VAT in Estonia (KM)
The territory of the European Union is a unified tax zone. Each separate country in the EU has its own turnover tax established and in other countries it is referred to as VAT (Value Added Tax). In order to avoid being subject to turnover tax in another EU country, the company, as registered in Estonia, must possess a KMKR number or a VAT number – this is an identification number of the individual or entity paying turnover tax. It shows that the company pays turnover tax on the territory of Estonia. If the company has a KMKR number and the good is purchased in one of the EU countries, then the turnover tax will be exactly 0%.
As soon as the company resales this good to the end consumer in Estonia or in the case of personal consumption, it is subject to the turnover tax established in Estonia.
In order to receive a turnover tax payer number, one must fill out a form in the Customs and Tax Department in Estonia.
The following is required in order to submit the form: A company’s revenue or good/services sales to individuals and legal entities of Estonia and in EU countries is more than 16,000 euros from the start of that calendar year. Within the course of three work days after the aforementioned revenue exceeds 16,000 euros, a member of the company shall be obliged to submit a petition to have the company entered into the register of taxable companies by turnover tax.
In the event that a company’s sales volume does not exceed the amount of 16,000 euros, it shall still nevertheless possess the right to submit a petition to become registered as a turnover tax payer. The form will be processed in the course of 3 business days after it is submitted. However, the company will have to be able to prove that they are conducting business in Estonia to the Tax Department.
The following will be deemed as proof:
- A business plan 1-3 years into the future
- Contracts concluded with customers and suppliers
- Receipt on the transfer of funds from a bank
As soon as the KMKR number is received, the company will be obliged to add turnover tax in completing deals for the sale of good and services. It is also required to submit Turnover Tax Declarations as well as Revenue Tax documentation with the EU countries by the 20th of each month. After receiving a KMKR number, a company is required to declare salaries by the 10th of each month, whether or not it was paid out.
In submitting nil returns in the course of 3 months, a company may well attract attention from the Tax Department. It will have to explain the reason for the company’s lack of sales as well as present proof of conducting business in Estonia. Should the proof be deemed unconvincing, the company will be deprived of its KMKR number.
If a company should ignore its obligation to submit declarations in the course of three to six months, a tax inspector will also have the right to deprive a company of its KMKR number.
In the event that a company loses its KMKR number for whatever reason, it can be restored if it has proof of revenue on the territory of Estonia.
In the event that revenue has risen over 10,000 euros per year, a company registered in Estonia that is not in possession of a KMKR number, but is making deals to for the purchase of goods/services in the EU, it will be obliged to register as a Limited Taxpayer.