Report: Estonia – the country with the lowest property taxes in the EU

Estonia - the country with the lowest property taxes in the EUAccording to the summary report of the Development Monitoring Center “Property taxes in Estonia and European countries”, Estonia is the country with the lowest property taxes in the European Union. If property taxes were to reach the EU average, it would bring in more than 500 million per year.

“Estonia’s tax system is based mainly on taxes on labor and on taxes on consumption. At the same time, property taxes are less used to finance public expenditure, said Magnus Pieritz, an expert from the Development Monitoring Centre. — In EU countries, property taxes account for about 5 per cent of total tax revenue. If property taxes in Estonia were to reach the EU average, in 2019 this would mean that revenues to the state budget would be more than 530 million euros more”.

Property taxes include taxes on real estate, net assets, inheritance and gifts, as well as taxes on financial transactions and capital transactions, such as transactions in securities and shares of enterprises. According to Pieritz, in many EU states (including Estonia), most property taxes consist of property taxes.

In Estonia, the main property tax is the land tax, which is paid to local governments. “ For example, real estate taxes accounted for 0.6% of all tax revenues in Estonia in 2019. The average in the European Union was 3 per cent. Since 2012, the land tax in Estonia has remained in the range of 60 million euros per year”, noted Pieritz.

According to Magnus Pieritz, changes in Estonia’s tax structure are inevitable in the future. “ In view of the shrinking of the working-age population, the development of digital technologies and changes in forms of work, labor taxes can no longer effectively cover public expenditures. If the costs remained the same or increased, it would be necessary to find a way to cover those costs”, he added.

According to Pieritz, when speaking of global trends, it is important to bear in mind that in recent decades the world has become more unequal in terms of wealth. “ As much as 45 percent of the estate goes to the top 1 percent. The printing of money by central banks also exacerbates inequality, as it increases property prices”.

In addition, the fight against concealment of property is being strengthened through new info-technology solutions and more effective cooperation between countries. “ This is becoming a fertile ground for wider application of property taxes. On the other hand, new asset classes are emerging, such as cryptocurrency, whose value is very difficult to value,” added Pieritz.

One of the research areas of the Development Monitoring Center in 2021 is “Tax structure that will stand the test of time”. In the study, the authors consider how to cover the costs of an ageing society and how to change the tax system over the next 15 years.

The Development Monitoring Center is a research center established in the Riigikogu Office, which analyses the long-term prospects of society and the economy. The Center conducts research projects to analyse long-term trends in Estonian society and to identify new trends and development directions.

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