Category: Taxation

Tax Revenues from E-resident Companies Increased by 46%

[vc_row][vc_column][vc_column_text]Tax Revenues from E-resident Companies Increased by 46%The e-resident companies provided Estonia with record tax revenues last year.

In 2022, the state received 48.4 million euros of tax revenues from e-residents, a new record in the e-residency program. Tax revenues from e-resident companies increased by 46 per cent over the year.

Taxes paid by e-resident companies have been growing rapidly in recent years – in 2020 tax revenues amounted to 17.5 million, and in 2021 – already 32.5 million euros. Since its inception, the programme has had an economic impact on the state (tax revenues and state duties) of 157 million euros.

2022 was a successful year for the e-residency program. If we add to the tax revenues paid state duties, e-residents brought to the Estonian treasury a total of almost 51 million euros, which exceeded last year’s figure by as much as 27%. Last spring we approved the government’s further e-residency strategy, which, if successfully implemented, will increase the economic impact of the program to 100 million euros per year by the end of 2025», – said the deputy head of the e-residency program resident Katrijn Alasoo.

While in the early years e-residency attracted more future-interested people who wanted to experience the world-unique experience of a digital state, now the motivation for e-applicants. The desire to conduct business in Estonia without reference to location is becoming more and more frequent.

Every third new e-resident creates a company during the first six months, whereas only a few years ago it was one in five, – said Alasoo. — Since many e-resident companies are still at the start-up stage or on the verge of a rapid growth phase, one can assume that the growth of tax revenues will continue in the coming years».

According to Vice Chancellor of Business and Consumer Environment of the Ministry of Economy and Communications Sandra Syarav, e-residence over the years has proved that this is a very profitable initiative for the state. The e-residency results in 2022 show that Estonia’s business environment is extremely competitive globally. In addition to taxes, i.e., direct economic benefits, e-residency contributes to strengthening Estonia’s global reputation as an innovative digital state, as well as increasing the number of Estonian companies serving e-residents and their investments. The overall positive impact of the program is actually even greater,» added the Vice-Chancellor.

The largest amount of revenue was received last year from e-resident companies working in the information and communications sector (EUR 19.8 million). They are followed by companies in the professional, scientific and technical sector (EUR 7.9 million), as well as administrative and support activities (EUR 6.6 million).

During 2022, 4,467 new e-resident companies were established in Estonia, and by the end of the year the total number of established companies had grown to 24,413. The largest increase in absolute terms compared to a year earlier was seen in the number of companies established by Spanish citizens, which established 544 companies (+61%). Next are companies of citizens of Germany (421, +20%) and Ukraine (358, +8%).

The number of initial e-residency applications in 2022 was 11,835, 7 per cent less than a year earlier. The decrease is mainly due to the cessation of e-residency for citizens of Russia and Belarus immediately after the outbreak of war in Ukraine.

The e-residency programme was established in late 2014 with the aim of providing foreign citizens with safe access to Estonian public electronic services, facilitating foreign business in Estonia and increasing the revenue base of the State. To date, 101,000 e-residents from 176 countries have become Estonian e-residents (not counting repeat applications and revoked identity cards) who have established more than 25,000 Estonian companies. There are currently 63,200 digital e-resident IDs with a 5-year validity.[/vc_column_text][us_btn label=”contact us” link=”url:https%3A%2F%2Fwww.estonia-company.ee%2Fcontacts%2F” align=”center”][/vc_column][/vc_row]

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Taxation of Non-Residents in Estonia

[vc_row][vc_column][vc_column_text]Taxation of Non-Residents in EstoniaA resident of a foreign State who receives income from Estonia or while in Estonia is considered a non-resident for tax purposes. A resident of Estonia who has a residence in a foreign State but who has established closer ties with a foreign State on the basis of a tax treaty on the avoidance of double taxation shall also be considered a non-resident of Estonia (centre of vital interests, longer stay). An e-resident is not considered to be a resident of Estonia, he is a non-resident of Estonia and his income is taxed in Estonia only in respect of income derived from sources of income in Estonia. E-residency is not an automatic basis for tax exemption in other countries.

The income of a non-resident is taxed in the State of residence and in other States where the income arose, with double taxation rules applicable in the State of residence.

When the wages of foreigners are taxed in Estonia, account should be taken of whether the employee is a seconded worker or a worker on a business trip and the length or length of time that the employee is in Estonia.

Taxable income

A non-resident pays income tax in Estonia only on income derived from sources of income in Estonia.

Rate of income tax:

  • 20%
  • 10% of the fees for the performance of an athlete and an artist
  • 10% of licence fees
  • 7 per cent of dividends if the recipient is a natural person, and 14 per cent lower tax rate applied to dividends.

On the salary, on the payment of a service, on the remuneration of a board member, on the payment of a rent or rent, on the payment of a licence, on a pension, on a scholarship, on the payment of a performance by a sportsman or an artist, the income tax must be withheld by the person making the payment.

The person making the payment does not deduct the non-taxable income from the taxable income of the non-resident natural person, but only the withheld payment for unemployment insurance, provided: that the payment in Estonia was obligatory.

  • If the non-resident is a resident of another Member State of the European Economic Area, the payer may, when making the payment, take into account the non-taxable income if the recipient has made such a declaration, from 2022 as a result of the Income Tax Act, which is to be amended.
  • If the person making the payment has not withheld income tax, but the non-resident has an income tax obligation in Estonia, then the non-resident is obliged to file an income declaration for the tax period (calendar year) (form A1) not later than by 31 March of the following calendar year.
  • If a non-resident has profited from the expropriation of property, then he is obliged to file a Declaration of Income (Form V1) pursuant to Part 4 of Article 44 of the Income Tax Act, the person making the payment must not withhold income tax in this case.
  • If a non-resident has received business income in Estonia, then he is obliged, in accordance with article 44, part 5, of the Income Tax Act, to submit an income declaration, form E1. An entrepreneur – a natural person registered in the business register or in the register of a contracting country may, in the declaration, deduct from the taxable income by himself the incurred and documented expenses directly related to the enterprise. Income from business activities is calculated on the basis of the data provided in the declaration, income and expenditure should be reported separately

A natural person who is a resident of another country party to the Agreement on the European Economic Area may submit a declaration of income to an Estonian resident once a year, by 31 April of the following year, in order to receive the benefits provided for an Estonian resident.

If a person does not have a personal code assigned to him in Estonia, then the income declaration shall contain the registration code issued by the Tax and Customs Department.

Service provides accounting services for non residents and  legal advice on taxation. Don’t hesitate to get in touch with us and present your enquiry.[/vc_column_text][/vc_column][/vc_row]

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VAT Registration in Estonia

[vc_row][vc_column][vc_column_text]VAT registration in EstoniaValue Added Tax (VAT), levied on goods and services sold in the course of business activity, imports of goods from non-EU countries, and purchases of goods from countries of the EU. Value added tax is paid by the final consumer.

The VAT payer undertakes:

  • To add VAT to the price of the sale of goods or the provision of services in Estonia.
  • To keep records of value added tax.
  • To calculate and pay the VAT amount.
  • To store documents related to transactions and issue invoices as required.

Rates

  • The general VAT rate is 20% of the taxable value of goods or services.
  • A tax rate of 9% applies to certain goods and services including accommodation services, medicine, books, periodicals, health and hygiene products (determined by the Ministry of Social Affairs), and medical equipment for the disabled.
  • The 0% VAT rate applies to a range of goods, including exported goods, and consulting services provided to VAT payers in another EU Member State, as well as for ships and aircraft used in international traffic. The 0% VAT rate is also applied to services provided outside Estonia, as well as to a number of services related to water and air transport and the carriage of goods.

Requirements

First and foremost, сompanies are obliged to register a VAT number in a case when sales in Estonia exceed 40,000 EUR from the beginning of the calendar year. If sales do not exceed 40,000 EUR in Estonia, VAT payers can be registered on a voluntary basis.

Please note that since exceeding the threshold of 40,000 EUR, you have three working days to register your company as taxable. Hence, the Estonian Tax and Customs Board will treat your company as taxable from the moment of reaching the threshold.

It is also possible to apply for VAT before the threshold value is reached. In that case, if you feel that your company is likely to reach the threshold of 40,000 EUR, it is wise to start the process beforehand.

When VAT is registered, as a VAT payer, you must pay it to the Estonian Tax and Customs Board and submit monthly VAT returns. It refers to the months during which there was nothing to declare.

As we already mentioned, you can voluntarily register your company for VAT if you don’t exceed 40,000 EUR of annual sales. You need to prove to the Estonian Tax and Customs Board that you intend to start and run your business in Estonia. Usually, the authority asks for your business plan.

Authorities may also refuse VAT registration if your company has no visible activity located in Estonia. The consideration of your application usually takes up to 5 days. Once approved, you will receive your company’s VAT number. The Estonian VAT number starts with a prefix EE which is followed by nine digits: EE123456789.

Service  can help you register VAT and provide accounting services in Estonia for your companies with VAT number or without exceeding the sales of 40,000 EUR.

Service assistance will include following:

  • Preparation of the application based on information provided by the client.
  • Filing the application to the Estonian Tax and Customs Board in the presence of the applicant or digitally for e-Residency card holders.
  • Assistance in answering additional questions from the Estonian Tax and Customs Board.

Companies applying for VAT registration shall have an account with a bank or payment system.[/vc_column_text][/vc_column][/vc_row]

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Tax System in Estonia

[vc_row][vc_column][vc_column_text]Taxation in EstoniaThe 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.

 

Service provides accounting services and legal advice on taxation. Please contact us and present your enquiry.[/vc_column_text][/vc_column][/vc_row]

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European Countries with Lowest Taxes

[vc_row][vc_column][vc_column_text]European countries with lowest taxesThe events of the past year have clearly indicated a trend towards the displacement of classical offshore workers from the civilized business world. More and more countries are exchanging tax information, imposing sanctions and restrictions that add to blacklists.

For this simple reason entrepreneurs also modify their business, and some even «move» to other countries where there are taxes, but they are minimal and conditions are quite acceptable. For example, taxes on business in Europe and the general well-being that has developed can serve as an example.

Montenegro. Firms in Montenegro pay a 9% tax. Resident companies are subject to income tax on profits earned worldwide. Non-resident companies are only for the profits that were earned in Montenegro. The withholding tax paid by non-residents for dividends, interest, royalties, and services can be calculated in accordance with the double taxation treaties signed by Montenegro with a number of countries.

Estonia. Profits of an enterprise are not taxed prior to distribution. The tax is deferred until the dividends are distributed. When profits pass the distribution procedure, they are taxed at 20%.

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.

  • Income tax on retention rate — 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).
  • The social tax rate is 33%. The monthly rate on which the minimum social tax obligation is based is 584 euros; respectively, the minimum social tax duty is 192.72 euros per month.
  • Social tax is levied to obtain the income necessary for State pension and health insurance, from payments made in the context of an employment or service relationship, from payments made in favour of a member of the management or control body of a legal entity, Payments made under a contract of obligations concluded for the provision of services to an individual, as well as special benefits and income tax paid from that place. In such cases, the payer of the social tax is the person who makes the payment, and the tax period is the calendar month.
  • Unemployment insurance rates: 1.6 per cent for the worker and 0.8 per cent for the employer.
  • The compulsory cumulative pension payment rate is 2 per cent.
  • In calculating the December 2020 payroll and other payments and calculating the taxes (payments) accrued/withheld, it should be borne in mind that taxes are calculated on a cash basis.

Bosnia and Herzegovina. Taxation in Bosnia and Herzegovina includes federal and local taxes. Income tax is levied at a single tax rate of 10 per cent on income from activities, interest, royalties and capital gains.

Hungary. Taxation in Hungary is administered by both national and local governments. The basic tax rate – 9% (+2% – tax base) – is the lowest in the European Union. Capital gains are included in the corporate tax, with some exceptions. In some cases, a company may pay a tax on a minimum tax basis.

Malta. Malta has a very interesting system. While the basic tax rate is 35 per cent, Maltese law provides for four modes of return. Thus, the actual tax, if properly managed, can be reduced to 5% and even 0% if the company makes a profit by being a member of another, foreign company. In addition, Malta is transforming its legislation and moving towards cryptocurrency.

Service provides accounting services and legal advice on taxation. Please contact us, and we will be glad to help.[/vc_column_text][/vc_column][/vc_row]

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Tax Advice in Estonia

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International companies should be aware of taxation and laws in the countries of their activity.

Overview

  • Corporate tax – 0% on retained profits
  • Dividend tax – 25%
  • VAT – 20%, if the company is VAT number holder – VAT is required when the turnover threshold reaches 40,000 EUR

Distributed profits are:

  • corporate profits distributed in the tax period
  • expenses not associated with business
  • transferred assets
  • donations

According to 2021, the tax period is a month.

If the company has employees:

  • Minimum salary in 2021 – 584 EUR per month brutto
  • The tax-free minimum in Estonia is 500 EUR
  • Income tax for private person – 20%
  • Social tax – 33%, with a minimum obligation in 2021 – 192.72 EUR

Social tax revenues are used to fund public health care and pension insurance. Social tax is paid by the employer for the employee. The social tax rate is 33% of the employee’s gross income.

The tax period is a calendar month: by the 10th day of the following month, the tax is declared in a tax return (TSD) and paid to the Tax and Customs Board. The declaration can be submitted electronically at the e-Tax and Customs Board (e-MTA) or by contacting the regional tax office of the Tax and Customs Board.

  • From 2012, a rate of a funded pension payment is 2% of the gross salary
  • Unemployment insurance – 1.6% paid by the employee and 0.8% paid by the employer – 2.4% in total

Unemployment tax aims to insure employees against unemployment, collective termination of employment contracts or insolvency of the employer.

Unemployment insurance must be paid on the salary and other remuneration of the employee and the compensation paid to the natural person under the contract. The obligation to pay is shared between the insured employee – employee (employee unemployment insurance payment) and the employer (employer’s unemployment insurance payment).

You can find more details on Tax and Customs Board website.

e-Tax

e-Tax is a government online tax filling system where are made almost every tax declaration in Estonia. It is available for residents or e-Resident card owners.

By signing in to the system, an individual can:

  • Make declarations
  • Request a company’s declarations for income, social, unemployment taxes and pension fund
  • Request VAT-returns
  • Register personal income tax declarations

Non-residents should request professional help and choose a tax representative. The tax representative of a non-resident is a person who has obtained an activity license to represent the non-resident for the performance of obligations arising in Estonia.

Service will be happy to provide accounting services for your Estonian company and advise you on issues related to taxation, tax agreements, and potential risks that may arise during your company’s operation.

Some potential issues that may be addressed:

  • Taxation of an Estonian company
  • Tax agreements between Estonia and other countries
  • Analysis of the identification of potential operational risks
  • Taxation of dividends and other income
  • Cross-border VAT rules
  • Taxes arising in different countries

Advice is provided to give an overview of taxation in case of international transactions arising in your Estonian company’s activity. The exact scope and cost of advice depend on your query.[/vc_column_text][/vc_column][/vc_row]

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