Applying for VAT number in Estonia
Obtaining a VAT number for Estonian company became a big deal. Something similar to opening bank account.
Receiving VAT number became an issue several years ago and for now EMTA really likes to cancel VAT numbers and really does not like to issue new ones.
This is the main idea any applicant should keep in mind before applying for VAT number. Particularly if applicant is an Estonian company established by non-resident.
General Procedure
Application for VAT number can be divided into 2 cathegories:
- Voluntary application. Can be done at any time.
- Obligatory application. Can be done after a company exceeds a threshold of 40’000 eur of taxable turnover per calendar year.
NB! Exceeding a threshold does not triggers an obligation to obtain VAT number. It only triggers an obligation to apply for VAT number.
Starting the procedure is rather simple. You login to e-Tax and submit simple form, where you state cathegory of application (voluntary or obligatory), describe principal business activity of your company and provide supporting documents.
This after, EMTA will have 5 working days to process your application. Normally in around 2-3 working days you will recieve a letter from EMTA, with request to provide evidences of business activity in Estonia.
Here is an extract from the actual request of EMTA:
In our assessment, the information provided in the application does not sufficiently demonstrate that you are conducting business in Estonia. Consequently, we ask that you submit additional written information and supporting documentation.
1. Please explain in more detail what specific business and other management-related consulting services you provide.
2. List your main business partners. Provide evidence of transactions with these business partners.
3. How do you establish contact with clients
4. How is communication with clients organized?
5. How are payments made for transactions?
6. Name the person who provides the service. How is the person providing the service compensated?
7. How is the value of the transaction determined?
8. How is the service made available to the client?
9. What are the costs associated with providing the service? Name the main suppliers.
10. List the locations of all the company’s places of business (countries, addresses) and explain exactly what activities are carried out at each address.
11. What is located at the registered address?
12. In which country is the board of directors located?
13. Provide statements for accounts opened in the company’s name at banks and payment systems.
If you are not ready to provide correct answers to these questions, your application for VAT number will be most likely denied.
Connection with Estonia
The main reason for denial in granting VAT number for an Estonian company is absence of business activity in Estonia or so called connection with Estonia.
By connection with Estonia EMTA understands:
- Sales to Estonian clients.
- Custom operations on territory of Estonia.
- Assets in Estonia.
- Management located in Estonia.
- Estonian employees
- Residency + registered living place in Estonia of key persons.
Since the average profile of an Estonian company registered by non-resident includes little to no activity in Estonia and management located in some different country (which is the main point of e-Residency), then VAT number becomes nothing but a dream for most of such companies.
History of the question
It was not always like this.
As a matter of fact, some years ago EMTA would just issue a VAT number without asking any questions. Sometimes VAT number was issued within several hours after application was submitted.
But then Estonian Government changed its approach to issuing VAT numbers. It was not legislation or any sort of regulations which were amended. It was only a change in attitude.
At some point Estonian officials decided that VAT number will only be granted to companies, which can prove “connection with Estonia”.
So EMTA started to reconsider VAT numbers issued in previous periods and then requested for evidences of business activity in Estonia. Most of such requests result in VAT numbers been cancelled. Sometimes within a week after sending an initial request.
As a matter of fact, most of such companies (which received VAT number some time ago and then it was cancelled) would never obtain VAT number at the first place, if they would apply for it under current conditions.
What to do
If you have a VAT number and got a request on providing evidences of business activity in Estonia, then first thing you do is stay calm and do not panic.
Sometimes you do not need VAT at all (when all of your activity happens outside of Estonia and you would submit 0-reports anyway). Sometimes VAT number can be restored. Sometimes instead of regular VAT number, you company is eligible for so called limited VAT number.
It all depends on circumstances and thorough consideration of entire perspective will definitelly bring positive outcomes.
In any case you can always ask for professional help and we will be more than happy to assist you.