a guide to VAT for e-⁠residents

Read about VAT, a consumption tax levied in different ways around the world, with a focus on VAT registration, reporting and refunds in Estonia

Value-Added Tax (VAT) is a consumption tax that is levied on goods and services in many countries around the world. VAT laws vary from country to country, with each jurisdiction having different VAT rates, thresholds for registering for VAT, and different rules around VAT compliance, such as what items can have VAT added to them and how to reclaim VAT.  

It’s important for Estonian e-⁠residents to understand their VAT obligations. This includes compliance with rules around invoicing, calculating VAT, submitting VAT filing, and reclaiming VAT. There have been many recent changes to tax laws in Estonia and Europe. The article will provide an overview of VAT in several big business jurisdictions including Estonia. We'll also cover what makes Estonia an attractive place to launch your startup from a VAT perspective.  

Figuring out where to pay VAT, calculating VAT, and submitting VAT returns can be complicated. It’s advisable to consult a professional VAT and tax consultant to assist you in this regard. As I’m not a VAT or tax expert, this article is a general overview of VAT concept and VAT in Estonia for e-⁠residents.  

What is VAT? 

Value-Added Tax (VAT) is a form of consumption tax that’s levied on the sale of goods and services. It is also known in some countries as Goods and Service Tax (GST). VAT / GST is typically levied at each stage of a product’s production.  

Not all countries impose VAT on products and services. For the countries that do impose VAT, there are many differences in terms of the VAT rate, VAT thresholds, and compliance.  

VAT around the world: Estonia, UK, France, and the USA 

VAT laws vary significantly around the world. Below is an overview of VAT in Estonia, the United Kingdom (UK), France and the USA. The variance demonstrates just how different VAT laws can be, depending on each country’s administrative procedures, tax laws, and economic structures.  

Standard VAT rates 

• The standard VAT rate in Estonia: VAT in Estonia is currently 22%, although the rate will increase to 24% from 1 July 2025. Certain products and services are eligible for paying a special reduced VAT rate, such as books, and there are also some items with a 0% rate, such as export of goods and some services within the EU.  

• The standard VAT rate in the UK: The standard VAT rate is 20%, with a reduced rate of 5% for various goods and services. Various items are also classified as zero-rated goods and services, such as books and children’s clothes.  

• The standard VAT rate in France: The standard VAT rate is 20% in France, as well as an intermediate rate, reduced rate, and super-reduced rate which are 10%, 5.5%, and 2.1% respectively.  

• The standard VAT rate in the USA: There is no VAT in the USA. Instead, the USA uses state sales tax as its method of taxation.

VAT Registration Thresholds 

• Estonia: Companies have to register for VAT if their annual turnover earned on Estonian transactions exceeds €40,000. From 2025, there’s an EU-wide VAT threshold of €100,000 for turnover earned within the European Union, applicable for exemption from VAT registration in Estonia of SMEs from other EU Member States together with the condition that the annual turnover of the SME, created in Estonia, does not exceed €40,000. 

• United Kingdom: The VAT registration threshold in the UK is £90,000. As the UK is no longer part of the EU, the EU-wide VAT threshold of €100,000 for SMEs doesn’t apply.  

• France: The VAT registration threshold in France is €85,000 for goods and €37,500 for services. From 1 January 2025, EU-resident SMEs must register for VAT if they meet the threshold of €100,000 for cross-border sales within the EU.  

• USA: There’s no VAT in the USA, and therefore no VAT registration threshold applies for US companies trading within the US. The USA does however have a myriad of sales taxes, which vary from state to state; and US companies that sell goods and services in foreign countries may be subject to VAT laws there.  

VAT Compliance 

• Estonia: Estonia’s advanced digital e-services make VAT registration and compliance straightforward. Companies can register online through the Estonian Tax and Customs Board (ETCB) and use electronic filing and payment options. 

• United Kingdom: You can register to pay VAT in the UK online, and usually need to submit a VAT Return to HMRC every 3 months to maintain compliance.  

• France: Registration and submitting of VAT returns can be done online, and typically monthly VAT returns need to be submitted (unless companies owe less than €4,000 in VAT per year). 

• USA: VAT compliance is irrelevant within the USA, as the US doesn’t impose VAT on the sale of goods and services in the USA. However, if a US entity sells products and services in other jurisdictions, such as the EU, then VAT may be payable there and compliance with local VAT laws will be necessary.  

A guide to understanding VAT in Estonia 

As mentioned above, VAT in Estonia is currently 22%, although the rate is expected to increase to 24% from 1 July 2025.  

There was also a change in lower VAT rates from 1 January 2025 in Estonia. Accommodation services and accommodation services with breakfast are taxed at 13% VAT rate (increased from 9%), and the VAT rate for press publications will rise from 5% to 9%.  

All companies that are registered in Estonia and carry out business in Estonia need to register for VAT if their annual turnover is over the €40,000 threshold. This annual turnover includes all taxable supplies and exempt supplies of insurance and financial services and transactions with immovables which are not occasional transactions. 

From 2025, there’s also an EU-wide VAT threshold of €100,000 for turnover earned within the European Union, applicable for exemption from VAT registration in Estonia of SMEs from other EU Member States together with the condition that the annual turnover of the SME, created in Estonia, does not exceed €40,000. 

Below is an overview of VAT registration, filing and refunds in Estonia. 

Guide to VAT Registration in Estonia 

Estonian registered companies that make over €40,000 annual turnover and in which the place of supply is Estonia, must register for VAT here. This annual turnover includes all taxable supplies and exempt supplies of insurance and financial services and transactions with immovables which are not occasional transactions. In addition, foreign companies engaged in business with a permanent business establishment in Estonia that provide goods or services in Estonia must also register for VAT if they surpass the threshold. The registration obligation does not arise in case all the taxable supply of the company is VAT-free or taxable at the 0% VAT rate, except intra-Community supply of goods. 

In case a foreign person engaged in business with no permanent business establishment in Estonia creates taxable supply is Estonia, but such supply is not taxed in Estonia upon the acquisition of goods or receipt of services by an Estonian taxable person or taxable person with limited liability, the registration obligation arises for the foreign person as of the date on which the taxable supply is created. The registration obligation does not arise in case all the taxable supply of the person is taxable at the 0% VAT rate, unless it is intra-Community supply of goods, and the supply which is created upon the transfer of goods to a person holding online marketplace in the case the person is considered the acquirer of the goods.  

A taxable person from another EU state and a person from a non-EU country is not required to register when providing services, conducting intra-Community distance sales and transferring goods through an online marketplace, if the person is registered in another EU state as an implementer of the special VAT scheme for services (One-Stop Shop / OSS scheme), intra-Community distance sales and transferring goods through an online marketplace and the said turnover is subject to taxation under this special scheme. Both EU and non-EU companies can benefit from registration into the OSS scheme to streamline EU cross-border VAT compliance.  

A SME of another EU Member State can use the SME special scheme and may not register in Estonia for VAT liability, if its EU-wide annual turnover does not exceed €100,000 and annual turnover created in Estonia does not exceed €40,000. This annual turnover includes all taxable supplies and exempt supplies of insurance and financial services and transactions with immovables which are not occasional transactions.  

Businesses can register online for VAT through the Estonian Tax and Customs Board (ETCB). Registration is straightforward and requires essential company information and details about the business activities. 

Once registered for VAT, there’s an obligation to add VAT onto the sale price of any goods and services you sell and to keep proper VAT accounts. You can then claim a VAT refund.  

VAT Filing and Payments in Estonia 

Most companies need to file monthly VAT returns by reporting their monthly taxable turnover and then calculating how much VAT is due. VAT returns can be filed electronically in Estonia. 

VAT payments have to be made each month by the 20th day of the month after the reporting period. There are penalties for late payments.  

VAT Refunds in Estonia 

As part of your monthly VAT returns for your business, you can apply to reclaim VAT paid on eligible business expenses.  

If the VAT you paid within the taxation period is more than the VAT that you charged you can claim a VAT refund, in line with the tax laws of Estonia.  

Advantages of establishing a company in Estonia from a VAT perspective 

For e-residents, there are many benefits of registering companies in Estonia, which includes advantages from a VAT perspective as outlined below.  

1. Estonia has advanced e-services 

Estonia's advanced government e-services means that it’s easy to administer and manage a company remotely as an Estonian e-resident. Not only can you easily establish a company in Estonia online, but you can also register for VAT and file tax and VAT returns online and conduct all your banking online.  

This digital-friendly environment is attractive to many entrepreneurs who may want to establish an EU-based company and run it entirely online from anywhere in the world.  

2. Straightforward tax system 

Estonia’s tax system is straightforward, which helps companies easily predict how much tax and VAT they will owe and manage their companies more simply. Estonia has a flat 22% (24% from 1 July 2025) standard VAT rate. 

In addition, compliance with tax and VAT laws is made simple through the Estonian Tax and Customs Board, which offers an efficient and user-friendly online system for VAT registration, filing and payments. 

 3. Favourable for Startups and SMEs 

Estonia has a relatively low VAT threshold of €40,000. A benefit of being VAT-registered is the right to deduct input VAT. This helps make Estonia an attractive destination for startups and small to medium-sized enterprises (SMEs) from a VAT perspective. That’s in addition to its digital services and relatively simple tax compliance procedures, tax competitiveness, combined with easy access to the vast EU market. 

In addition, as Estonia is an EU member state, Estonian businesses can benefit from the EU VAT refund system whereby companies that trade in other EU states can reclaim VAT paid on business-related purchases in other EU countries. This has cash flow benefits and can also help to reduce overall corporate income taxes.

Final thoughts on value added tax (VAT) in Estonia 

For e-⁠residents who found companies in Estonia, there are many advantages from a tax and VAT perspective. Not only is it simple and easy to manage your business online in Estonia (including registering for VAT online, filing and paying VAT online), but compared with other countries Estonia’s flat VAT rate makes it simple and predictable to manage business finances.  

The 2025 changes to EU VAT thresholds for SMEs also help to simplify tax compliance and ensure stricter anti-fraud measures while incentivising sustainability practices.  

By understanding VAT in Estonia, your business will be better equipped to maintain compliance and leverage opportunities for growth.  

Disclaimer for this VAT Guide

This article was written by guest contributor Andy Stofferis (www.andysto.com). Andy is not a tax or VAT expert and the article is not intended to give any legal or tax advice. Tax laws and regulations vary greatly from country to country, and this information is a general guide only. You are advised to contact a professional tax advisor for any legal or tax advice, and not to rely on this article as gospel.