CHECKLIST: “PLACE OF BUSINESS AND VAT”

Determining an organization’s principal place of business is crucial for the correct calculation and payment of value-added tax (VAT). This aspect often causes difficulties for taxpayers, especially when operations are conducted simultaneously in multiple countries.

This article provides a checklist to help you systematize the necessary steps and requirements to ensure compliance with tax legislation and prevent potential risks.

How to determine where the actual place of business is located?

If you’ve forgotten what your primary place of business is, read the previous article. To determine it, answer a series of questions from the table below.

Item being checked	What does it mean?	What to do
Where does the staff actually work?	If employees or contractors perform their primary work from another country, that is where a “fixed place of business” (FPB) may be recognized.	Record in employment/contract agreements and timesheets where exactly the work is performed
Do you have an office/equipment abroad?	Any office, warehouse, server, or rented space can be considered a base for PMD	Keep documentation of who is the tenant and who is paying the expenses.
Where are the services actually provided or the goods shipped from?	The place of performance of the service/delivery determines the country of taxation	Identify supply routes, IP locations, and server log files
Where are key decisions made?	Project management from another country = tax risk of recognition of PMD there	Record management decisions in Estonia and preserve evidence

In general, we recommend recording everything and periodically monitoring the results of analytical data.

Risks of recognition of a place of business (PE)

The state may recognize your PMD even if you don’t want it to. The table below lists the cases in which this may happen.

Situation	Consequences	How to avoid
The IT company is registered in Estonia, but its programmers work from Latvia.	Latvia may recognize the PMD → obligation to register VAT, pay income tax in Latvia	Subcontract to a Latvian company or self-employed individuals, rather than creating a dependent office
Consultants or agents selling real estate in Portugal	Place of service: Portugal → VAT under Portuguese rules	Register for VAT in Portugal or work through a local intermediary
Regular business visits, hiring personnel, storing equipment in another country	Signs of a PMD even without a legal entity	Reduce physical presence and conduct everything remotely from Estonia

It is not recommended to let things get to the point where any state decides to recognize your permanent residence permit (unless this is part of your plans).

When do you need to register for VAT in another EU country?

In some cases, it is better to register for VAT in another EU country, even if the business is conducted in Estonia.

Criterion	Duty	Exceptions
You have a permanent residence permit in another EU country	Mandatory VAT registration and reporting there	No, if the activity is episodic and there are no resources/staff
Business-to-consumer (B2C) sales in the EU exceed €10,000 per year	Registration via the OSS scheme	Up to €10,000 – VAT can be paid in Estonia
You provide real estate-related services in another country.	VAT at the location of the property	Even if the client is foreign
Use local advertising, agency or marketing channels	May create a “tax presence”	Monitor contracts and counterparty jurisdictions

The table provides general criteria, but each case is individual. Therefore, we recommend consulting a specialist before making a decision.

Evidence for the tax authorities

We recommend regularly collecting the following documents:

• contracts specifying the place of provision of services;
• invoices with addresses and VAT codes of the parties;
• employee timesheets;
• screenshots, IP logs, server locations;
• correspondence and minutes of meetings (date/place);
• bank statements (where the account is opened, currency, country)

As a rule, this package is sufficient as evidence for the tax authorities.

Typical mistakes place of business

Many entrepreneurs make the following mistakes:

• invoices to a foreign client, but the work is actually done abroad → VAT not in Estonia;
• Using an employee’s home office as an argument that “we’re not in another country” doesn’t work if the employee works from there permanently;
• no records are kept of where services are provided → it is impossible to prove the place of activity;
• Customers are invoiced without VAT, believing that “everything is exported” – this is a mistake when there is a VAT invoice abroad.

As a result, the risk of recognition of PMD increases.

How to minimize risks associated with the location of operations

To minimize risks:

• document that the main activities are carried out from Estonia (servers, management, accounting, contracts);
• Register workers abroad as contractors, not as staff;
• For new clients in the EU, check the country’s regulations: some require local VAT registration from the very first transaction;
• If in doubt, do voluntary VAT registration in that country – it’s cheaper than fines;
• Periodically review the geography of employees and clients – as volumes increase, activities may “move” legally.

This will help you control the situation and prevent the recognition of the PMD.

Signs that it’s time to register for VAT abroad

In the following cases, consider registering for VAT abroad:

• permanent employees or a warehouse in another country appeared;
• the tax authority of another country sent a request or notification;
• local customers require your VAT number from their country;
• IT servers are physically located outside of Estonia;
• regular contracts on the spot with local agents began.

However, we would like to point out once again: please consult before making a decision.

Pre-filing check

We recommend that you answer the following questions before filing your declaration:

• Do the client’s country and the actual location of service provision match?
• Are there any signs of PMD abroad?
• Do all invoices contain the correct VAT code?
• Is VAT accounted for in the correct country (EE or other)?
• Attached are confirmations of export of services/goods?

If you give clear answers to them, then there will be no problems with filing the declaration.

Recommendations for internal control

Here are a few more recommendations to help you control the situation:

• maintain a register of countries where activities are carried out ;
• mark all transactions: client country / contractor country / VAT jurisdiction;
• conduct quarterly self-assessment of the risk of PMD;
• set up a system for tracking IP addresses and employee locations.

Don’t forget to consult with specialists regarding PMD issues.

Result

The main rule: the place of company registration ≠ the place of taxation. VAT is paid where the actual activity takes place (provision of services, management, or supply). The more evidence of physical presence abroad, the higher the risk that the tax authorities of another country will consider you a local taxpayer.