Introduction
When launching a business focused on selling digital products in the European Union countries, startups face a number of tax obligations. Special attention should be paid to VAT taxation rules, as they significantly differ from the rules applied to traditional goods and services. One of the key points is the threshold of 10,000 euros for the single European market, which, when exceeded, requires Estonian startups to obtain an Estonian VAT number to use the OSS system.
The threshold is 10,000 euros, not 40,000!
Unlike traditional services, which have a threshold of 40,000 euros, digital products have a lower threshold of 10,000 euros. This means that as soon as the total volume of your digital product sales to individuals in the EU exceeds 10,000 euros during the calendar year, you are required to pay VAT at the rates of the buyer's countries.
The importance of obtaining an Estonian VAT number
For startups based in Estonia, obtaining an Estonian VAT number is an important step. This number is necessary not only for conducting business within the country but also serves as a prerequisite for registration in the One Stop Shop (OSS) system, which simplifies the VAT payment process.
The One Stop Shop (OSS) system
OSS is a system that allows startups to pay VAT on sales of digital products to all EU countries through a single declaration. This eliminates the need to register for VAT payment in each individual EU country where sales occur, significantly reducing administrative burden and simplifying the process of conducting international business.
The advantages of using OSS
- Simplification of VAT accounting: All sales and VAT payments are made through a single declaration to the Estonian Tax and Customs Board.
- Time and resource savings: The need for separate accounting and registration in each EU country is eliminated.
- Improvement in tax planning: Easier to manage and plan tax obligations thanks to a fixed threshold and a unified accounting system.
Steps to register in the OSS system
- Obtaining an Estonian VAT number: Initially, the startup must register as a VAT payer in Estonia.
- Registration in the OSS system: With the obtained VAT number, the company can register in the OSS system through the Estonian Tax and Customs Board.
- Accounting and filing declarations: It's important to maintain accurate records of all sales in the EU and submit quarterly declarations through OSS.
Conclusion
For startups planning to sell digital products in the EU, understanding and applying tax rules, including obtaining an Estonian VAT number and using the OSS system, is key to successful and seamless business operations. By considering these aspects, startups can focus on the growth and development of their product, minimizing tax complexities and complying with legislation.
As an accounting firm, we can assist you both with registering for an OSS number and with comprehensive accounting services. More than 30% of our clients are IT companies.
Contact us for a pricing quote!