Income Tax in Estonia
Income tax is divided into income tax on natural persons and income tax on enterprises (income tax on a legal person is also paid for permanent employment of non-residents and all employers providing unique benefits). In addition to paying the income tax on the enterprise, you are also obliged to withhold the employee’s payments and pay the income tax to the Tax and Customs Department as an employer.
Income of legal personsThe peculiarity of the income tax on enterprises in Estonia is that only distributed profits are taxed. If the profit is reinvested in the enterprise, it is tax-free. You must pay income tax on distributed profits, off-business income and benefits, on gifts, donations, admissions and special benefits provided to the employee. In addition, income tax is also levied on reducing an enterprise’s capital, purchasing shares or shares, and the payment of a liquidation dividend over monetary and non-monetary contributions to the enterprise’s capital.
- The income tax rate for private person earnings— 20%.
- The income tax rate of a legal entity applied to dividends of profits is 20/80. The income tax rate of a legal entity, which is applied to a regularly distributed profit dividend, is 14/86, and income tax is withheld at a rate of 7 per cent in addition to dividends paid to an individual.
- The amount of income tax-free depends on the income received (up to EUR 500 per month and up to EUR 6,000 per year).
- up to 1,200 euros, then tax-free income is 500 euros
- between 1,200 euros and 2,100 euros, then tax-free income is applied in the amount calculated according to the formula 500 – 500 – 900 (1,200)
- over 2100 euros, then the tax-free income is zero.