The cross-check that starts most enquiries
Every VAT-registered company files the KMD INF, an annex to the monthly VAT return (KMD). It lists transactions with other Estonian VAT-registered parties above a threshold. Your counterparty files the same thing. The Tax Board compares them.
If you claimed input VAT (the VAT you paid on a purchase and reclaim) on an invoice your supplier never declared, the system sees it. If a subcontractor invoiced you but reported nothing, the system sees that too. Most enquiries we handle start here, and most are resolved by sending the invoice and an explanation. The ones that go badly are the ones where the invoice does not exist.
What draws attention to a foreign-owned company
Nothing about being owned by an e-resident is itself a flag. Estonia issues the cards. What draws attention is a mismatch between what the company claims to be and what its numbers look like.
- Turnover with no corresponding costs, or costs with no corresponding turnover.
- Consistent nil VAT returns from a company that clearly has activity in its bank account.
- Input VAT reclaimed month after month with almost no output VAT, and no obvious reason such as export or investment.
- Annual reports filed late, repeatedly. This is visible to everyone and it changes how the rest of the file is read.
- A board member fee of zero, year after year, from a company that is plainly being worked in.
- Large payments to related parties, or to companies in low-tax jurisdictions.
- Reverse charge missing entirely on a company that obviously buys foreign software and advertising.
The last point deserves a closer look. Reverse charge means that you, as the buyer, report the VAT on a foreign purchase yourself. A company with foreign customers, foreign suppliers and no reverse charge on its VAT return is not hiding anything. To the Tax Board, though, it suggests the bookkeeping is incomplete. That invites the question of what else is missing.
What an enquiry actually looks like
It is usually an electronic message in e-MTA, the Tax Board's online portal. The message asks for specific documents about a specific transaction, with a deadline. It is not a raid and it is not personal. Answer it properly and it closes.
What makes it go badly:
- Missing the deadline, which converts a routine query into an escalated one.
- Answering with an explanation instead of a document. They asked for the invoice.
- Producing documents that contradict what was declared.
- Sending an invoice that does not meet the formal requirements, which then loses the VAT deduction on top of the original question.
The three things that make a file boring
Boring is the goal. A company whose file is boring gets left alone.
- Declarations filed on time, every time. TSD (the monthly payroll tax return) by the 10th, KMD by the 20th, annual report by 30 June. Consistency is itself a signal.
- Numbers that reconcile. The bank matches the ledger, the ledger matches the return, the return matches what your counterparties declared.
- Documents that exist before they are asked for. Every claimed cost has a compliant invoice attached to it, filed at the time, not assembled under deadline pressure two years later.
If you are already behind
Filing on your own before anyone asks is much better than being found. Late declarations filed on your own initiative, and amended returns correcting earlier errors, are ordinary administrative events. The same corrections made after an enquiry has opened are something else.
What we do about it
We reconcile before filing rather than after, so the numbers we submit match the ones your counterparties submitted. We check that reclaimed input VAT is supported by invoices that would survive being asked for. And when a query does arrive, we answer it on your behalf, in Estonian, within the deadline.
Frequently asked questions
How does the Estonian Tax Board detect errors?
Largely by automated cross-matching. Every VAT-registered company reports its transactions with other Estonian VAT-registered parties on the KMD INF annex, and the Tax Board compares both sides. Mismatches generate queries.
Does being an e-resident make an audit more likely?
Being owned from abroad is not itself a flag. What draws attention is a mismatch between what a company claims to be and what its declarations and bank activity show.
What should I do if I receive a Tax Board query?
Answer within the deadline, with the specific documents requested rather than an explanation. Most queries close on the first reply if the documentation exists.
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