Accounting for e-residents

Many people run an Estonian company without living in Estonia. They use the digital identity, the e-Residency, to sign filings and to manage the company online. The books of such a company follow the same Estonian rules as any other OÜ. What changes is the set of questions about foreign customers, foreign suppliers and the owner's own tax position. This guide covers the accounting side and the VAT on sales to other countries. It is education, not tax advice, and it does not decide where you are taxed as a person.

What is the same for every OÜ

An Estonian company keeps its books in euros, records every transaction by double entry, keeps the documents for the period the law requires, and files its returns on time. The VAT return, the annual report and, in the months with salaries or dividends, the TSD all apply in the same way. A company run from abroad is not exempt from any of them. The deadlines are the same, and the same registry code appears on every invoice.

The company also has the same governance. The shareholders approve the annual report, the owner keeps records of the decisions, and the books are a record the company must keep. The digital identity lets you sign these documents from anywhere, but it does not change what has to be signed.

What changes with foreign customers

A sale to a customer outside Estonia raises a question that a domestic sale does not: where is the VAT due? The answer depends on the customer, the type of supply and the country. Three cases cover most small companies.

A business customer in another EU country. For most services between VAT-registered businesses in two EU countries, the place of supply is the customer's country and the reverse charge applies. Your invoice shows no Estonian VAT, and it carries the customer's VAT number. The customer accounts for the VAT in its own return. Check the VAT number before you invoice, because a wrong number changes the treatment.

A consumer in another EU country. Digital services sold to consumers in another EU country are taxed in the consumer's country from the first sale. Distance sales of goods to consumers follow a separate EU threshold. An EU-established business registered for the OSS scheme reports and pays that VAT in one quarterly return, instead of registering in each country. Whether the scheme applies depends on the type and the value of your sales, and the EMTA OSS pages set out the current rules.

A customer outside the EU. Exports of services and goods to customers outside the EU are commonly treated as zero-rated, which means no Estonian VAT is charged and the company can still reclaim its input VAT. The conditions depend on the type of supply and on the evidence you keep, so check the rule for your case.

The threshold and foreign turnover

The VAT registration threshold of €40,000 is counted from the start of the calendar year. According to EMTA, the turnover counted is the turnover whose place of supply is Estonia. Sales with a place of supply in another country do not count towards the Estonian threshold in the same way. A company whose main customers are abroad may therefore stay below the Estonian threshold, while still needing to meet the foreign rules. See the guide on Estonian VAT basics and the threshold for the registration steps.

Currency and the books

Many e-resident companies sell in euros and dollars or pounds. A foreign-currency invoice is recorded in euros, at the rate for its date, and the original amount and the rate are kept with the entry. The ECB reference rate is the published reference for many conversions. Record the rate you used, so the figures can be checked later.

Foreign payments carry a bank fee or a conversion cost. Record each fee as a cost, and do not net it off the sale without a note, so the sales figure matches the invoice.

Keeping the trail for a company run from abroad

The documents must be complete and available when a question arises, and that is harder when the owner is far away. Keep the invoices, the contracts with foreign customers, the proof of the VAT number, the proof of the place of supply and the bank statements in one place. Keep them for the period the Accounting Act requires, and check the current text on Riigi Teataja.

Sapita keeps the books and shows the due dates, but a foreign customer's VAT treatment depends on facts you know and the software does not. Record those facts with each invoice, so the choice of VAT class is explained.

What this guide does not cover

This guide does not say where you are taxed as a person, and it does not give you tax advice for your country. Whether the company creates a permanent establishment abroad, how dividends are taxed in your home country, and whether a double-tax treaty applies are questions for an adviser who knows your position. The rules above describe the Estonian side of the company's accounts.

A simple routine for a company abroad

1. Confirm the VAT number and the place of supply for each foreign invoice.
2. Choose the VAT class from the supply and record the reason in the entry.
3. Record foreign amounts in euros, with the rate and the date.
4. Check each month whether the EU consumer sales are near the OSS threshold.
5. File the VAT return in e-MTA by the 20th of the following month, when the company is registered.
6. Keep the documents and the evidence for each zero-rated or reverse-charge sale.

Key terms in this guide

• E-resident: the digital identity for running an Estonian company.
• OÜ: the Estonian private limited company form.
• Registry code: the company number in the register.
• VAT: the tax on value added.
• Reverse charge: the rule that moves the VAT to the buyer.
• VAT number: the number of a VAT-registered business.
• OSS: the EU scheme for consumer sales.
• VD: the report of intra-EU supplies.
• Foreign currency: amounts written in another currency.
• ECB reference rate: the daily rate used to convert amounts.
• IBAN: the bank account number foreign customers pay to.
• E-MTA: the online service where Estonian returns are filed.

Sources

• EMTA, value added tax, the registration threshold and place of supply: emta.ee
• EMTA, the OSS scheme for distance sales: emta.ee
• Value Added Tax Act (käibemaksuseadus), Riigi Teataja: riigiteataja.ee
• Estonian e-Residency programme, digital identity: e-resident.gov.ee