If your Estonian company sells to customers in other EU countries — or buys from suppliers there — you need to understand how VAT works across borders. The rules are different for business customers (B2B) versus consumers (B2C), and getting it wrong means either overcharging your clients or owing VAT you didn't collect.
B2B Services: The Reverse Charge
When you sell services to a VAT-registered business in another EU country, the general rule is straightforward: you don't charge Estonian VAT. Instead, your customer accounts for VAT in their own country through the reverse charge mechanism.
In practice:
- You verify your customer's VAT number through VIES (the EU VAT Information Exchange System)
- You issue an invoice with EUR 0 VAT and a note referencing the reverse charge (Article 196, EU VAT Directive)
- Your customer self-assesses VAT in their country and (usually) deducts it immediately — net effect for them is zero
- You report the sale on KMD line 3.1 and the EC Sales List (Form VD)
The critical step is VIES verification. If your customer's VAT number is invalid or you skip the check, the reverse charge doesn't apply and you may need to charge Estonian VAT at 24%.
When You're the Buyer
The reverse charge works both ways. When your Estonian company buys services from an EU supplier:
- The supplier invoices you without their local VAT
- You self-assess Estonian VAT on the purchase — declared on KMD line 6
- You simultaneously claim the input VAT deduction on KMD line 5
- Net VAT effect: zero (the two amounts cancel out)
This is sometimes confusing because it looks like extra paperwork for no tax consequence. But the reporting is mandatory — it ensures the transaction is visible to both countries' tax authorities.
B2C Digital Services: The EUR 10,000 Threshold
Selling digital services to consumers (non-VAT-registered individuals) in other EU countries follows different rules. There's a two-tier system based on your annual cross-border B2C sales volume:
Below EUR 10,000 in annual cross-border B2C sales across all EU countries:
- You charge Estonian VAT (24%) on all sales
- File everything on your regular Estonian KMD
Above EUR 10,000:
- You must charge the customer's local VAT rate (which varies by country — from 17% in Luxembourg to 27% in Hungary)
- You either register for VAT in each customer's country, or use the One-Stop Shop (OSS)
The One-Stop Shop (OSS)
The OSS is a quarterly return filed through e-MTA that covers all your cross-border B2C sales across the EU in a single filing. Instead of registering for VAT in France, Germany, Spain, and every other country where you have customers, you report and pay all the local VAT rates through Estonia.
It's optional but used by most companies in this situation. The alternative — VAT registration in multiple countries — is an administrative burden most small companies can't justify.
Intra-Community Supply of Goods
If you sell physical goods to a VAT-registered buyer in another EU country, this is an intra-Community supply — zero-rated (0% VAT), provided:
- The buyer has a valid VAT number (verified via VIES)
- The goods physically leave Estonia to another EU member state
- You have proof of transport (shipping documents, etc.)
You report these sales on:
- KMD line 3.1 (intra-Community supply of goods and services)
- KMD line 3.1.1 (goods specifically — a subset of 3.1)
- EC Sales List (Form VD), column 3
Intra-Community Acquisitions (When You Buy)
When your Estonian company acquires goods from another EU country:
- The supplier charges 0% VAT (they're making an intra-Community supply)
- You self-assess Estonian VAT on the purchase (KMD line 6 for total, line 6.1 for goods)
- You deduct the input VAT on KMD line 5 if the goods are for taxable business use
Triangulation (Three-Way Transactions)
A simplified scheme exists for three-party transactions across three EU countries. For example: your Estonian company buys goods from a French supplier, but the goods ship directly to a German customer. The key conditions: all three parties must be VAT-registered in three different EU states, and transport must be arranged by the seller or intermediary — not the final buyer.
The simplification means the intermediary (your Estonian company) doesn't need to register for VAT in the destination country. Instead:
- The French supplier zero-rates the supply to you
- You issue an invoice to the German buyer with a "reverse charge" notation
- The German buyer self-assesses VAT
- You report the transaction on Form VD, column 4
The reverse charge notation on the invoice is essential — EU case law has confirmed that omitting it can invalidate the simplification.
Exports Outside the EU
Selling goods or services to customers outside the EU is generally zero-rated (0% VAT). For goods, you need customs export documentation. For services to non-EU businesses, the place of supply is typically the customer's country, so no Estonian VAT applies.
For B2C services to non-EU consumers, the general rule is that Estonian VAT does apply (the place of supply is Estonia as the supplier's country). However, specific categories of services have their own place-of-supply rules, so check the specifics for your service type.
The EC Sales List (Form VD)
This monthly report is filed alongside your KMD by the 20th of the following month. It's required whenever you make intra-Community supplies and lists:
- Your customer's VAT number and name
- The value of intra-Community goods supplied
- The value of triangular transaction goods (if you're the intermediary)
- The value of intra-Community services supplied
Late filing can result in penalties of up to EUR 3,200.
Common Pitfalls
Forgetting VIES verification. Always verify your B2B customer's VAT number before applying the reverse charge. A screenshot or printout of the VIES result is good practice.
Misclassifying B2B as B2C. If your customer is a business but doesn't provide a valid VAT number, you may need to treat the transaction as B2C and charge Estonian VAT.
Missing the EUR 10,000 OSS threshold. Track your cumulative cross-border B2C sales throughout the year. Once you exceed EUR 10,000, you need to switch to charging local rates — you can't wait until year-end to figure this out.
Incomplete KMD reporting. Cross-border transactions often need to appear on multiple KMD lines (e.g., line 3, line 3.1, and line 3.1.1 for goods). Missing a line doesn't change your tax liability but can trigger queries from EMTA.
