e-Residency and the Estonian VAT Number: Why Applications Are Refused and What to Do

For years the sequence was simple: register an OÜ through e-Residency, attach a one-page business plan, receive an EU VAT ID — the Estonian KMKR number, EE plus nine digits — within a week. That sequence has broken. This guide takes the three situations e-residents now find themselves in — applying, already registered, refused — and sets out what the tax authority expects in each.

What changed for e-resident VAT registration — and what did not

The registration test did not change. The Value Added Tax Act has always required an applicant to prove that it is doing business in Estonia or about to start, allowed EMTA to demand evidence, and allowed it to strike off a registered person who is not doing business here after a written warning (§ 20 and § 22).

Two things did change. First, a quiet amendment to the threshold rule. Cross-border B2B services — the typical e-resident’s entire turnover — used to count towards the €40,000 mark, so a consultant invoicing German clients was obliged to register once sales crossed it, and the number followed almost automatically. Now only supplies with Estonia as their place of supply count: for remote service companies every application became voluntary, and voluntary registration requires proof of business here. Second, EMTA began applying that substance requirement to every application and, some months later, to the existing register. The shift became public through German entrepreneur Oliver Eidel’s post “Did Estonia Quietly Kill Its e-Residency?”; the programme’s own knowledge base now says plainly that a company with no Estonian employees, a board member abroad, foreign clients and services performed outside Estonia is “generally not approved”.

The economic-connection test EMTA applies

The question is not whether the company is foreign-owned — most foreign-owned Estonian companies obtain VAT registration without difficulty — but where the business is carried on. EU VAT law identifies a business in the country where it makes supplies, and treats it as established where its central administration sits. For a single-director OÜ, that is usually wherever the director lives.

The indicators of economic activity in Estonia set out in the e-Residency programme’s guidance, drawn from EMTA’s practice, double as a substance checklist:

One “yes” backed by documents can be enough; five “no”s almost never are. A legal address and a contact person carry no weight — they are conditions for staying in the register, not evidence of business — and neither does a one-off coworking invoice or an Estonian IBAN.

Three typical e-resident companies and their VAT status

The first profile — the digital nomad with an Estonian OÜ and no Estonian footprint — is the one the e-Residency programme was marketed to, and the one EMTA now turns down as a matter of course.

Applying for an Estonian VAT number now

Expect to be asked for a description of the business model, contracts or sample invoices, evidence of activity such as a website or platform accounts, bank statements, and — the part most founders skip — an explanation of why Estonia, rather than the country you live in, is the correct place of VAT registration under EU rules. Answer that question in your own words, point to the indicators that apply and attach the documents behind them. A business plan on its own, once sufficient, now rarely is.

EMTA decides within five working days of the application or, if it asks for evidence, within five working days of receiving it. A rejected application is not the end of the road: a company that has since signed its first Estonian contract or hired locally can apply again — with documents rather than intentions.

If your VAT number is under review

EMTA does not revoke a VAT number silently. A notice arrives through e-MTA stating the intention to remove the company from the VAT register and setting a deadline to prove business activity in Estonia. Answer it on time and with evidence; otherwise the company is removed from the date named in the decision.

Deregistration has consequences. Input VAT deducted on unsold stock and on fixed assets the company still owns is adjusted, which can mean a tax bill; invoices issued after the removal date must not carry Estonian VAT; and EU customers who check VIES will find the number invalid. The company itself is untouched — it stays in the Commercial Register, the e-Residency card keeps working and the deferred corporate tax model is unchanged. A company that already knows it no longer qualifies is usually better off deregistering on its own terms than waiting for the notice.

If your VAT registration was refused or revoked

First, check whether you needed an Estonian VAT number at all. Services to VAT-registered business customers in other EU countries are taxed in the customer’s country under the reverse charge; the invoice must show the customer’s VAT number, not yours. Stripe and similar payment processors do not require a VAT ID to open an account, and a merchant-of-record platform handles VAT for you. Some clients still insist on a supplier VAT number, so a refusal can cost you a contract — but it does not stop you invoicing. Our guide to checking a customer’s VAT number on VIES covers the invoicing mechanics.

Second, work out where your VAT liability actually sits. A founder who runs the OÜ from Spain is, in EU VAT terms, running a Spanish-established business, and Spanish rules apply to it whatever its registry code says. Above a small EU-wide threshold, sales to EU consumers are taxed where the consumer lives and reported through the One Stop Shop — opened in the country of establishment, not in Estonia. Marketplaces that store your goods in Germany will ask for a German number. The hard case is the genuine digital nomad with no fixed base: EU VAT law assumes every business is established somewhere, and EMTA’s position is that “somewhere” is not Estonia unless activity happens here. Such founders usually register where they spend most of the year, or restructure so that the business has a real base — a question for an adviser before the next invoice, not after.

Third, decide whether to appeal or to build. A refusal and a deregistration decision are administrative acts and can be contested within thirty days, first with EMTA and then in the administrative court. A challenge succeeds only when it brings evidence the original application lacked. If nothing has changed, the money is better spent on the underlying problem — an Estonian customer, a local hire, board decisions genuinely taken here — or on accepting that the OÜ is the right company but the wrong VAT vehicle. Our article on running an Estonian company from abroad covers the permanent-establishment side of the same problem.

Why Estonia is turning e-resident companies down

The official reason is misuse: a VAT number lets a company reclaim input VAT on everything it buys, and if its whole turnover is taxed elsewhere, Estonia refunds VAT it never collected. What the state has not done is announce a policy, write the criteria into law or publish figures on how many e-resident companies have been denied or struck off. Each decision is taken case by case, and Sorainen’s tax lawyers have described the result as one state agency opening the door to e-residents while another shuts it. We take that argument further in our column on what the e-Residency statistics hide.

VAT registration for e-residents with Eesti Firma

We start with an assessment, not an application. If your customers, suppliers and management are all outside Estonia, we will say so — an Estonian VAT ID is unlikely — and explain where your VAT obligations actually sit. If there is a genuine Estonian connection, we build the application around evidence EMTA recognises and answer the authority’s follow-up questions on your behalf; our accounting team also handles replies to a deregistration notice. Details are on our VAT number in Estonia page; founders still weighing whether an Estonian company suits a location-independent business can start with our overview of company formation through e-Residency.

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