22% instead of the previous 20%.
Due to this change in the Law on Turnover Tax (Käibemaksuseadus, KMS) there are two transitional provisions:
- A person obliged by turnover tax, who uses the cash basis of accounting for turnover tax, as early as December 31, 2025, may pay tax on the turnover of goods or services that occurred after December 31, 2023, at the rate of 20%, if the buyer was issued an account, and the goods were shipped or available or the service was provided before January 1, 2024.
- In the case of transactions involving long-term contracts, particularly those involving real estate, the person obliged by turnover tax has the right to apply until 31 December 2025 the rate of turnover tax of 20% in the transfer of taxable goods or services on the basis of a written contract concluded before 1 May 2023, If the relevant contract provides that the price of the goods or services includes a turnover tax or a 20% turnover tax is added to the price, and the contract does not provide for a price change due to a possible change in the turnover tax rate.
Article 16 of KMS lists goods and services exempted from turnover tax, as well as cases arising from various articles of the law that are not considered turnover and which are therefore also not subject to tax.
According to KMS Article 15, Part 21, the turnover tax rate is 5% of the taxable value of a periodical on both physical and electronic media, except for the periodical, Publishing mainly advertising and private ads or erotic and pornographic materials, video or audio content.
Part 2 of Article 15 of KMS lists goods and services taxed at the rate of 9%, part 3 lists goods taxed at the rate of 0%, and part 4 lists services taxed at the rate of 0%.
Other goods and services are taxed from 01.01.2024 at a rate of 22%.
The turnover limit, exceeding which from the beginning of the calendar year there is an obligation to register as a person liable for turnover tax, is 40,000 euros.
A person obliged by turnover tax is a person engaged in business activity, including a public-legal entity, a state, municipality or city institution, which is registered or obliged to register as a taxable person, regardless of residence.
Income tax
Income tax rates are 20%; 14%, 10%, 7%, 0%, 20/80 and 14/86.
A significant change in income tax rates is foreseen from 01.01.2025.
The tax rate of 20% applies to natural persons (i.e. both residents and non-residents), contractual investment funds, equity funds and non-resident legal entities that receive taxable income, which means that the tax rate of 20% applies to non-resident legal entities that have no permanent place of activity in Estonia.
The 14% tax rate applies in the case specified in Article 471 of the Income Tax Act (Tulumaksuseadus, hereinafter TuMS), which relates to advance payments of the resident credit institution and the Estonian branch of the non-resident credit institution.
According to Article 47.1 of TuMS, the resident credit institution and the Estonian branch of the non-resident credit institution are obliged to pay by the 10th of the third month of each quarter to the bank account of the Tax and Customs Department advance payments on income tax according to the rate, established by Article 4, paragraph 5 (14%), from profits made in the last quarter prior to the performance of the duty to pay taxes under Article 50, parts 1 and 2, Article 501 and Article 53, part 4.
The tax rate of 10% applies to the income of an individual specified in article 201, paragraph 4, and article 21, parts 2 and 3 of TuMS.
In article 201, paragraph 4, TuMS establishes: Payments not indicated in part 3 to the insured person, the owner of units and the user of the investment pension account, as well as payments on the basis of part 5 of article 724 of the Law on Funded Pensions are subject to income tax at the rate specified in part 2 of article 4 of this Law, if the beneficiary of the payment has reached the age of old-age pension in the meaning of the Law on State Pension Insurance or reaches it within five years».
Article 21, paragraph 2, of TuMS deals with the payments listed herein which are made to the insured person on the basis of an insurance contract, an additional funded pension, which corresponds or is equivalent to the conditions laid down in article 63 of the Act on Funded Pensions, an insurance company that has a permit for activities issued in a Contracting State.
Part 3 of Article 21 TuMS refers to the payments listed therein made to the owners of units of the voluntary pension fund established in Estonia in accordance with the procedure established by the Act on Funded Pensions and the voluntary pension fund, acting in a Contracting State on equal grounds.
The 7% tax rate should apply to the payment of dividends to an individual who is taxed under section 501 of TuMS (i.e. at 14/86) at the level of a business partnership paying dividends or at the level of a business partnership, which distributed the profits on which dividends are based, and if they are not taxed under Article 50, Paragraph 1.
If the dividends taxed under section 501 TuMS are paid to a non-resident natural person, then in the case of the double taxation treaty (tax treaty) the withholding rate of income tax shall be applied, specified in the tax treaty if it is less than 7%.
If the Estonian Business Association pays the individual dividends that it has taxed at the rate of 14/86, the payer already withholds 7% of the income tax on dividends, and the individual is no longer obliged to pay the additional tax on dividends.
For example, tax treaties with the United Arab Emirates, Bahrain, Georgia, Jersey, Cyprus, the Isle of Man and Mexico exempt income tax dividends if there is a residence certificate, and tax treaties with Bulgaria, Macedonia and Israel reduce their withholding rate to 5%.
The remuneration paid to a ship’s crew member shall be taxed at the rate of 0% in the cases specified in paragraphs 5 and 6 of article 13 TuMS.
At the tax rate 20/80 are taxed payments made by a resident legal entity, a public revenue institution and a permanent place of business in Estonia of a non-resident legal entity (special benefits, gifts, donations, reception expenses, dividends, expenses not related to business, profit attributable to a permanent place of activity, deducted in cash or in kind from a permanent place of activity during the tax period, Lost income or expenses incurred in operations with a tax advantage, the difference between the market value and the book value of the property withdrawn on departure from Estonia, the cost of using the loan, the profit of the commercial partnership, controlled by a foreign company, the amount that caused the tax non-conformity).
The payers of income tax with a special allowance (tax rate 20/80), specified in article 48 TuMS, are an employer-natural person, a legal entity resident, a non-resident with a permanent place of activity in Estonia, A non-resident acting as an employer in Estonia, an Estonian public institution and a local government unit in Estonia that provide taxable special benefits.
The tax rate 14/86 applies to dividends paid by a legal entity resident, a public revenue institution and a permanent place of activity of a non-resident legal entity in Estonia (profit distribution), which are paid and taxed according to the procedure set in article 501 of TuMS.
The income of a natural person exempted from income tax depends on the person’s income and is up to EUR 654 per month and up to EUR 7848 per year.
According to 23.5 TuMS, starting from the tax period when a natural person who is a resident of a contracting state reaches the retirement age of old age, The taxable income of the tax period is deducted from his taxable income up to twelve times the average old-age pension (this amount is set by the State Budget Act at €704 per month).
From 1 January 2024, the Income Tax Act abolished the right to deduction from the taxable income of an individual:
- additional income not subject to income tax for child support;
- additional income tax-free income for the spouse (spouse) and
- housing interest.
The non-taxable daily subsistence allowance for foreign business trips is 50 euros for the first 15 days of the foreign business trip, but not more than 15 days in a calendar month, and 32 euros for each subsequent day.
According to paragraph 6 of Article 48 TuMS, paragraph 4, the granting of credit at an interest rate below market conditions is a special benefit, unless the interest at the time of payment is equal to at least twice the interest rate, last published in accordance with Part 2 of Article 94 of the Law of Obligations (Võlaõigusseadus).
In Official Communications (Ametlikud Teadaanded) the Bank of Estonia announces the interest rate twice a year (i.e. until January 1 and July 1 of each year), applied to the main refinancing operations of the European Central Bank mentioned in Part 1 of Article 94 of the Law of Obligations Act, and for a long time it was 0.00%, but on 30 June 2023 the Bank of Estonia announced that the last interest rate, applicable to the main refinancing operations of the European Central Bank until 01.07.2023, is 4%.
In accordance with article 48, paragraph 8, of TuMS, when providing for the use of a car in the use or possession of an employer, for the performance of activities not connected with the performance of work or official tasks, or for activity, The price of the special allowance is 1.96 euros per month for each engine power unit (kW) in the vehicle register. In the case of a car over five years of age, the price of a special allowance is 1.47 euros per unit of power (kW) of a car.
Simplified taxation of business income
According to article 4 of the law on simplified taxation of business income (Ettevõtlustulu lihtsustatud maksustamise seadus), the tax rate on entrepreneurial income is:
- 20% of the amount deposited in the business account if the amount does not exceed 25,000 euros in the calendar year;
- 40% of the amount received in the business account exceeded 25,000 euros in the calendar year.
The payer of the business income tax is a natural person who has an entrepreneurial account, which cannot be obligated by the turnover tax of a person or to conduct activities as a natural person entrepreneur in the same or similar field of activity.
Social tax
The social tax rate is 33%.
The monthly rate, which is the basis for the minimum social tax obligation in 2023, is 654 euros.
According to article 21 of the Law on Social Tax, the monthly social tax rate, which is the basis for payment of social tax, is established by the State budget for the budget year. The monthly rate approved by the State budget may not be lower than the minimum monthly rate for work established by the Government of the Republic, which was in force on 1 July of the year preceding the budget year. Assuming that the monthly rate for work in 2023 was 725 euros, the monthly social tax rate in 2024 would be 725 euros.
An individual entrepreneur pays social tax per year at least twelve times the monthly rate established by the State Budget Act.
According to article 4 of the Social Tax Act, social tax payers are:
- resident legal person;
- individual;
- non-resident having a permanent place of activity in Estonia or making payments specified in Part 1 of Article 2 of this Law;
- public, parish or city institution;
- the State, parish or city in the cases provided for in Article 6 of this Law.
Unemployment insurance payments
The unemployment insurance rate is 1.6% for the employee and 0.8% for the employer.
The insured person’s obligation to calculate and retain unemployment insurance contributions ends on the last day of the month on which the insured person reaches the age of old-age pension or the granting of an early or flexible old-age pension.
Mandatory funded pension contribution
The rate of contribution of the mandatory funded pension is 2%.
Land tax
The land tax is paid by the landowner or land user in the case established by Article 10 of the Law on Land Tax.
Local governments set new land tax rates on the basis of the value of the land (i.e. its taxable price) no later than 1 July 2023, and submit them to the Tax and Customs Department no later than 1 September 2023.
In order to mitigate the impact of land revaluation, which will have an impact on land tax, tax rates have been reduced from 0.1% to 2.5%, from 0.1% to 1.0% from 2024.
The maximum tax rates established by the Law on Land Tax from the taxable price of land per year are in 2024:
- 0.1-0.5 per cent: Land for housing and outbuildings of agricultural land
- 0.1-0.5 per cent: agricultural land
- 0.1-1.0 per cent: land of other use.
The land tax is calculated and the land tax notice is sent by the Tax and Customs Department. The land tax is transferred to the bank account of the Tax and Customs Department. If the annual amount of the land tax does not exceed 64 euros, the land tax must be paid simultaneously by 31 March. In the case of a tax exceeding 64 euros, at least half of the tax must be paid by 31 March, but not less than 64 euros. The remainder of the land tax must be paid no later than 1 October.
Starting in the autumn of 2023, all land tax payers can see in the e-services of the Tax and Customs Department the projected amount of land tax for 2024.
Heavy duty
Heavy goods vehicles are taxed for the carriage of goods:
- a truck registered in the road register with a total mass of 12 tons or more, except for the truck referred to in paragraph 2 of this article;
- a road train consisting of a lorry and one or more trailers with a registered or full mass of 12 tons or more, the truck of which is registered in the road register.
The taxation of a truck depends on the registered mass, the number of axles and the type of axle suspension.
Tax rates for heavy goods vehicles are given in the Schedule to the Law.
The tax period for heavy goods vehicles is the quarter, and the tax must be paid to the Tax and Customs Department no later than the 15th of the first month of the tax period.
For more information on heavy goods vehicle tax, please visit the Tax and Customs Department website.
Excise duty
In Estonia, excises are imposed on alcohol, tobacco, fuel, electricity and packaging. Taxation of excises is mainly regulated by the Law on Excise Duties on Alcohol, Tobacco, Fuel and Electricity and the Law on Excise Duties on Packaging.
You can read more about excise duties on the website of the Tax and Customs Department.
Local taxes
Local taxes are established by decree of the county or city council in accordance with the conditions stipulated by the Law on Local Taxes. The parish or city transmits the tax decree electronically or electronically to the Tax and Customs Department and it is published on the home page of the Tax and Customs Department.
Local taxes
- advertising tax;
- road and street closures tax;
- motor vehicle tax;
- animal maintenance tax
- entertainment tax;
- parking charge.
Environmental charge
Environmental charges are divided into the right to use natural resources and pollution charges.
Royalties for the use of natural resources under article 7 of the Environmental Fees Act (Keskkonnatasude seadus) are royalties for mining rights, fees for special water use, fees for fishing rights and fees for hunting rights, The rates are set out in articles 9 to 121 of the Act. Pollution charges are applied for the discharge of pollutants into outdoor air, water, groundwater or soil or the disposal of waste.
Environmental charges shall be paid by a person who has obtained the right to extract natural resources from the natural state, discharge of pollutants into the environment or disposal of wastes on the basis of a permit or on other grounds stipulated by law, or to those who have done so without the corresponding right.
Accountants and tax advisors of LKS Consult OÜ will be happy to advise you on tax matters related to your Estonian company and provide accounting services in Estonia.