answer some questions when it comes to VAT rates in Estonia. And to alleviate legal challenges and risks when being your own boss, Xolo also offers compliance and legal support to help you stay on good track:
- If you want to send invoices to your international clients without registering a company, Xolo Go is for you! You'll be able to receive payments in several currencies and manage your expenses as a freelancer. A VAT calculator and invoice generator also will do their magic to help you manage invoices in one place.
- If setting up a business-of-one is your plan, Xolo Leap will help you register your one-person business that will give you the access to EU market and manage your administration without any paper. Besides VAT-compliant invoice creation, we'll help you with automated VAT collection & declaration and tax returns with a list of other mundane legal aspects. Running a fully remote business is never easier!
Send your invoices as a freelancer or launch your dream solo business while staying fully VAT-compliant!
