Behind this question sit three separate rules that often get mixed up. Once they are pulled apart, the answer usually becomes clear straight away.
Rule 1: the 40,000 euro threshold for turnover inside Estonia
This is the main rule that creates a registration obligation for a company operating inside Estonia. If your Estonian turnover from the start of the year exceeds 40,000 euros, you must register for VAT. Below that threshold it is voluntary.
The wording of the law is precise:
"(1) If the calendar year turnover of a person, as provided in § 19¹ subsection 3 of this Act, the place of supply of which is Estonia, exceeds 40,000 euros from the start of the calendar year, an obligation to register as a taxable person arises for that person as of the date the turnover reaches that amount […]"
(VAT Act § 19, Riigi Teataja.) The application must be submitted within three working days (VAT Act § 20 subsection 1). Keep track of the running total yourself — do not discover it at the end of the year.
Rule 2: the 10,000 euro threshold for sales to private customers in other EU countries
This threshold is a completely different one, and it catches online sellers in particular. Suppose you sell goods or digital services to private customers in other EU countries. Then one single 10,000 euro threshold applies to all of those cross-border sales together.
Below it, you charge Estonian VAT. Above it, you charge the VAT of the customer's country. So that you do not have to register separately in every country, you declare it through a single window (One-Stop Shop, OSS).
Note: 10,000 is far lower than 40,000. A small digital seller may cross it long before the Estonian threshold.
Rule 3: reverse charge on services to EU businesses
If you sell services to a VAT-registered business in another EU country, the customer usually accounts for the VAT (reverse charge). You put a VAT rate of 0% on the invoice. But "do I add VAT?" and "do I have to be registered?" are two different questions.
Do not register just for the look of it
If you register for the number right at the founding stage — with no customers and no costs — all you get in return is the obligation to file VAT returns regularly.
The Estonian Tax and Customs Board does not issue the number automatically either. If there is no real business activity in Estonia, the authority may ask for evidence, refuse the registration, or cancel the number later.
Rule of thumb: register when there is a real reason for it. For example, turnover above the threshold, EU sales to private customers above 10,000 euros, or reclaiming input VAT. Not for the look of it.
Questions and answers
Do I have to register right after founding the company?
No. The obligation arises only once Estonian turnover exceeds 40,000 euros in a year. Below that it is voluntary.
I sell digital products to private customers across the EU. Which threshold applies to me?
Your threshold is 10,000 euros, not 40,000. Once you cross it, you charge the VAT of the customer's country and declare it through OSS.
This article was prepared with the help of artificial intelligence.