Estonia

Basic taxes (briefly)

Personal tax 20%
Corporate tax (in detail) Income tax rate is 20%
Capital gains tax. Details
VAT. Details The standard VAT rate is 20%. A reduced rate of 9% applies to certain goods and services
Other taxes Social contributions, Land tax
Government fee No
Stamp duty 0.1-2.5% (real estate transactions)

International tax agreement

   


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TAXATION

Personal Income Tax

Residents in Estonia are taxed on their worldwide income. Nonresidents pay tax only on income received from Estonian sources. An individual is a resident if his/her place of residence is in Estonia or if he/she stays in Estonia for at least 183 days over 12 consecutive calendar months (and will be deemed to be a resident as of the date of his/her arrival in Estonia).
Residents are subject to tax on such items as the following: employment income; business income; gains from the transfer of property dividends; interest; rent and royalties; pensions, scholarships, grants, benefits, certain awards and lottery prizes; insurance indemnities and payments from pension funds; and income of a legal person located in a low-tax jurisdiction (i.e. income inclusions from CFCs). A limited list of taxable items applies for nonresidents: income from work under a labor 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 the disposal of assets located in Estonia; directors' fees paid by Estonian enterprises; income of a sportsman or an artist from his/her activities in Estonia; and pensions and scholarships.
A flat rate of 21% applies. The first EUR 1,728 annually is exempt.
Tax year conforms to calendar year. Tax on employment income is withheld by the employer and remitted to the tax authorities. The tax return must be submitted by 31 March and tax paid by 1 July of the following year. If a person has declared capital gains, the deadline for any additional income tax payable would be 1 October instead of 1 July.
A penalty is levied on late tax payments at a rate of 0.06% per day.

Corporate Tax

Residents are taxed on worldwide income, while nonresidents are taxed only on income derived from Estonian sources. This rule applies both to Estonian resident companies and to permanent establishments of foreign companies.
Estonia levies a corporate income tax on a company's distributed profits (in lieu of an annual corporate tax). Retained earnings are not taxed until profit distributions are made. Profit distributions may be specific (i.e. dividends, share buy-backs or profit distributions via capital reductions) or deemed (which include expenditure and payments unrelated to business activities, as well as gifts and donations).
The corporate income tax is levied at a rate of 21/79 of the net amount (21% of the gross amount) of the profit distribution.

Capital Gains Tax

There is no separate capital gains tax in Estonia. Capital gains are treated as ordinary income of Estonian resident companies, but they are taxed only where there is a profit distribution.

Dividends

The corporate income tax applies to dividends and is paid by the resident legal person making the distribution. A similar regime applies to an Estonian permanent establishment of a nonresident. There is no separate dividend withholding tax.

Tax Year

Given the nature of the corporate income tax, the relevant taxable period is the calendar month.

Filing Requirements and Penalties

Filing and payment must be made on a monthly basis by the 10th day of the calendar month following the month of taxation. For non-VAT registered taxpayers, filing is required only if taxes upon profit distribution and payroll are due for the period.
A penalty is levied on late tax payments at a rate of 0.06% per day.

VAT

The standard VAT rate is 20%. A reduced rate of 9% is available on such items as books, newspapers, medicines and accommodations. Zero-rated items include exports, intra-Community supply of goods, sales of certain services to foreign persons and goods supplied on board vessels and aircrafts. Exemptions are provided for postal, health, social and insurance services, as well as services for the protection of children and young persons; the supply, letting and leasing of immovable property; and transportation of sick, injured or disabled persons.

VAT Registration

Registration is required of any person whose taxable supply (excluding import) exceeds EUR 16,000 in a calendar year. For a foreign person engaged in business in Estonia, the registration obligation arises as of the first date on which the taxable supply occurs.

VAT Tax Period and Returns

Filing and payment is made on a monthly basis by the 20th day of the following month. EC Sales Lists also are to be submitted on a monthly basis by the 20th day of the following month.

Withholding Tax

Dividends Estonia does not levy withholding tax on dividends.
Interest As from 1 January 2014, Estonia does not levy withholding tax on interest, except where a nonresident investor derives interest income from an Estonian contractual fund or other pools of assets. Despite the exemption from withholding tax, interest payments may be subject to corporate taxation under the transfer pricing rules, at the level of the payer company, if unrelated parties would not have conducted the transaction under similar conditions.
Royalties A 10% withholding tax applies to royalties paid to nonresidents.
Technical service fees A 10% withholding tax applies if technical services are rendered in Estonia.

Stamp Duty

Stamp duty in insignificant amounts may apply on certain transactions, e.g. real estate transactions - up to a maximum of 0.04% (depending on the value of the property) on the VAT inclusive purchase price.

Government Fee

There is no government fee in Estonia.

Other Taxes and Duties

Payroll Tax No, but unemployment insurance contributions must be paid by the employer and the employee on the employee’s monetary employment income. The employer`s contribution is levied at a rate of 1%.
Land Tax An annual land tax is imposed on the assessed value of land and is paid by the owner or the user of land at rates ranging from 0.1%-2.5%.
Social Security Contribution The combined social and health insurance rate paid by the employer on cash and in kind (fringe benefits) employee remuneration is 33%.

Other Taxes and Duties

Payroll Tax No, but unemployment insurance contributions must be paid by the employer and the employee on the employee’s monetary employment income. The employer`s contribution is levied at a rate of 1%.
Land Tax An annual land tax is imposed on the assessed value of land and is paid by the owner or the user of land at rates ranging from 0.1%-2.5%.
Social Security Contribution The combined social and health insurance rate paid by the employer on cash and in kind (fringe benefits) employee remuneration is 33%.

Anti-Avoidance Rules

General rules: A general anti-avoidance rule allows the tax authorities to apply what is, in effect, an economic substance rule, and special scrutiny is given to payments and fees to low-tax jurisdictions.
Transfer pricing: If the value of a transaction conducted between a resident legal person and a person associated with that person differs from the value of similar transactions conducted between unassociated persons, the tax authorities may, upon determining the income (i.e. distribution) tax, use the value of transactions applied by unrelated independent persons under similar conditions. Income tax is charged either on the income the taxpayer would have derived or the expense the taxpayer would not have incurred had the transaction been conducted with unrelated persons under similar conditions.
Thin capitalization: No
Controlled foreign companies: Given the nature of the corporate income tax, the CFC regime applies only to individuals.
Disclosure requirements : No

Double Tax Agreements

Estonia has exchange of information relationships with 91 jurisdictions through:

  • 60 DTC: Albania, Armenia, Austria, Azerbaijan, Bahrain, Belarus, Belgium, Bulgaria, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, Finland, Former Yugoslav Republic of Macedonia, France, Georgia, Germany, Greece, Hungary, Iceland, India, Ireland, Isle of Man, Israel, Italy, Jersey, Kazakhstan, Korea (Republic of), Kyrgyzstan, Latvia, Lithuania, Luxembourg, Malta, Mexico, Moldova (Republic of), Morocco, Netherlands, Norway, Poland, Portugal, Romania, Russian Federation, Serbia, Singapore, Slovakia, Slovenia, Spain, Sweden, Switzerland, Thailand, Turkey, Turkmenistan, Ukraine, United Arab Emirates, United Kingdom, United States, Uzbekistan, Viet nam.

Foreign Exchange Control

There is no exchange control in Estonia.

ACCOUNTS

Financial Statements

All Estonian companies should prepare accounts.
Almost all Estonian companies can choose whether to prepare their consolidated and annual accounts in accordance with International Financial Reporting Standards (IFRS) or in accordance with the Estonian accounting standards ("Estonian GAAP").
The length of a financial year is 12 months. At the end of each financial year, a private limited company is required to prepare an annual report that consists of the annual accounts and the management report.
Annual report should be filed at the Commercial Register during six months after the end of the financial year.

Audit

An auditor’s report must be appended to the annual report, if your company was required to undergo an audit. An auditor’s report must be appended to the annual report of an organisation subject to accounting requirements who meets at least two of the following three conditions:

  • annual net sales of 2 000 000 euros and more;
  • balance sheet volume of 1 000 000 euros and more;
  • average number of employees is at least 30.

The auditor review is also obligatory for organizations subject to accounting requirements who meet at least one of the following three conditions as of the balance sheet date:

  • annual net sales of 6 000 000 euros and more;
  • balance sheet volume more than 3 000 000 euros,
  • average number of employees is at least 90.

Annual Return

Generally speaking, Annual Return is a short review on the current state of the company, which is prepared by the company secretary annually. As a rule it includes the following information:

  • Incorporation information (registration date, registered address);
  • Information about directors and their resignation;
  • Information about secretaries and their resignation;
  • Information about registered capital, nominal value of shares and amount of issued shares;
  • Information about shareholders and share transfer.

Estonian companies are required to prepare and file annual return with Commercial Register.

Tax Returns

Estonian companies have the obligation to keep tax records and to file tax returns with the Tax and Customs Board, including the following on a regular basis:

  • The TSD form – which is a declaration of income tax and social tax and mandatory funded pension and unemployment insurance premiums, which must be filed each month if your company has contractual employees or has made taxable payouts. If your company is registered as VAT payer, the TSD form must be filed monthly even if your company has no contractual employees and hasn't made any taxable payouts. In the latter case, the so called null TSD form is filed;
  • Annex 4 to the TSD on declaration of fringe benefits, if you have for instance given an employee use of a car free of charge or at a discounted price, or cover employees’ expenses on holidays or entertaining etc.;
  • Annex 5 to the TSD on gifts and donations and entertaining costs, if you have paid for alimentation and accommodations expenses for business partners;
  • Value added tax return if your company is registered as a VAT payer.

In addition, you will have to declare dividends and disbursements of equity, and excise duty on products and packaging.

    Taxes of Estonia

    Min. rate for corporate tax 20%
    Capital gains tax Regular rate
    VAT 20%
    Withholding tax 0%/0%/10%
    Exchange control No
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