[vc_row][vc_column][vc_column_text]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 Wisor Group OĂś will be happy to advise you on tax matters related to your Estonian company and provide accounting services in Estonia.[/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]
Lawyers and tax consultants from Wisor Group OÜ OÜ have prepared detailed information on the forthcoming tax changes in Estonia in 2023 – 2025.
Growth of the tax-free minimum
Since 2023, Estonia has been increasing the income-exempt minimum and will compensate for the previously suspended payments to the second pension. The following is an overview of the significant legislative changes in the area of responsibility of the Ministry of Finance, which will come into force in 2023.
Tax-free income from this year increased from 500 to 654 euros per month or from 6,000 euros to 7,848 euros per year.
The tax-free minimum is calculated for a calendar year and employees earning up to 14,400 euros per year will be able to use it in full, i.e. deduct 7,848 euros from their taxable income. For those earning more than EUR 14,400 a year, the tax deduction is gradually reduced to zero for people earning more than EUR 25,200 a year.
For recipients of the old-age pension, the tax-free income is equal to the average old-age pension, which in 2023 will amount to 704 euros per month. For old-age pensioners, this tax deduction is retained regardless of their total annual income.
Fuel excise increase postponed
The reduced excise rates were extended until 30 April 2024 – this applies to diesel fuel, fuel oil, natural gas, liquefied gas and electricity.
The gradual increase of excise duties to the pre-crisis level is planned for the period from May 1, 2024 to May 1, 2027.
Until 30 April 2024, the agricultural and shale sectors will be able to use diesel fuel with special marking at a minimum allowed rate of 21 euros per 1000 litres (excise duty on conventional diesel is now 372 euros per 1000 litres).
Increased excise duty on tobacco products and re-introduced excise duty on nicotine-containing liquids
Reimbursement of suspended contributions to pension pillar II
At the end of January, participants in the second pillar will be reimbursed for the public portion of contributions that were suspended for 14 months in 2020-2021.
These are persons born since 1961 who did not leave the secondary level and who continued to pay 2 percent of their gross income between 1 July 2020 and 31 August 2021, despite the fact that the State has suspended payments of 4 per cent. State payments were not suspended for those born before 1961. Those who left the second stage will also not be compensated in January, as they have already been compensated.
If payments are made to the pension and investment account, the compensable amount will also be transferred to the investment account. Those leaving second pillar in January will simply receive an additional payment.
The compensable amount is calculated on the basis of contributions made by the person during the period of suspension of public payments. If in the period from July 1, 2020 to December 31, 2022, the average yield of pension funds II stage is positive, then the compensable amount is increased by this yield.
Second-tier payments made by debtors can now be seized
As of 1 January 2023, the bailiffs have the power to seize the second-pillar debtor. This means that the owner of the pension register withholds the amount of the debt from the debtor. If funds are held in a pension fund, in a pension investment account or have been invested in securities through a pension investment account, they can still not be recovered to cover debts.
Increase in VAT and personal income tax
New coalition agreement provides for an increase in VAT and income tax
will increase from 1 January 2024 by 2 percentage points, and personal income tax – by 2 percentage points from 1 January 2025. The tax-free minimum will rise to 700 euros.
“Yes, it is clear that these are unpopular decisions. But, unfortunately, in the current security situation, we have no other option. We must increase defence expenditures and be ready to defend Estonia, no one else will bear these costs for us. In addition, in recent years we have built a kind of welfare state, and maintaining such a state requires expanding the tax base,” said Prime Minister of Estonia Kaya Kallas.
Conclusion
As can be seen from the above, tax changes will affect only the permanent residents of Estonia and will not affect the international entrepreneurs opening a company in Estonia – the tax on the retained earnings of the company will remain 0%. Also, the investment profit of the company is not subject to taxation – the purchase of real estate, vehicles, office equipment and furniture for business needs will not be subject to additional taxes. An Estonian company may not have local employees and the use of a virtual office is allowed, and the profit of the owner of the company may be distributed dividends, to the size and frequency of payments which are also not strict obligations.
A more detailed analysis of Estonia’s tax advantages over other European countries is available here.[/vc_column_text][us_btn label=”contact us” link=”url:https%3A%2F%2Fwww.estonia-company.ee%2Fcontacts%2F|title:Contacts” align=”center”][/vc_column][/vc_row]
[vc_row][vc_column][vc_column_text]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]
Estonia is a suitable country to establish a company because it is consistently appearing among the most open, competitive, and transparent economies in the world. This success is due to the intensive work on reducing bureaucracy, the rule of law and significant investments in infra-structure and human capital, which creates an environment that facilitates the search, development and supply of solutions and services on a global level. The attractiveness of Estonia is proved by many foreign investors, as well as the dominance of world-famous foreign companies in some sectors of the Estonian economy. The current income tax rate in Estonia is 20%. From the beginning of 2023, the generally applicable tax-free minimum is €654 per month. Registration requires at least one shareholder and one director (individual). 100% foreign ownership is allowed. If the majority of the directors do not reside in Estonia, the company must provide the e-Business Register with the contact details of the local representative who will be responsible for further communication with the public authorities. Annual reporting is submitted online to the e-Business Register. The audit is mandatory only for large firms. The size of the company is determined based on its total assets, income, and number of employees. Estonia’s e-residency is a unique programme of the Estonian government. Entrepreneurs who have received an e-resident card have access to all the country’s electronic services – they can manage the firm completely online, from signing contracts to paying taxes. But an e-resident card is not an analogue of an Estonian passport: it does not give the right to live in Estonia and does not grant tax status.
LITHUANIA
The Republic of Lithuania implements a business-friendly tax policy, and the entire tax system of the Republic of Lithuania is designed in accordance with the EU legislation and adheres to their provisions. Over time, after the restoration of Lithuanian independence, the tax system of the Republic of Lithuania underwent changes, i.e. it was redesigned in such a way that the state could attract as many foreign investments as possible, creating favourable conditions for them; in addition, efforts were made to expand the labour market. The main legislative act that sets out and regulates the principles of taxation in the Republic of Lithuania is the Law on Tax Administration, which not only establishes the rights and obligations of the tax administrator and taxpayers, but also regulates the procedure for calculating taxes.
CZECH REPUBLIC
The Czech Republic has a progressive taxation system that applies to both individuals and companies. In order to do business in the Czech Republic, companies must register with the Czech Trade Register and obtain a business license. Companies must also comply with local labour laws and regulations, as well as file taxes and other appropriate documents. Companies must also abide by the Czech Republic’s anti-money laundering and counter-terrorist financing regulations. The Czech Republic is a member of the European Union (EU) and the Economic and Monetary Union (EMU), which means that it is part of the single market and enjoys the benefits of the EU’s common external tariff and customs union. This means that goods can be imported and exported freely within the EU, and that EU companies can benefit from the free movement of goods and services across the region.
CYPRUS
Cyprus is known as an attractive location to do business due to its low corporate tax rate of 12.5%. This is one of the lowest tax rates in the European Union. Additionally, profits derived from foreign activities are not taxed in Cyprus, providing a great incentive for international businesses to set up shop in the country. Cyprus also has a number of tax incentives available to businesses. These include double taxation treaties with many other countries, which allow companies to pay taxes on their income in the jurisdiction where they operate rather than in the country where they are based. Other incentives include exemptions from withholding taxes, reduced tax rates for certain activities, and restrictions on capital gains tax. Cyprus does not require an employee, however, it requires a nominal director on site.
SPAIN
In Spain, businesses are subject to corporate taxes, which are calculated on their profits. The rate of tax depends on the size and nature of the company, but it is typically 25%. Additionally, companies may be subject to value-added tax (VAT), which is a tax on goods and services that is charged at a rate of 21%. Companies may also be subject to other taxes, such as social security contributions, property taxes, and withholding taxes. The most common complaint of those who want to start a business in Spain is the difficulty of obtaining legal documents for any company. This includes the extra time and money needed to account for when planning a business in that country.
LATVIA
In recent years, in an effort to harmonize its fiscal system with the generally accepted norms of the European area, Latvia has been constantly changing tax legislation. Due to this, the vast majority of the norms and requirements of the tax system are in line with those in other EU countries. One of the important indicators for entrepreneurs, taxes in Latvia remain the lowest in Europe. The reason for this, despite the low level of public debt and the small state budget deficit, is that the economy is not yet fully strengthened. To ensure its consistently high growth, the country introduces tax incentives for entrepreneurs. Concerning the employment in Latvia, when company is established, it is not required, however, it is required after to obtain VAT number. Without an employee, they do not give a VAT number and, in general, the tax board does not allow you to work without employees.
POLAND
Poland is one of the few countries in Europe where there is a constant increase in economic performance and improvement in social standards. In Poland, entrepreneurial activity can be carried out by an individual entrepreneur or in the form of a legal entity. All companies in Poland must be registered with the National Court Register (Krajowy Rejestr SÄ…dowy). Today, doing business in Poland is carried out in the form of individual entrepreneurial activity and in the form of an analogue of a limited liability company – Sp. z o. o. (Spółka z ograniczonÄ… odpowiedzialnoĹ›ciÄ…), which is one of the most common forms of doing business in Poland, both among Poles and foreign citizens.
UNITED KINGDOM
The tax system in the United Kingdom cannot be called soft, but from year to year, thousands of foreign entrepreneurs and just wealthy people choose the United Kingdom to start a business and optimize taxes. Such popularity is due to some features of British legislation that allow reducing tax costs for both individuals and companies. It is important that legal methods of reducing fiscal payments in the British Isles have been practised for decades and this is not considered a criminal activity. If you are just planning to move to the UK, you will probably be interested in learning about several ways to reduce your tax burden in England at once. But before telling how a newly minted resident does not have to pay at least part of the taxes without violating strict English laws, let’s understand the basic concepts.
Germany has a complex and intricate taxation system. The taxation system is based on the principle of progressive taxation and is composed of a number of taxes including income tax, corporation tax, value added tax, and capital gains tax. Income tax is levied on the income of individuals and corporations, and is determined by the individual’s or corporation’s tax class. Tax classes are determined by the taxpayer’s marital status and employment status. In general, income tax is charged at progressive rates depending on the amount of income earned. Corporation tax is levied on the profits of corporations, and is determined by the type of corporation and the amount of profits earned. Corporation tax rates vary depending on the size and type of corporation.[/vc_column_text][/vc_column][/vc_row]
[vc_row height=”small” css=”%7B%22default%22%3A%7B%22margin-bottom%22%3A%220%22%2C%22padding-bottom%22%3A%220%22%7D%7D”][vc_column][vc_column_text]Today, Estonia has one of the most convenient and profitable business taxation systems in the world. The state’s active support of small businesses has made Estonia a European centre of entrepreneurship and startup projects. All business processes related to the ownership of an Estonian company (company registration, filing of declarations, communication with government authorities) can be carried out online. Tax and Customs Department is responsible for taxes in Estonia.
Below is an overview of the rates of taxes, payments, and excise taxes that will be in effect in Estonia in 2023.
Tax rates in Estonia in 2023 will remain the same as in 2022, and this can be considered a great achievement of the Estonian government, since in most other Euro countries tax rates will be increased due to the increased level of inflation.[/vc_column_text][/vc_column][/vc_row][vc_row height=”auto” css=”%7B%22default%22%3A%7B%22margin-top%22%3A%220%22%2C%22padding-top%22%3A%220%22%7D%7D”][vc_column css=”%7B%22default%22%3A%7B%22margin-top%22%3A%220%22%2C%22padding-top%22%3A%220%22%7D%7D”][vc_column_text css=”%7B%22default%22%3A%7B%22margin-top%22%3A%220%22%2C%22padding-top%22%3A%220%22%7D%7D”]
Turnover tax
Turnover tax rates: 20%, 9% and 0%
Tax rate 0%
In accordance with the Law on Turnover Tax, turnover tax is not levied on the turnover of the following goods and services of a social nature:
All-embracing postal service
Health care service*
Services provided by a non-profit association to its members free of charge or for a membership fee
Social service*
A shelter service related to the protection of children and adolescents
Education in the field of primary, basic, vocational, secondary or higher education
transportation of sick, wounded persons or persons with disabilities in a specially adapted vehicle*
Insurance service
Provision of an immovable thing or part of it for rent or lease*
Immovable things or part of them*
Securities*
Lottery tickets and gambling organization*
Investment gold*
Products, the acquisition of which did not have the right to deduct the input turnover tax*
Financial services (the full list can be found with our consultant)
* The detailed conditions of non-taxable turnover can be found out from our consultant
Tax rate 9%
The turnover tax rate is 9 percent of the taxable value of the following goods and services:
Books and educational literature in both paper and electronic form*
Medicines included in the list of medicines established by the decree of the minister responsible for this area
Accommodation or accommodation with breakfast
* The detailed conditions for applying the 9% rate can be found out from our consultant
Tax rate 20%
Services and goods that are not included in the list of non-taxable turnover and subject to a rate of 9% are taxed at a rate of 20%
Before reaching a turnover of 40,000 euros from the beginning of a calendar year, the company is not required to register as a taxpayer, but it can do so voluntarily.
Income tax
Income tax rates: 20%; 14%, 10%, 7%, 0%, 20/80, and 14/86
Tax rate 20%
It applies to an individual – both a resident and a non-resident, who receives income subject to taxation.
The 20% tax rate also applies to a non-resident legal entity that does not have a permanent place of business in Estonia.
The amount of income of an individual that is not subject to income tax depends on the amount of his or her income, and will reach 654 euros per month from 2023.
Tax rate 14%
In accordance with the Income Tax Law, it is applied to advance payments of credit institutions
Tax rate 10%
It is applied to payments to individuals – owners of investment pension account units who have reached the age of old-age pension or will reach it within five years.
Tax rate 7%
In accordance with the Income Tax Law, the 7% tax rate is applied to regularly paid dividends.
If dividends are paid to a non-resident individual, then in case of application of a double taxation treaty, the income tax withholding rate specified in the agreement should be applied if it is less than 7%.
If an Estonian commercial partnership pays dividends to an individual whom it taxed at the rate of 14/86, then the payer already withholds 7% of income tax from the payment of dividends, and the individual no longer must pay income tax on dividends.
Tax rate 0%
It is applied to remuneration for the work of a member of the ship’s crew for work on the ship.
Tax rate 20/80
It is applied to resident legal entities and non-resident legal entities whose place of business is Estonia, when making the following payments:
Dividends
Special benefits*
Gifts
Donations
Meal and entertainment expenses
Expenses not related to business activities, etc.
You can find out the full list of payments from our consultant.
Tax rate 14/86
It is applied to regularly paid dividends to a resident legal entity or a non-resident legal entity whose permanent place of business is Estonia.
Simplified taxation of entrepreneurial income
If an individual opens an entrepreneurial account, he or she has the opportunity to fulfil his tax obligation on the basis of the Law on Simplified Taxation of Entrepreneurial Income.
The entrepreneurial income tax rate is:
20% on the amount of income up to 25,000 Euros
40% on the amount of income above 25,000 Euros
An individual who has an entrepreneurial account is not required to register as an entrepreneur and keep records of income and expenses.
In Estonia, this opportunity is provided by the LHV Bank.
Learn the pros and cons of an entrepreneurial account from our consultants.
Social tax
Social tax rate 33%
The obligation to pay social tax arises for the following persons:
A resident legal entity
An individual
A non-resident who has a permanent place of business in Estonia
An individual–entrepreneur
The monthly rate, which is the basis for calculating the minimum social tax obligation, is 584 euros, which implies a minimum social tax obligation of 192.72 euros per month.
An individual-entrepreneur pays social tax per year starting from at least 12 times the monthly social tax rate (584 euros).
According to Article 4 of the Law on Social Tax, social tax is paid by:
1) A resident legal entity;
2) An individual;
3) A non-resident who has a permanent place of business in Estonia or who makes payments specified in paragraph 1 of Article 2 of the Social Tax Law;
4) An institution of the state, municipality or city;
5) the state, municipality or city in cases specified in Article 6 of the Law on Social Tax.
Unemployment insurance payments
The unemployment insurance payment rate in 2023 will be 1.6% for an employee and 0.8% for an employer.
Contribution to the funded pension
The funded pension contribution rate is 2%.
The funded pension taxation payment applies to residents of Estonia who are obliged or voluntarily joined the second stage. Payment is made by withholding the payment amount from the employee’s payment amount by the employer.
From 2021, it is possible to apply for suspension of contributions.
The salary of non-residents of Estonia is not subject to the funded pension payment.
Also, in Estonia there are such taxes as:
Land tax
Advertising tax;
Tax on road or street closures;
Motor vehicle tax;
Animal welfare tax;
Entertainment tax;
Parking fee.
Payment for the use of the environment
You can find out more about the rates and conditions from our consultant
Excise taxes
Estonia has established excise taxes on alcohol, tobacco products, fuel, and electricity, as well as on packaging.
It is planned to increase the excise tax on tobacco and tobacco products by 5% in 2023.
According to the law on Excise Taxes on alcohol, tobacco, fuel and electricity, reduced excise rates on electricity and certain types of fuel will be valid until May 1, 2023.
Land tax
The land tax is paid by the owner of the land or the user of the land in the cases specified in Article 10 of the Law on Land Tax.
The amount of land tax depends on the current local government land tax rate and the land value.
The tax rate is set by the Local Government Council no later than January 31 of a tax year, and the land tax rates are published on the website of the Tax and Customs Department.
The land tax rate is 0.1–2.5% of the taxable value of land per year. The land tax rate for lands used for growing agricultural products of natural meadows/pastures is 0.1–2.0% of the taxable value of the land per year. The Tax and Customs Department calculates the land tax and sends you a notice of the tax that should be paid to the department. If the annual amount of land tax does not exceed 64 euros, then the land tax should be paid in the form of a one-time payment by March 31. If the tax amount exceeds 64 euros, then by March 31, at least half of the tax amount should be paid, but not less than 64 euros. The remaining amount should be paid by October 1.
Heavy vehicle tax
Tax on trucks is levied on goods intended for the transportation of goods:
1) A truck or a vehicle with a gross weight of 12 tons or more registered in the road register, with the exception of the truck specified in paragraph 2) of this section;
2) A train of vehicles with a registered or gross weight of 12 tons or more, consisting of a truck and one or more trailers, whose truck is registered in the road register.
The basis for calculating the tax is the register weight, the number of axles and the type of suspension of the driving axle. The tax rates are given in the appendix to the law.
The tax period for the tax on heavy vehicles is a quarter, and the tax should be paid to the Tax and Customs Department by the 15th day of the first month of the quarter.
The accountants and tax consultants of Wisor Group OĂś will be happy to advise you on tax issues related to your Estonian company and provide accounting services in Estonia.[/vc_column_text][/vc_column][/vc_row][vc_row css=”%7B%22default%22%3A%7B%22margin-top%22%3A%2220px%22%7D%7D”][vc_column][us_btn label=”contact us” link=”url:https%3A%2F%2Fwww.estonia-company.ee%2Fcontacts%2F” align=”center”][/vc_column][/vc_row][vc_row][vc_column][us_page_block id=”10347″][/vc_column][/vc_row]
Cryptocurrency activities for Estonian companies are exempt from value added tax, which allows the company not to become a VAT-obligated entity, but there are still cases that do not fall under this exception.
Exchange of cryptocurrencies to traditional currencies (fiat) or other cryptocurrencies
The exchange of cryptocurrencies, as well as the exchange to fiat, is exempt from value added tax in accordance with § 16 (21) 4) of the Turnover Tax Law.
However, not all services related to cryptocurrency are considered as an exchange service, and it is important to correctly determine whether the company is engaged in providing cryptocurrency exchange services or sells a service by using a third-party platform.
In the first case, the company has no obligation to register as taxable, since the company’s turnover is exempt from value added tax and the crypto-exchange company is not required to have a tax number.
Service for providing access to the platform
The service that provides access to the exchange platform is considered as an electronic service and is subject to value added tax in accordance with the Estonian Turnover Tax Law.
Thus, a company that provides a service for using a cryptocurrency exchange platform is not exempt from paying value added tax and must be registered as taxable and declare its monthly turnover – in a turnover tax return in a form of KMD.
Cryptocurrency Wallet Service
The cryptocurrency wallet service (storage only) is a software that allows you to store other user’s private keys. In this case, the wallet service is of a technological nature and represents technological assistance, which is an electronic service. According to the decision of the European Commission, the wallet service does not fall under the tax deduction, and wallet services provided for remuneration are subject to value added tax, and it is necessary to obtain a VAT number.
Wallet services can also be considered as financial services, if the wallet allows users to both store and make transactions with cryptocurrency. In this case, the wallet service will be subject to value added tax as a financial service in accordance with the Turnover Tax Law. Accordingly, the company that provides wallet services must become taxable and declare its monthly turnover in the Tax and Customs Department in the KMD declaration form.
Mining
According to the decision of the European Commission, the extraction of virtual currency as a service to another person falls under the exception provided for in Article 135 (1) (d) of the Directive of the Law on Turnover Tax, which means that mining is not subject to value added tax and is a non-taxable turnover of the company.
In this situation, it is important to point-out that if we are talking about non-taxable turnover, then value-added tax is not deductible for the purchased mining goods, such as the purchase of equipment, payment for electricity consumed and other costs associated with mining.
Due to the fact that mining has been recognized as a non-taxable turnover, the company does not need to obtain a tax number in Estonia.
Conclusion
Registration of a person as a turnover tax obligee in Estonia is mandatory or voluntary.
The obligation to register as a turnover tax obligee arises for a person from the date when the taxable turnover of transactions made by the entity exceeds 40,000 euros from the beginning of the calendar year. (In the case of elector services, when reaching the 10,000 euro mark).
[vc_row][vc_column][vc_column_text]Turnover tax in Estonia is applied as a value added tax, except in seperate cases (h 2 §1 of the Turnover Tax Law). One of these distinct cases is the margin scheme.
According to h 3 §41 of the Law on Turnover Tax, when reselling used goods, as well as original works of art, collectible or antique items, a distinct procedure for taxation with turnover tax, or, in other words, a margin scheme, can be applied.
A margin scheme is a taxation procedure in which the taxable value of turnover is the difference between the selling and purchase price, minus the turnover tax included in it.
Thus, a person applying a particular procedure calculates the taxable value of the resale of used goods during the tax period based on the difference between the sale and purchase prices of used goods. This means that by applying a margin scheme, the amount of turnover tax payable to the Estonian Tax and Customs Department can be legally reduced.
Conditions under which a margin scheme can be applied:
The product must not be new (used).
The product was purchased for resale purposes.
The product must be purchased from an Estonian person or a person of another EU Member state who is not taxable.
The company does not use (did not use) the purchased product after purchase.
Since January 1, 2022, there have been breaks in the use of a distinct order:
If it is difficult to calculate according to a margin scheme for each unit of used goods, then when reselling such goods, the tax authority may, on the basis of a reasoned written request, grant the tax subject the right to calculate the taxable turnover to be declared for the tax period as the difference between the total selling and purchase price of such goods resold and purchased for the entire tax period, minus the turnover tax included in it.
If the taxable amount to be declared for the tax period has a negative value, it is not reflected in the turnover declaration, and in the daily accounting of the turnover tax of the tax subject is transferred to the next tax period.
If the taxable amount has a positive value, it can be reduced to zero due to negative taxable amounts of previous tax periods. Such calculation of the taxable value is justified in cases where the usual calculation is too complicated.
A taxable person who observes a margin scheme when calculating the taxable value does not indicate in the invoice or in another sales document the amount of turnover tax paid upon purchase of goods or the amount of turnover tax calculated from the calculated taxable value.
In the case of using a margin scheme, there are no differences in the form of the declaration and the methods of its submission. Transactions under the margin scheme must be declared monthly in the turnover tax declaration (KMD form).
You can find out more about the use of the margin scheme and the possibility of its application in your company by ordering a personal consultation from the specialists of Wisor Group OĂś. We offer professional accounting services for Estonian companies.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column][vc_column_text]The obligation to pay income tax may arise in the case of a person/natural person exchanging a cryptocurrency for an ordinary currency or for some other cryptocurrency, as well as in the case of the use of a cryptocurrency to pay for goods and services, if the person earns an income, informs the Estonian Tax and Customs Department in anticipation of the tax declaration period.
It is important to bear in mind, however, that in the case of cryptocurrency, each transaction should be valued separately, since only transactions that generate income are taxed, i.e. profits. The loss incurred in the exchange or sale of cryptocurrency is not included in the tax, so that the loss-making transactions are not declared and do not affect the taxable income of the individual.
Profit on the sale or exchange of a cryptocurrency is defined as the difference between the value of the sale of the cryptocurrency and the value of its acquisition. For example, if a person buys one Bitcoin at a price of 18,000 Euros and sells it at a price of 10,000 Euros, they should not declare the transaction because the transaction is unprofitable (10,000-18,000). When a person buys one Bitcoin for 10,000 Euros and sells it for 18,000 Euros, he earns 8,000 Euros (18,000-10,000). This means that a profit transaction should be declared in the income declaration in Table 6.3 or 8.3 as income derived from the disposition of other property, and income tax at the rate of 20 per cent should be paid on that income.
The cost of acquisition and the price of sale of the cryptocurrency must be converted to euros, taking into account the exchange rate of the cryptocurrency in effect on the date of receipt of income or expenditure. If the transaction was made on market terms, the exchange rate of the medium in which the sale took place may be used.
When exchanging one cryptocurrency for another, it is necessary to control the market price of the transaction and to determine the income received. For example, a person acquires two litecoins worth 260 euros, which a few months later exchange for 0.2 ethers. At the time of the exchange transaction, the market price of the two litecoins rose to 500 euros. As a result of the transaction to exchange the cryptocurrency of a person, a profit of 240 euros (500-260 euros) was made, which has to be declared and with which to pay income tax.
When paying the cryptocurrency for a good or service, the income received is calculated as the difference between the price of purchasing the good or service and the cost of acquiring the cryptocurrency used. For example, in June 2017, people purchased Bitcoin for 2,500 euros. In December 2020, the market price of Bitcoin was already 30,000 euros, and a man used this Bitcoin to buy a new car. Thus, the income from the car purchase transaction was 27,500 euros (30,000-2,500). The income generated should be declared and paid as income tax. The same method of determining taxable income applies to the purchase of other goods and services (for example, food, machinery, beauty services, etc.).
It is important to note that if the income derived from the cryptocurrency and previously taxed by income (e.g., wages, dividends, and the salary of a member of the board) is exchanged for an ordinary currency, and is also used for the purchase of various goods and services, This no longer entails an additional duty to pay taxes. For example, the Estonian employer paid the employee a salary of 0.05 bitcoin for February, the employer declared the salary on the basis of the market price of bitcoin and paid labor taxes. If the salary received by the electronic wallet of 0.05 bitcoin is used to pay for various goods and services, then there will be no obligation to declare income. But if a person decides to invest in the cryptocurrency, each subsequent profitable transaction with the cryptocurrency will entail an obligation to declare and pay income tax.
If a natural person engages in the mining (mining) of cryptocurrencies, the resulting income must be declared as business income. In taxation, a cryptocurrency is equivalent to the production of a commodity. The duty to pay taxes arises from the profits earned at the time of the disposition of the cryptocurrency, i.e. at the time of its sale or exchange. A person who engages in the routinely mainstreamed cryptocurrency must register with the Business Register and act either as an individual entrepreneur (MNP) or through a business association. A registered entrepreneur may deduct from business income expenses incurred to generate business income (e.g., equipment, electricity, etc.). A person who is not registered in the Business Register as an entrepreneur cannot deduct the expenses incurred to earn income from the Cryptocurrency mining.
Cryptocurrency is also used to generate income from steaking (bet). By investing cryptocurrency in a chain of blocks in a blockchain, they essentially block their assets and pay a price for it. The Tax and Customs Department (NTD) views this process as the borrowing of a cryptocurrency. If a person earns income from a steak, that income is actually interest on borrowing a cryptocurrency. It is up to the person to declare the interest earned in the income statement (in part II of table 5.1 in part II or in table 8.1). The interest earned is declared in the income statement, which corresponds to the year in which interest is received.
It is important to note such cryptactin as NFT ( in translation from English language «non-reciprocal token», which is often associated with digital art. The NFT should be taxed on the basis of the content of the transaction from the perspective of both the originator and the buyer. If a person buys and sells NFT for the purpose of generating income, the profits derived from the NFT disposition are subject to declaration as disposition. If the creator of NFT is a natural person, each time receives a fee from the resale, this fee is a royalty. Royalties must be declared as royalties in the income declaration.
Since most transactions with cryptocurrency are cross-border, it is international cooperation that is an essential part of risk information exchange, explained NTBs. To date, STD considers the exchange of information with foreign countries to be effective. States are aware that successful cooperation contributes to the better and early identification of those who have taken their activities abroad and whose tax behavior does not conform to the norm.
The practice of NTD in cryptocurrency tax cases is increasing, with NTD handling an increasing number of cryptocurrency tax cases. Moreover, in addition to NTD’s own practice, there is also jurisprudence on the mine of cryptocurrency, where the commercial association has obtained a tax advantage in the form of an unjustified deduction of the entry tax on turnover. NTD has also dealt with cases in which data obtained from foreign cryptocurrency exchange platforms, as well as data from settlement accounts opened in credit institutions of foreign countries, have been the subject of verification.
The NTD can retroactively impose a tax payable for up to three years and, in case of willful non-payment, up to five years. In addition to the amount of taxes not paid on time, the rate of interest is 0.06 per cent per day.
Wisor Group OĂś provides accounting services and legal advice on taxation. If you have any questions about taxation in the cryptocurrency area, please contact our specialist, and we will answer all your questions.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column][vc_column_text]The service/good is subject to VAT in the country in which the service is traded. If in the case of goods it is always possible to identify the State in which the goods are located at the time of dispatch or access to the buyer, in many cases it is difficult, if not impossible, to determine the actual country of supply of the service – especially if the main instrument is the «instrument» is a computer or a smartphone. Therefore, the rules for determining the place where services are traded are often very conditional and relate to the location of either the service provider or the recipient, rather than to the actual place where the service is delivered.
Where do services turn?
The rules for taxing turnover in services are much more complex than those for taxation of goods.
If an Estonian turnover taxable person renders a service whose place of turnover is not Estonia and the person himself does not have to tax the service in the country where the turnover occurs, he taxes the service on turnover in Estonia at a rate of 0%.
This is an important difference compared to the taxation of goods: if the Estonian obliged turnover tax person sells goods whose place of circulation is not Estonia, it does not tax the transaction in Estonia at 0% and does not reflect it in the turnover declaration in Estonia; taxation always takes place according to the rules of the turnover state.
Basic rule of VAT
If no exception applies, the location of the turnover is determined by a so-called basic rule with two sides:
The place where the service is traded is Estonia, and the service is taxable in Estonia if the service is taxed to an Estonian person, or is subject to a turnover tax by a person in Estonia who is not obliged to pay a turnover tax to a person in another European Union country (hereinafter EU) or to a person who does not conduct business from a non-EU State (c. 1 €10 Turnover Tax Act; Käibemaksuseadus – hereinafter KMS).
If the service provider is liable to a turnover tax on a person in Estonia, the service itself is taxed (and if it provides a service under the basic rule to another person liable for a turnover tax in Estonia)If the service is provided by an entrepreneur of a foreign State, the service should be taxed by the recipient on the principle of reverse taxation.
When an Estonian obligor renders a service to an obligor for a turnover tax of another EU country or to an entrepreneur from a non-EU state, the place of turnover is not Estonia (para. 9.4 a.m. 10 KMS)And the obligor of the turnover tax declares its turnover in Estonia at a rate of 0%, while the service, under the basic rule of the turnover tax on a person of another EU country, is reflected both in the turnover declaration and in the turnover report within the Community (form VD). This part of the Basic Rule also applies when a service is received by such a business operator from a non-EU State (since that year also the United Kingdom)which does not have the registration number of the person liable for the turnover tax.
It should be borne in mind, however, that if a person liable for a turnover tax in Estonia provides a service or receives a service subject to reverse taxation through a permanent place of business in another country, it will tax turnover and declare a service in the country of its permanent place of activity, not in Estonia. In the examples given in this article, it is always assumed that the service was rendered or obtained through the location of the person liable for the turnover tax in Estonia.
The place where services are traded is always the country where they are delivered.
There are, however, certain services whose place of circulation is always the State where the service is actually rendered and which are always taxed on turnover in that State at the rate established there for the service concerned, – this rule also applies if the recipient of the service is an entrepreneur from another country. When such services are provided in Estonia, they are always taxed at the rate approved in Estonia for these services, irrespective of the recipient.
These services are as follows:
All services related to real estate in Estonia – construction and repair services, accommodation services, renting or renting of real estate, design of a specific real estate object (but not model projects), and so on
Restaurant and catering services in Estonia
Carriage of passengers within Estonia
Tickets for performances, concerts, entertainment and participation in conferences and seminars organized in Estonia
Short-term rental in Estonia of a vehicle (up to 30 days, a vessel up to 90 days)
In addition to the mentioned services, the place of origin of the turnover and the rate of the turnover tax do not depend on the person receiving the service and if, during the carriage of passengers taking place on the territory of the EU, provide restaurant and catering services on board a water or air transport vehicle or on a train, in which case the place of turnover is always that EU country, from where a water or air transport vehicle or train departs for an international voyage and the service is taxed according to the rules on turnover of that country.
Thus, if restaurant or catering services are provided on EU territory by water or air transport or on a train leaving Estonia for an international voyage, the service is taxed on turnover in accordance with the Estonian Turnover Tax Act.
The fact that the place of turnover is Estonia does not necessarily mean that the service is taxed on turnover at the rate of 20% or 9% (accommodation services): Article 15 KMS, part 4, paragraphs 2-15, lists services whose turnover tax is 0% and then, where the place of turnover is Estonia. In the case of restaurant and catering services provided in EU territory by means of a vehicle on an international flight from Estonia, it is important to know that, according to Part 4, paragraph 2, of Article 15 KMS, This tax is levied at a rate of 0 per cent on the service required by the voyage for a passenger on an international voyage on board a ship or aircraft (which also includes food), but not on the service required for the voyage provided by the train.
Services where the location of turnover depends on the recipient of the service
In the case of some services, the State in which the service is traded depends on the status of the service recipient as a duty of return (whether the service recipient is liable for turnover tax or not).
When providing services to a liable turnover tax person in another EU country or to an entrepreneur from a non-EU country, the basic rule applies.
If the recipient of the service is not subject to turnover tax by a person in an EU country or by a non-EU entrepreneur, the place of turnover (and turnover tax is imposed according to the rules of the country where the turnover originated) is defined as follows:
Provision of cultural, artistic, sports, educational, scientific or recreational services or services related to a trade fair or exhibition – trafficking occurs in the country where the event takes place.
Long-term lease of a vehicle – turnover arises in the country of residence of the recipient of the service (except for a long-term lease of a vessel for an interest or a pleasure craft, which is traded in the country of lease if the service is performed through a location or a fixed place of activity in that country).
Work with movable object – the turnover occurs in the country where the movable object is located.
Freight traffic and its organization – Traffic occurs in the country where the transport takes place in full or where it begins.
Freight-related by-products – the trade originates in the country of supply.
Brokering – Trafficking occurs in the same country where the mediated service is traded.
If an Estonian entrepreneur has a duty to tax the turnover in the country of origin of the service, and it has to tax the service on turnover and declare in that country – it declares the service only in the country of turnover and does not simultaneously reflect it in the turnover declaration in Estonia at 0% (base – c. 6Âą = = 15 KMS).
[vc_row][vc_column][vc_column_text]The employment of foreigners in Estonian companies raises a number of issues, including the payment of income and social taxes.
For example, an employee from Poland (EU) comes to work in Estonia for one month, but for three years. He has an A1 certificate that he is a resident of Poland. The Estonian company pays his salary and declares in Annex 2 a declaration on the TSD form, withholding 20% of the income tax, but does not pay social tax. How long can a social tax not be paid if the A1 certificate is constantly updated and confirmed as valid?
So the employee works for two different employers, mostly in Poland, and one month a year for an Estonian in Estonia. In this case, according to Regulation 883/2004 of the European Parliament and of the Council on the coordination of social systems, we are dealing with a worker in several countries of the European Economic Area at the same time.
According to the basic rule of Regulation 883/2004, if a substantial part of the work (at least 25 per cent) is performed in the worker’s country of residence, the legislation and the social insurance system of the worker’s country of residence shall apply. In this case it is the social insurance system of Poland, the relevant public institution of which issues the worker with a certificate A1. The certificate confirms that all social insurance contributions are paid for an employee in Poland.
In the case of workers who are regular workers in several countries of the European Economic Area, there are no time limits for issuing an A1 certificate, in any case so stated in regulation 883/2004. This regulation is mandatory for implementation in Poland, so that the Polish public institution must follow the same principles. That is, once the form expires, it may be extended or a new extradition request may be made.
The A1 certificate is limited to 24 months (renewable for an additional year) only in the case of seconded workers, that is, when the employee is sent to another country by his employer and performs work there for the benefit of the employer who seconded him. Accordingly, the 24-month limit does not apply.
Thus, as long as the employee has a valid A1 certificate, taxes and social insurance contributions are not paid in Estonia. Nevertheless, as Polish law is applied, the Estonian employer is most likely obliged to declare and pay social insurance contributions in Poland. This point should be clarified by Polish tax specialists.
With regard to income tax, since the work is performed in Estonia and the employer is an Estonian person, income tax is subject to deduction in Estonia.
Wisor Group OĂś offers private tax consultations for non-residents when declaring their income in Estonia. Our team will be pleased to advise on tax-related issues in Estonia and provide accounting services. Contact our specialist and get a price offer as soon as possible.[/vc_column_text][/vc_column][/vc_row]