The increasing internationalization of economic traffic means that more and more services are not only provided domestically, but also across borders. This applies to consulting and expert services, trade fair services, assembly and repair work, but also to planning, for example. This page provides information about the Estonian OÜ (limited liability company, or the Estonian counterpart to the German GmbH) and the tax treatment and the respective declaration requirements. If you have any further questions, please do not hesitate to contact us at info@itlerhilfe.de.

Questions about sales tax

What must a German company pay attention to when it receives services from other European countries (including Estonia)?

According to the basic rule, cross-border services provided by an entrepreneur to another (foreign-based) entrepreneur for the latter’s business are in principle subject to VAT in the country from which the recipient of the service operates his business, the so-called place-of-receipt principle. If a German company receives services from other European countries (including Estonia), the German company is liable to pay tax as the recipient of the services. A so-called reversal of the tax liability (reverse charge) takes place. In addition, the German company as the recipient of the service is entitled to deduct input tax. Thus, the consequence of the reversal of the tax liability for the German company is that the VAT liability and the right to deduct input tax coincide in the person of the service recipient. The reverse charge procedure works in that the recipient (German company) does not pay VAT to the supplier (Estonian company), but pays the tax for the transactions made, which he (German company) can then deduct as input tax, so that he (German company) does not owe any amount to the state. This principle derives from the EU VAT Directive (Art 196) and has been transposed into German law by Section 13b (1) in conjunction with (5) sentence 1 half sentence 1 of the VAT Act.

Such a transfer of the tax liability (reverse charge) to the recipient of the service is mandatory; the parties have no right to choose. The purpose of the reverse charge rules is to ensure taxation. In addition to enforcing German taxation sovereignty for such transactions, the shifting of tax liability to the recipient of the service is intended to minimize the expense for the foreign service provider and the German tax authorities. The regulation prevents the supplier from being obliged to register in the country of the place of performance for VAT purposes.

The service to be rendered by the Estonian OÜ in Germany is taxable and taxable in Germany (§ 3a para. 3 no. 1 UStG). The person liable to pay tax is, in accordance with § 13b para. 2 no. 1 i. In conjunction with para. 5 sentence 1 UStG, the German recipient of the service is the taxable person, as the service provider is based abroad, in this case in Estonia. According to Section 13b.1, para. 1, sentence 4 UStAE, the German service recipient’s liability for tax extends to both the transactions for the entrepreneurial area and the transactions for the non-entrepreneurial area of the service recipient. The tax office responsible for taxing these transactions is the tax office in which the German recipient of the service is registered as a business for VAT purposes (Section 13b.1 (1) sentence 5 UStAE). The recipient of a service who is liable for VAT in accordance with Section 13 (5) UStG is entitled to deduct input tax under the conditions of Section 15 (1) sentence 1 no. 4 UStG. If these conditions are met, the recipient of the service is not charged VAT. The requirements in the reverse charge cases pursuant to Section 15 (1) sentence 1 no. 4 UStG differ from the requirements for the basic facts of the input tax deduction (Section 15 (1) sentence 1 no. 1 UStG). In particular, for the input tax deduction under Section 15 (1) sentence 1 no. 4 UStG (reverse charge cases), the service recipient does not have to be in possession of an invoice in order to deduct the input tax.

Example of shifting the VAT liability (reverse charge)

Ms. Menzo, an architect based in Paris, plans a commercial building for Ms. Boss, an entrepreneur based in Hamburg, which is to be constructed in Hamburg.

Solution: Ms. Menzo provides another service (§ 3 para. 9 UStG). According to § 3a para. 3 no. 1 UStG, the place of this other performance is Hamburg. The provision supersedes the B2B standard rule in § 3a para. 2 (see the introductory sentence of § 3a para. 3 UStG). Thus, § 13 para. 1 UStG, which presupposes that the place of performance is governed by § 3a para. 2 UStG, does not apply from the outset. However, the reverse charge results from § 13b para. 2 no. 1 UstG. It is a case of other services provided by an entrepreneur based abroad (Paris). In addition, Boss receives the service for its business (§13b para. 5 p. 1 Hs. 1 UStG). Ms. Menzo will therefore issue a net invoice to Ms. Boss. Ms. Boss will owe the VAT according to § 13b para. 2 no. 1 UStG in conjunction with. § 13b para. 5 p. 1 Hs. 1 UStG. At the same time, she is entitled to deduct input tax pursuant to § 15 para. 1 p. 1 no. 4 UStG, as a service has been provided for the company.

Invoicing

Invoicing is subject to the regulations of the member state in which the service provider is domiciled, i.e. the regulations of Estonia (Section 14 (7) UStG). The Estonian regulations correspond to Article 226 of the VAT Directive. According to Article 226 of the VAT Directive, the invoice must contain the following information in particular:

  1. name and address of the supplying company and the recipient of the service
  2. the VAT ID number of the supplier
  3. the VAT ID number of the recipient of the service
  4. consecutive invoice number
  5. invoice date
  6. date of performance of services or date of payment received for services not yet performed
  7. type and quantity of the other service used
  8. remuneration
  9. reference to the transfer of tax liability explicitly stating “tax liability of the recipient of the service”.

According to § 15 (1) sentence 1 no. UStG, the input tax deduction of the service recipient is also possible without an incoming invoice under the further conditions of § 15 UStG, provided that the service has been performed for his company. It is therefore not necessary to check the invoice details for the purpose of input tax deduction.

The retention period of the invoice for the German entrepreneur is 10 years

The German GmbH and the Estonian OÜ

The Estonian counterpart to the German GmbH is the Estonian OÜ (Osaühing in Estonian). The limited liability company, abbreviated OÜ, is a legal form for a legal entity under private law, which belongs to the corporations. Estonian corporations are regulated by the Estonian Commercial Code (Est HGB). The Est HGB can be found in English here (link).

There are no special laws such as the German GmbH Act or the German Stock Corporation Act. The Estonian HGB is largely based on German company law. Estonia has implemented all EC / EU directives on company law.

The Estonian HGB provides for the following legal forms:

  • General partnership (Estonian: “täisühing”, short: “TÜ”; English: “general partnership”, §§ 79-124 Est HGB)
  • Limited partnership(Estonian: “usaldusühing”, short: “UÜ”; English: “”limited partnership”, §§ 125-134 Est HGB)
  • limited liability company (“osaühing”, abbreviated: “OÜ”, §§ 135-220 HGB)
  • joint-stock company(“aktsiaselts”, short: “AS”, §§ 221-338 HGB).

The company must be registered in the Commercial Register (“Registriosakond”). Each company must have a trade register number. For example, Itlerhilfe OÜ has the commercial register number 16614738. Whether an OÜ has been registered in the commercial register and thus has legal capacity can be checked in the public commercial register here (link). In addition, you can see the form of the company, the date of registration, the articles of association, the contact details, the name and contact details of the company director, whether the annual resolutions have been submitted and also the content of the annual resolutions can be researched, as well as whether there are any outstanding tax claims against the company. The latter can also be checked on the webpage of the tax office (link).

With regard to the liability of an OÜ, it should be emphasized that OÜ is liable for its obligations with its entire corporate assets; shareholders are liable up to the amount of their contribution. In addition, Itlerhilfe OÜ has in planning a liability insurance, a special form of professional liability insurance, in the amount of 60 000 EUR.

The owner and managing director Ing. Klaus Schlender has additionally a private liability with plus function of Signal Iduna which covers self-employment and freelancing and suggests an additional protection in the economic sector for his customers.

If the annual turnover exceeds 40 000 EUR, the company is subject to VAT and must register with the tax office. Whether a company is subject to VAT can be determined from its VAT identification number. For example, Itlerhilfe OÜ has the VAT identification number EE102557338. You can check whether the VAT identification number is correct in the public register here (link).

Estonian companies have to file VAT returns once a month by the 20th of the following month at the latest, either in paper or electronic form. The tax is also due by this date. Whether a company has open tax claims can be checked on the webpage of the tax office (link). For example Itlerhilfe OÜ has no tax debts.

Further information

About Itlerhilfe OÜ

  • Legal form is osaühing [private limited company]
  • with European VAT EE102557338.
  • A German VAT-ID can be requested for on-site operations at the German Federal Central Tax Office.
  • Alternative is of course checkable by any competent tax consultant:

Without a German VAT ID, services can currently only be rendered via the “Reverse Charge Procedure” (RCV) and thus legal invoicing is possible.

  • For the reason, if the service happens in the country and the VAT may remain in the country.
    • Here very well explained -> Link (Chapter 2, 2b see example case b) All services), in case German B2B Company
  • in this case Itlerhilfe OÜ records the net amount on the invoice, the VAT is then declared to the FA during the advance VAT return at the B2B (company/company group).
  • The reverse charge procedure helps to avoid errors and limits tax abuse.
  • Among other things, the VAT ID of the company or group of companies and the VAT EE102557338 must appear on the invoice.
  • Accurate incoming invoice is issued according to § 14 Abs. 4 i.V.m. § 14a Abs. 5 UStG created.
  • the VAT is claimed here by the B2B business customer at the FA.
  • Without reverse charge procedure, the VAT would be transferable to the FA via German VAT ID as usual and can also be set up upon request.
  • Itlerhilfe OÜ is able to charge any kind of service in the IT environment (as well as programming as main activity (62011)) internationally and in the EU area reasonably.
  • Itlerhilfe OÜ is able to invoice services such as dropshipping and resale as a transitory item.
  • Itlerhilfe OÜ can trade on stock exchange markets and account for them reasonably.
  • Itlerhilfe OÜ is managed as a company for tax purposes in Estonia.
  • Itlerhilfe OÜ, Lootsa Tn 2a, 11415, Tallinn, Estonia
  • Register excerpts can be officially viewed here.
  • Information about the company and the official VAT ID comparison can be found under § H (a) in the terms and conditions (link).