The VAT liability registration obligation for a non-resident depends on next:
- the existence of a permanent business establishment;
- whether the purchaser of goods or recipient of the service is taxable person or taxable person with limited liability in Estonia or not;
the nature of the transaction (special arrangement applies to distance selling from the other Member States or to electronically supplied service from third country).
Non- resident with permanent business establishment in Estonia is required for registration of VAT liability the same way as Estonian resident. As the Value Added Tax law does not define what a permanent business establishment is, the definition should be used from the Taxation Act, as the basis of main principles of taxation. According to the Taxation Act § 9 (3) a permanent establishment is the place through which, whether in full or in part, the permanent economic activities of a non-resident are carried out in Estonia.
Hence a non-resident may engage in business in Estonia without having permanent business establishment here. Decisive is the nature of the economic activity in Estonia – is it permanent in nature or it can be argued that a non-resident acts here in framework of a single contract.
In the latter case, there is no permanent business establishment in Estonia and decision is it a taxable person must be based on other criteria.
In case of non-residents having no permanent business establishment is necessary to verify in which cases person must be registered as taxable person.
VAT Act § 19 (3) explains that obligation to register as taxable person arise for non-resident who does not have a permanent business establishment in Estonia, but creates taxable supply in Estonia and such supply is not taxed in Estonia upon the acquisition of goods or receipt of services.
Under that provision, there is no registration requirement in the case of distance sales, and there is no registration requirement at a zero rate taxable turnover (excluding intra-Community supply), or when a foreign person is registered in another Member State as person operating under special arrangements for imposing value added tax on electronically supplied services. This provision means that a non-resident not having a permanent business establishment in Estonia will become taxable person then following circumstances apply at the same time:
- a non-resident sells goods or provides services to a person who is neither taxable person nor person with limited tax liability;
- the goods or services provided are subject to value added tax, but not at a zero rate.
Which means that if a non-resident sells goods or provides services to a private individual or non-taxable legal entity it should register as a person liable to value added tax and pay VAT to Estonian state.