A software development company may receive advance payments for projects, pay for overseas cloud services and collect client payments through several accounts. Each transaction needs supporting records and the correct accounting treatment. This guide explains the main points for an Estonian private limited company, known as an OÜ, providing development, IT support or related services.
Accounting Requirements for an Estonian IT Company
An Estonian IT company must keep accounting records even if it has only a few clients or receives all its income from abroad. The records should explain its sales, expenses, assets and debts, and support its tax returns and annual report.
Estonian companies generally use accrual accounting. Income and expenses are recorded when the transaction takes place, rather than only when money is received or paid. Section 5 of the Accounting Act sets out this principle.
For example, payment received in January for an agreed month of IT support completed in December will generally belong to December’s income. An advance for work that has not yet started needs different treatment. The contract and service dates help the accountant distinguish between these payments.
The number of bank transactions alone does not show how much accounting work is needed. A company with five invoices may still have foreign purchases, project advances or payroll to account for.
Recording Income From Development and Support Services
Client contracts help explain how an IT company earns its income. Hourly development work, a fixed-price website project and a monthly support agreement can have different billing and delivery arrangements.
The accountant needs to know which work has been completed and what each invoice covers. Timesheets, milestone approvals and client acceptance records can support this, depending on the agreement. Changes to the project price or scope should also be documented.
Advance Payments and Unfinished Projects
An advance payment does not automatically become income in full when it reaches the bank. The accountant must consider what the company has agreed to deliver and how much work has been performed.
This matters particularly at year end. A project may have started in one financial year and continue into the next. Providing the contract, payment schedule and progress information helps the accountant assess the income and costs belonging to each period.
Software Access and Recurring Fees
Monthly software access, hosting and support fees should be identifiable separately from one-off development work. A payment covering several months may need to be spread across the relevant service period.
The records should also show cancellations, refunds and changes in subscription plans. The amount collected by a payment platform may include several customers’ payments and adjustments, so its sales report is useful alongside the bank statement.
Software, Equipment and Subcontractor Costs
IT companies commonly pay for hosting, development tools, software licences, computers and external specialists. These costs need documents showing what was purchased, who supplied it and how it relates to the business.
Different purchases can require different accounting treatment:
| Cost | What the accountant needs to assess |
|---|---|
| Monthly hosting or software subscription | The service period, supplier and VAT treatment |
| Annual software subscription paid in advance | Which months the payment covers |
| Computer or other equipment | Whether it should be recorded as an asset and expensed over its useful life |
| External developer or specialist | The agreed work, invoice, project and supplier’s location |
| Development of the company’s own software | Project costs and whether the requirements for recording an asset are met |
An IT company developing its own product should keep those costs separate from work performed for customers. Records of staff time, external development work and project progress help the accountant assess the treatment. Development spending should not automatically be recorded as an asset simply because it relates to software.
For subcontractors, retain the agreement, invoice and evidence of the work delivered. If a specialist works abroad, their location and working arrangements may also affect employment and tax obligations.
Where an owner pays a company expense personally, the records should identify the payer and show whether the company has reimbursed them.
VAT for IT Companies in Estonia
VAT depends on the service, the customer and the company’s registration status. Foreign clients and foreign suppliers need separate consideration. A company can have VAT obligations on purchases even when it does not charge VAT on its own sales.
The general 40 000 € registration threshold concerns qualifying annual turnover whose place of supply is Estonia. “Place of supply” means the country where a sale is treated as taking place for VAT purposes. The threshold is not a general exemption for every transaction below that amount. The current rules are in Sections 19 and 21 of the VAT Act.
Invoicing Business Clients
For an ordinarily VAT-registered company supplying standard IT services from its Estonian business establishment, domestic sales generally carry 24% VAT. Ordinary development or support services supplied to a VAT-registered business in another EU country generally follow the reverse-charge rule. The customer accounts for VAT in its country, and the Estonian company does not charge Estonian VAT.
The invoice needs the relevant VAT numbers and a reverse-charge reference. The customer’s EU VAT number can be checked through VIES.
For business clients outside the EU, the place of supply is generally the customer’s country under the general business-to-business rule. Keep evidence of the customer’s business status and check the reporting requirements. EMTA’s guidance on services explains the rules and exceptions.
Software Sales to Private Customers
Software access sold to private individuals can follow different rules from development services sold to businesses. Automated software access and work carried out personally by a developer should be assessed separately.
For electronically supplied services to consumers in other EU countries, customer-location rules and the One Stop Shop scheme may be relevant. The accountant needs to understand how the product is delivered and who buys it before deciding the VAT treatment.
Buying Software and Services From Abroad
Foreign cloud hosting, software and advertising invoices can create VAT obligations before the company reaches the general turnover threshold. A company without ordinary VAT registration may need limited VAT registration when it receives certain services from abroad. There is no minimum purchase amount for services covered by this rule, although the supplier’s status and applicable exemptions must be checked.
Limited registration does not give the company a right to deduct input VAT. EMTA’s limited VAT liability guidance explains these obligations. Foreign supplier invoices should therefore be reviewed from the start of business activity.
Bank Accounts, Payment Platforms and Foreign Currencies
Accounting records should include every business bank account and payment platform. Transfers between the company’s own accounts, customer payments and provider fees need to be identified correctly.
For example, a client may settle a 2 000 € invoice while the payment provider deducts a 20 € fee. The bank receives 1 980 €, but the records should show the full invoice being settled and the separate fee.
Foreign-currency payments also need the original invoice and conversion details. These allow the accountant to match the payment to the invoice and record any fees or exchange differences.
Monthly Accounting and Annual Reporting
Regular document collection helps keep the accounts complete and allows questions to be resolved before filing deadlines. An IT company will usually need to provide sales and purchase invoices, bank and platform statements, project updates and details of payments to staff or owners.
Under the rules in force in 2026, ordinary VAT registration generally requires monthly VAT returns. Qualifying services to EU VAT-registered customers also require a report on intra-Community supply, known as form VD. These returns are normally due by the twentieth day of the following month.
Salary and other taxable payments may require an income and social tax return, known as form TSD, normally due by the tenth day of the following month. EMTA’s reporting calendar explains the applicable obligations and deadline adjustments for days off.
The annual report is separate from tax returns. It is generally due within six months after the financial year ends, as explained in the official accounting guidance. Before preparing it, review unfinished projects, unpaid invoices, advance payments and software or equipment costs.
If the owner or team works abroad, their working and management arrangements should also be reviewed. Estonian incorporation does not remove possible tax obligations in another country. EMTA addresses this in its guidance for companies established by e-residents.
Frequently Asked Questions
Accounting for an IT Company With No Employees
An IT company still needs accounting and an annual report without employees. Software purchases, subcontractor payments and client invoices must be recorded. VAT obligations depend on its transactions and registration status.
Accounting When All Clients Are Abroad
Foreign clients do not remove an Estonian company’s accounting obligations. VAT treatment depends on the customer’s status and location, the service supplied and the company’s registrations.
VAT on Foreign Software Subscriptions
Certain foreign service purchases can trigger limited VAT registration even before the company has sales. The supplier and service need to be checked. Being below 40 000 € in revenue does not settle this question.
Documents Needed for Project Accounting
The accountant needs the client contract, invoices and information about work completed. Depending on the agreement, timesheets, milestone approvals or client acceptance records may also be useful.
Accounting Support for IT Companies in Estonia
An IT company’s accounts should explain both its day-to-day transactions and its longer projects. Reviewing contracts, delivery records and payments together helps record income and costs in the correct period and identify the relevant tax obligations.
BBCTallinn provides accounting services in Estonia for IT companies, including bookkeeping, tax declarations, payroll and financial reporting. We can assess the support needed based on your company’s projects, suppliers and document volume. Our legal services also cover document preparation and review of client or subcontractor agreements.
