As an app owner, you are responsible for paying taxes on the income you earn from your app. This includes income tax, social tax, and, in some cases, value-added tax (VAT). Here’s what you need to know about paying taxes as an app owner:
Income tax
If you are an Estonian company, you are required to withhold income tax on payments made to natural persons for the provision of services. This includes payments made to developers for the development of your app, as well as any payments made to individuals for the use of their data or content within your app. The income tax rate is 20%.
Social tax
In addition to income tax, you are also required to withhold social tax on payments made to natural persons for the provision of services. The social tax rate is 33%.
Value-added tax (VAT)
If you are an Estonian company and you grant your app to be used by another Estonian company, this is considered a supply of digital services and is subject to VAT at the standard rate of 20%. If you are a foreign company and you provide your app to be used by an Estonian company, the service is considered to be supplied in your country of residence and is subject to VAT at the rate applicable there. In either case, the recipient of the service (the Estonian company) is required to reverse charge the VAT.
Paying taxes as an app owner can be a complex process, but it’s important to make sure that you comply with all the relevant tax regulations. By doing so, you’ll ensure that you’re able to keep your business running smoothly and avoid any penalties or fines. With this in mind, let’s walk through an example of how you would pay taxes as an app owner in Estonia.
Let’s say you are the owner of an app called “My App”. You develop the app yourself and you also allow other companies to use it for their own business purposes. In this case, you would be considered the supplier of a digital service.
If you are an Estonian company, the service you provide is subject to VAT at the standard rate of 20%. The invoice for this service must be submitted on behalf of the actual provider of the service (in this case, you), even if the app owner (the company that uses your app) issues the invoice to the customer.
If you are a foreign company, the service you provide is considered to be supplied in your country of residence. In this case, the recipient of the service (the Estonian company) is required to reverse charge the VAT.
Other things to keep in mind
- When you are invoicing for the services you provide, make sure to include your company name, address, and VAT registration number (if applicable).
- If you are an Estonian company, you must also include your bank account details on the invoice.
- Keep in mind that any payments made to natural persons for the provision of services are subject to income tax and social tax. The rates for these taxes are 20% and 33%, respectively.
- Finally, remember that it’s your responsibility as an app owner to ensure that all the taxes owed on your income are paid on time. If you fail to do so, you may be subject to interest charges, penalties, or even prosecution.
Paying taxes as an app owner can be a complex process, but it’s important to make sure that you comply with all the relevant tax regulations. At LEGID, our expert lawyers can help you navigate the tax system and ensure that you’re compliant with all the relevant laws. Contact us today to learn more: hi@legid.app