FAQ Tag: Tax

What is MOSS and Who Can Benefit From It?

MOSS stands for Mini One Stop Shop and is part of the VAT, but it only concerns digital goods or services. For example, services covered under the MOSS scheme include website hosting, a supply of software, access to databases, downloading apps or music, online gaming and distance teaching.

When selling digital goods and services, the regular rule is that the place of turnover is where your customer is located. So normally if you sell physical goods to a certain country, then at some point you have to get a VAT number in that country. But MOSS simplifies the process for digital goods and services which means you don’t have to get a VAT number in many different countries. For example, if an Estonian company sells digital services to different private persons all over the EU, then the company’s invoices will have an Estonian VAT number, but a client’s home country VAT rate. Meaning that your company will pay all the other countries’ VAT to the Estonian tax office who will then spread the VAT itself between those countries where the customers purchased your digital goods or services. Therefore, MOSS will save you a lot of time and money in the end.

MOSS scheme can be used only if the company is VAT liable. In Estonia, you have to declare MOSS in a special quarterly declaration. So, it is not part of the regular monthly VAT declaration, but additional reporting. You still have to submit monthly VAT declarations, even if most of the goods or services you sell, are covered with MOSS.

It is very important that you fully understand what selling digital goods and services means when it comes to MOSS. You will have to set up a very good system to gather all the information about your clients, the countries where they’re from, and the VAT rates of the countries where your customers completed the purchases, as this will greatly help from the tax reporting point of view.

Permanent Establishment as Tax Residency?

Permanent establishment is something that people are usually not aware of, but it is important to consider as it can determine where you have to pay the taxes. Permanent establishment occurs in a different country than where your company is registered, and in a location where the business management and selling goods or services happens. So, if you permanently manage your business from another country, then you have the risk of having a permanent establishment there. For example, if you have an Estonian company, but manage your business in Finland, then this might result in a permanent establishment in Finland and means that taxation will be according to the Finnish tax rules. Besides management location and permanently selling in some country, a permanent establishment might occur if you sign agreements with the clients and negotiate about the prices in some other country than where your company is established. Other aspects can also create a permanent establishment for your company in a foreign country. As taxes are case sensitive, then a tax advisor has to evaluate and analyse the nature of your company’s business and see whether there is a risk for a permanent establishment occurring somewhere else.

So, if the permanent establishment happens, then your tax residency might change, and you have to start paying taxes in that foreign country. In that case, you will be notified about the tax obligations by this country’s government. For example, the Finnish tax office might see that you’re conducting your business in Finland and therefore lets you know that, as you have a permanent establishment in Finland, you have to pay the taxes in Finland and according to their rules.

All the above means that once a permanent establishment occurs, then Estonian regular taxation rules do not apply to your company anymore. So, at the end of the year, you have to pay taxes according to the laws of the country where you have the permanent establishment.

It is important to evaluate all the risks that you have regarding the permanent establishment when starting a business. As mentioned earlier, permanent establishment mainly takes place if you manage the business or sell goods or services permanently in a different country from where your company is established, but there are also many other aspects to consider. So, it is recommended to get a tax consultation before starting a company in Estonia, just to save you money and nerves in the future and avoid arguments with tax offices about where you are obligated to pay the taxes.

What is Double Taxation and Can It Be Avoided?

As the name says, double taxation stands for paying the same taxes in different countries. Double taxation can be avoided, if the country where your company is established, and where you as a private person live, have signed a double tax treaty agreement. See the list of the countries that have double tax treaty agreements with Estonia.

If the countries have not signed the treaty, then the double taxation can’t be avoided. For example, Estonia doesn’t have a double tax treaty with Russia, which means that the company may need to pay corporate income tax in Estonia as well as in Russia.

In the previous section, we already mentioned that income taxes for a natural person and a company are two separate things. If a company pays out dividends, then this is taxed with the corporate income tax. However, in most of the countries, private persons have to pay personal income tax from the received dividends. This is not considered as double taxation, because these are two separate taxes.

Tax Benefits of an Estonian Company?

Estonia has a very transparent tax system and it is easy to understand for the foreigners, because of the flat tax rates. Here are some of the main tax benefits of an Estonian company.

The most important aspect about Estonian company’s taxes is that you only pay corporate income tax when you distribute dividends. If you don’t distribute dividends, then you don’t have to pay corporate income tax. So, you can use all the money that goes to your business bank account for reinvesting and growing the business and you won’t be taxed for that. In that sense, Estonia is the ideal place for growing your business compared to many other European countries where you have to pay taxes as soon as you earn income.
In some cases, you can take out tax-free dividends, for example if you have a permanent establishment or when you receive dividends from a subsidiary. We will discuss permanent establishment separately in the upcoming sections.
And lastly, a unique regulation about the Estonian tax system is that you, as a private person, don’t have to pay personal income tax additionally to the corporate income tax when the company pays you dividends. However, this applies only when you, as a private person, are a tax resident of Estonia. This is unique, because in most of the countries a private persons must pay personal income tax when they receive dividends. Nevertheless, this doesn’t mean that you, as a private person, don’t have to pay the personal income tax in your homeland.

It is very important to understand that there are different taxes for the company, and you as a private person. Therefore, you have to keep your personal and company’s money separate, as these are two independent persons: a natural person and a legal person.

This also means that it is not considered as double taxation when the company distributes dividends and pays corporate income tax, and when a private person receives dividends and pays personal income tax on that. We will discuss how double taxation works in the following section.

Can non-residents use the e-services of the Estonian Tax and Customs Board?

As a non-resident, you can sign in to the Estonian Tax and Customs Board’s self-service environment and use the e-services if you have:

the eID of one of the following EU Member States:
- Germany (National Identity Card, Electronic Residence Permit)
- Italy (Carta di identità elettronica)
- Spain (DNIe)
- Belgium (Belgian Citizen eCard, Foreigner eCard)
- Luxembourg (Luxembourg eID card)
- Croatia (Personal Identity Card (eOI)).

Anno 2023.

Estonia’s e-Residency

If you are unable to use the above-mentioned authentication methods, we recommend you apply for Estonia’s e-Residency. E-Residency offers foreigners secure access to Estonia’s e-services. Holders of the e-resident’s Digi-ID card can digitally sign documents and use the Digi-ID to sign in to all portals and information systems that recognize the Estonian ID card.

You can apply for an Estonian e-resident’s Digi-ID electronically at https://eresident.politsei.ee/.