Estonia Summary Guide

Taxation of Business People in Estonia

Personal income tax is paid at a flat rate of 21%. This includes any capital gains (though no such separate tax exists in Estonia). The rate is scheduled to reduce in stages, to 18% by 2012. However, as of 2010 the process has been stayed (perhaps only temporarily, however) by the current state of the Estonian – and global – economy.

Exemption for residents (personal allowance) in 2009 was EEK27,000 (EUR1726). Certain income is not subject to income tax, including some capital gains, fringe benefits, scholarships and business expenses reimbursed to employees.

Any investment income is taxed on a gross basis. Income from domestic dividends, paid to an Estonian resident, is exempt from income tax as is interest paid by Estonian banks to residents of the country. Interest paid to an Estonian resident by a non-resident is liable for personal income tax.

The rate of corporation income tax in Estonia is currently 21% (with staged reductions to 18% by 2012 expected but not guaranteed) on gross distributed profits and 21/79 on net dividends, equal to 26% of gross profit (although there is no withholding tax as such on dividends). Where profits have not been distributed there is a zero rate of corporation tax.

Interest payments may be subject to a 21% withholding tax under certain circumstances, and a 21% rate also generally applies to IP and royalty-related payments in relation to individuals. A 10% rate applies to royalty payments made to corporations, and to certain distributions to entertainers and sportsmen, and fees paid for services.

Withholding taxes may be reduced where there are double-taxation treaties in place.

The Estonian social security system is comprised of seven strands. These are: health insurance, unemployment insurance, state unemployment allowances, state family benefits, social benefits for disabled people, state funeral benefits and pension insurance. Employers are required to pay Social Tax on payments made in cash (or kind) to all employees. Employees do not pay Social Tax – employers pay the tax for them. Individual traders (sole proprietors) must pay the tax themselves. The rate of social tax is 33%, apportioned 20% to social security and 13% to insurance. Employers and employees do, however, make a contribution to unemployment insurance – 0.3% by the employer and 0.6% by the employee.

The minimum base rate for paying this tax is EEK4350 (EUR279) per month – this is the Estonian minimum wage. Upper limits apply to sole proprietors – this is calculated by multiplying the minimum wage by a factor of 15 and then by 12 (months). The upper limit is therefore currently EEK783,000 (EUR50,192).

The standard rate of VAT is 20% (increased in 2009 from 18%). Certain supplies attract a reduced rate of 9%, including books, some periodicals and certain medicines and medical equipment supplies. The provision of accommodation also qualifies for the reduced rate. International services, international transport services and exports are all zero-rated. Exemptions from VAT include insurance, postal services, financial services, health and education.

The threshold for VAT registration is EEK250,000 (EUR16,025) per calendar year and individuals or companies must register for VAT if their turnover is above that amount, or expected to be. Where revenue is below the threshold, voluntary registration is an option.

Land Tax is payable on most land. Exceptions include publicly owned land and land used to produce agricultural products. The tax is calculated on the value of the land. The rate is between 0.5% and 2.5% of the value and is due to be paid three times per year.

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Estonia Summary Guide Contents

 Estonia Summary

 Estonia Summary Chart

 Estonia Residence

 Taxation of Business People in Estonia

 Living and Doing Business in Estonia

 Business Forms in Estonia

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