The Estonian taxation system is one of the most profitable in the world. It includes state and local taxes. A tax is a financial obligation that the law imposes on a taxpayer and is enforceable in the manner, amount and duration prescribed by law. The taxpayer is obliged to pay only the state and local taxes prescribed by law.
Taxes in Estonia are administered by the Estonian Board of Taxes and Customs. A large proportion of tax returns are available via the Internet.
Income tax
Personal income tax in Estonia is de jure proportionate, de facto progressive. The rate for 2015 was 20% (compared to 21% a year ago). A basic tax exemption is granted, which is increased in the case of raising a minor child, receiving a pension, compensation for an accident at work or occupational disease. A number of expenses are additionally deducted: interest on housing loans, tuition expenses, gifts, donations, voluntary and compulsory contributory pension contributions, unemployment insurance, compulsory social insurance contributions in a foreign State. Deductions for housing loans, tuition, gifts and donations are limited. In 2011, the limit was 3,196 euros (but not more than 50% of taxpayer’s income during the same period).
No capital gains tax is levied and income from transfers of securities or financial assets is subject to a standard income tax. Since 2011, a new system has been introduced that allows individuals to defer a tax liability created on the basis of income from financial assets until the income is used through the investment account. An investment account is a regular cash account with an obligation to register all money transfers. In order to achieve the goal through the investment account, the income received from the financial assets must be credited immediately to the investment account. The taxable amount will appear if payments made from all investment accounts exceed the balance of deposits in all investment accounts.
Land tax
A land tax is a State tax that is paid in full to the local government budget at the location of the land. The amount of land tax is determined by multiplying the price of land taxation by the rate of land tax. All land is taxed and the landowner pays the tax, and in certain cases also the land user.
Land tax benefits are of two types:
- A benefit related to the identity of the taxpayer (for example, pensioners who have been repressed).
- A benefit related to the intended use of the land or to the restrictions placed on the use of the land (for example, arable land and natural meadows, as well as land where economic activity is restricted).
Land tax notices, data related to land parcels, the period(s) of land tax payment, the tax calculation process and the amount(s) to be paid are displayed in the e-TMA: «Taxes» – «Other taxes» – «Land tax».
Social tax
Wages paid to employees are subject to social tax, unemployment insurance contributions and contributory pension. The social tax rate is 33 per cent and applies to supplementary benefits provided by the employer. Unemployment insurance contributions are paid by the employer and the employee: 2.8 per cent is deducted from the gross salary, 1.4 per cent is deducted by the employer from the monthly gross salary. In 2012, the amount of the cumulative part of the pension was 2 per cent of the gross salary of the employee, withheld by the employer.
VAT
According to the Estonian regulations, the total rate of turnover tax is 20 % of the taxable value of the good or service.
For some goods and services, a tax rate of 9 per cent is applied, for example, in the case of books and workbooks used for teaching, periodicals, accommodation services and medicines noted by the Ministry of Social Affairs, Sanitary and hygienic products and medical equipment for personal use by persons with disabilities.
Some goods are subject to a 0% turnover tax, including exported goods, consultancy services rendered to a taxpayer from another EU Member State, and water and air transport used for international flights.
Corporate tax
The corporate tax rate is generally a flat 20%, calculated as 20/80 from taxable net payment. If regular dividends are paid out, a reduced rate of 14/86 may apply.
Additional taxes
The following taxes are also levied in Estonia: taxes on electricity, alcohol, tobacco, fuel and packaging; customs duties; taxes on gambling and heavy vehicles.
LKS Consult OÜ provides accounting services and legal advice on taxation. Please contact us and present your enquiry.