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Tax system

Tax system

The Estonian tax system consists of national taxes and local taxes collected by local governments in their jurisdiction. National taxes include income tax, social tax, land tax, gambling tax, value-added tax, duty and excise taxes and heavy goods vehicle tax. Local governments have the authority to impose local taxes, but effectively only a few have introduced local taxes, in particular: boat tax, advertisement tax, tax for closing of streets, motor vehicle tax, tax on keeping domestic animals, amusement tax, and parking fees.

Estonia does not impose any gift, inheritance or estate taxes. Various transactions may be subject to payment of state fees (stamp duties).

 

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Corporate income tax

Estonian resident companies and permanent establishments of the foreign entities (including branches) are subject to income tax only in respect of all distributed profits (both actual and deemed), including:

  • corporate profits distributed in the tax period;

  • gifts, donations and representation expenses;

  • expenses and payments not related to business.

Fringe benefits are taxable at the level of employer. The employer pays income tax and social tax on fringe benefits.

All distributions are subject to income tax at the rate of 20% of the amount of taxable payment. The transfer of assets of the permanent establishment to its head office or to other companies is also treated like a distribution. As of 1 January 2009, dividends paid to non-residents are no longer subject to withholding tax at the general rate of 20%, irrespective of participation in the share capital of the distributing Estonian company. However, various withholding taxes may still apply to other payments to non-residents if they do not have a permanent establishment in Estonia or unless the tax treaties otherwise provide.

As the tax period of corporate entities is a month, the income tax shall be returned and paid monthly by the 10th day of the following month.

 

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Personal income tax

Residents pay tax on their worldwide income. Taxable income includes, in particular, income from employment (salaries, wages, bonuses and other remuneration); business income; interest, royalties, rental income; capital gains; pensions and scholarships (except scholarships financed from state budget or paid on the basis of law). Taxable income does not include dividends paid by Estonian or foreign companies when the underlying profits have already been taxed.

Non-residents pay tax only on their income received from Estonian sources.  Income taxable in Estonia includes:

  • income from work under a labour contract or contractor's agreement in Estonia;

  • income from a business carried on in Estonia;

  • interest income received from Estonia (only if it is substantially higher than that on similar debt claims);

  • royalties;

  • income from the lease of assets located in Estonia;

  • gains from disposal of assets located in Estonia;

  • directors' fees paid by Estonian enterprises;

  • income of a sportsman or an artist from his or her activities in Estonia

  • pensions and scholarships.

The tax rate for 2015 is 20% of the taxable income.

 

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VAT

VAT is charged on supplies of goods and services in the course of business activities and self-supply of goods and services.

A taxable person is an individual engaged in business who is registered as taxable person. A taxable person shall add of the amount of VAT to the taxable value of the goods transferred or services provided, calculate the amount of VAT due to pay, pay VAT, preserve documents, maintain records and issue invoices in accordance with requirements.

The threshold for obligatory registration as a taxable person is EUR 16,000. The threshold for taxable person with limited liability in case of acquisition of goods is EUR 10,000. There is no threshold in case of acquisition of services.

The taxable period is one calendar month and VAT returns shall be submitted to the tax authority by the 20th day of the month following the taxable period.

The standard rate of VAT is 20%; the reduced rate is 9% and 0% in some cases.

 

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Social Tax

Employers registered in Estonia (including permanent establishments of the foreign entities) must pay social tax on all payments made to employees, except on those specifically exempted by law. In case of an individual engaged in business and registered as such with the Tax Authorities, social tax liability lies with the individual. Fringe benefits and the income tax thereof are also included in the taxable base. Currently only employers and individuals engaged in business are liable to make social tax contributions. Employees are not required to pay social tax.

The rate of social tax is 33% (20% for social security and 13% for health insurance).

 

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Other taxes

Land tax is levied on the taxable value of all land (other than that which is specifically exempt) based on an official valuation. The owners of the land are liable to land tax. The annual land tax rate varies between 0.1% and 2.5% of the assessed value of the land. The council of the local authority is authorised to establish the rate of land tax.

Excise duties are levied on tobacco, alcoholic beverages, fuel, electricity and packages.

Heavy goods vehicle tax is paid for the following classes of vehicles which are intended for the carriage of goods: lorries with a maximum authorised weight or gross laden weight of not less than 12 tons; road trains composed of trucks and trailers with a maximum authorised weight or gross laden weight of not less than 12 tons.

Gambling tax is imposed on amounts received from operating games of skill, totalizator, betting and lotteries. Tax is charged also on gambling tables and machines used for games of chance located on licensed premises.

 

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Paying taxes

The tax authority for state taxes is the Tax and Customs Board.

Non-residents can choose for themselves a tax representative. The tax representative of a non-resident is a person to whom the Tax and Customs Board has issued a corresponding activity licence and whom a non-resident may authorise to represent itself for the performance of the obligations arising in Estonia.

Licensed tax representatives of non-residents.

Taxable persons are taxpayers, withholding agents, other persons responsible for the tax liability of a taxpayer or withholding agent pursuant to law or a contract.

Monthly reporting to the Tax and Customs Board:

  • Income tax, social tax, unemployment insurance premiums and funded pension payments have to be withheld, paid, declared and transferred to the Tax and Customs Board by the 10th of every month, following the month of payment.

  • A VAT return is filed and the VAT is payable by the 20th of the month following the period of taxation.

  • By the 10th of every month, a payer is required to submit a notification file on recipients of dividends or payments made to shareholders of proceeds from liquidations, payments upon capital reductions and redemption or return of participation, to the regional tax centre of the Estonian Tax and Customs Board only in case there was a payment the month before.

Key dates for taxpayers in 2013.

All the taxes in Estonia can be declared via E-tax/e-customs, which is an electronic service desk of the Estonian Tax and Customs Board. E-tax/e-customs works 24 hours a day and 7 days a week. Via E-tax/e-customs it is possible to:

  • Submit declarations and notices

  • Perform customs operations

  • Be aware of one's tax operations

  • Securely communicate with the Tax and Customs Board

More information on E-tax/e-customs.

 

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Customs

Estonia's membership in the EU implies that all aspects of custom duties are decided by the common customs tariff, TARIC.

The online customs tariff database, also called the TARIC, is a multilingual database in which are integrated all measures relating to tariff, commercial and agricultural legislation. By integrating and coding these measures, the TARIC secures their uniform application by all Member States and gives all economic operators a clear view of all measures to be undertaken when importing or exporting goods. It also makes it possible to collect Community-wide statistics for the measures concerned.

 

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