[vc_row][vc_column][vc_column_text]A 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.
Wisor Group OĂ 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]
[vc_row][vc_column][vc_column_text]Value 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, Ńompanies 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 donât 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 companyâs VAT number. The Estonian VAT number starts with a prefix EE which is followed by nine digits: EE123456789.
[vc_row][vc_column][vc_column_text]The Estonian taxation system is one of the most profitable in the world. It includes state and local taxes. A tax is a financial obligation that the law imposes on a taxpayer and is enforceable in the manner, amount and duration prescribed by law. The taxpayer is obliged to pay only the state and local taxes prescribed by law.
Taxes in Estonia are administered by the Estonian Board of Taxes and Customs. A large proportion of tax returns are available via the Internet.
Income tax
Personal income tax in Estonia is de jure proportionate, de facto progressive. The rate for 2015 was 20% (compared to 21% a year ago). A basic tax exemption is granted, which is increased in the case of raising a minor child, receiving a pension, compensation for an accident at work or occupational disease. A number of expenses are additionally deducted: interest on housing loans, tuition expenses, gifts, donations, voluntary and compulsory contributory pension contributions, unemployment insurance, compulsory social insurance contributions in a foreign State. Deductions for housing loans, tuition, gifts and donations are limited. In 2011, the limit was 3,196 euros (but not more than 50% of taxpayerâs 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.
Wisor Group OĂ provides accounting services and legal advice on taxation. Please contact us and present your enquiry.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column][vc_column_text]The 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 â 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 â 9% (+2% â tax base) â 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.
[vc_row][vc_column][vc_column_text]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.
The Estonian tax system attracts foreign entrepreneurs, inter alia, by a tax rate on retained earnings equal to 0 per cent. However, as in everything, it is necessary to understand the specifics of the application as well as to have information about possible nuances.
The general rule is that the undistributed and reinvested profits of a company in Estonia are not taxable. In other words, no profit tax is paid when a company decides not to reinvest the profits rather than pay them as dividends.
If the Tax and Customs Department proves that any of the companyâs transactions were conducted at prices far from the market (non-market pricing), the entrepreneur may have to pay a tax on the amount of lost profits or over-expenditures.
Rates
Income tax for a private person on retention rate â 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) withheld, it should be borne in mind that taxes are calculated on a cash basis.
[vc_row][vc_column][vc_column_text]Estonia is one of the smallest member States of the European Union, with a population of just over 1.3 million in 2021. However, in terms of average wages and the quality of life in general, Estonian citizens are ahead not only of their nearest neighbours – Latvia and Lithuania – but also of larger European countries, such as Poland and the Czech Republic. The economy of Estonia is stable and dynamic, and the real pride of the State is considered to be the sphere of information technologies.
Minimum wage
According to the Estonian Statistical Office, the minimum wage in Estonia in 2021 is EUR 584 per month (EUR 3.48 per hour). Compared to last year, the bet did not change. This indicator is regulated by the local law «On Employment Contracts», according to which in case of full-time employment in Estonia, every employee, including foreigners, is guaranteed a wage at least equal to the minimum level.
Pension rate
Pension tax rates will change from 2021 As of 1 January 2021, Stage II pension will be excluded from the calculation of annual, non-taxable income. No income tax applied A lifetime pension is not subject to income tax. A fixed-term pension is exempt from income tax if the recommended duration or longer period is chosen. Regardless of the method of payment, your pension will not be taxed if your disability is officially established.
Tax rate 10%
Pensions with a duration shorter than the recommended, lump-sum pension at retirement age, and if less than five years remain before retirement age, are subject to income tax. The tax rate in this case is 10 per cent.
20% tax rate (from 2021)
If a saving pension is withdrawn earlier than 5 years before reaching retirement age, its payment will be subject to income tax of 20 per cent.
Tax rates
Income tax on retention rate â 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.
[vc_row][vc_column][vc_column_text el_class=”padding”]When choosing the appropriate jurisdiction, it is worth considering each specific situation: the type of activity of the company, its organizational and legal form, the purpose of the owner, the desire or unwillingness to become a resident of the country and much more:
Amount of authorized capital at company registration
Corporate tax rate and special profit allocation conditions
Conditions for residents and non-residents
Protection of company assets
Foreign exchange risks
Taxation for natural persons
Estonia is well known for the friendly attitude of officials towards business and developed digital infrastructure. Almost all business processes can be controlled online – register a company, file reports, ask questions to public services, etc. It also attracts moderate prices for business support.
Taxes in Estonia are administered by the Estonian Board of Taxes and Customs. A large proportion of tax returns are available via the Internet.
Main tax advantages:
There is no tax on retained earnings.
Profit tax is paid only when a company decides to distribute dividends to its owners Corporate tax rate on allocated profits is 20% (14% may be applied in some cases since 2020)
The VAT rate for certain goods and services is 0% and 9%.
Standard VAT rate is 20%
Double taxation treaties with 60 countries worldwide, including Belarus and Ukraine.
Tax system
The Estonian tax system consists of state and local taxes:
State taxes are income tax, social tax, land tax, heavy vehicle tax, sales tax, customs duty, gambling tax, excise tax and enterprise income tax. The Government Revenue Manager is the Tax and Customs Department, which ensures that taxes are paid into the State budget.
Local taxes include advertising tax, road and street closure tax, vehicle tax, entertainment tax and parking fees. In addition, part of the tax on personal income as well as the land tax are paid into the budget of local governments.
Simplicity
Simplicity of the tax system plays a very important role in tax collection and the confidence of taxpayers. In comparison with other European Union countries, Estonia has always been positively identified in this respect. We have mostly uniform tax rates and fewer differences. This means that tax obligations are easily understood and respected.
A simpler tax system also means lower tax collection costs. Thanks to a simple system and electronic service, Estonia needs only 37 EUR cents to collect tax revenues of 100 EUR, which is one of the best results among developed countries. All people enjoy the benefits of society, but when taxes are no longer paid, the State is under-resourced and these benefits become unavailable.
According to article 50, part 1, of the Income Tax Act (hereinafter referred to as the Income Tax Act), resident business associations (including full and limited partnerships) pay income tax on profits distributed as dividends or other contributions from profits, Payment in cash or in kind, subject to the provisions of article 501. Income tax is not levied on income which is allocated on the basis of a stock issue. Since 1 January 2019, a lower tax rate of 14 per cent or 14/86 of the net amount of dividends has been applied to regular dividends under article 4, part 5, and article 501, of the Act. Thus, a resident business association may apply a lower tax rate of 14/86 and a normal 20/80 for dividend taxation.
A dividend is a payment made pursuant to a decision of the competent authority of a legal entity with a net profit or with an undistributed profit for the preceding business years, based on the share of the beneficiary in a legal person (ownership of shares or shares, participation in a full or limited partnership, or membership in a commercial cooperative or other forms of participation in accordance with the laws of the country of the place of business).
The new dividend tax system in Estonia has been in force since January 2018, but it can only be partially implemented since 2019, with the proviso that dividends were paid in 2018. Estonia now has two income tax rates â 14 per cent and 20 per cent (in practice 14/86 and 20/80) to tax dividends.
Commercial associations pay tax at 20/80 on profit distribution or dividend.
According to the Estonian legislation, a resident business association may apply a lower tax rate of 14/86:
1/3 of the allocated profits in 2018 with which the resident business association paid income tax;
1/3 of the allocated profits in 2018 and 2019 with which the resident business association paid income tax.
2021
Commercial association may, for the fourth year, levy a lower tax rate of 14/86 dividend payments equal to the average of taxable dividends and equity for the three preceding calendar years.
Natural person
If a person is paid a dividend at a lower tax rate, 7 per cent of the income tax should be additionally deducted. Income tax is deductible from dividends paid to an individual, both resident and non-resident.
How to declare
The resident commercial association declares in Annex 7 of Form TSD and in Form INF 1 dividend payments, both at the lower tax rate and at the normal rate.
In the e-MTA environment there is in Annex 7 of Form TSD «Calculation of the Distributed Profit for Application of a Lower Tax Rate», where the commercial association is displayed at the moment:
In the previous year, dividends paid and equity payments (profit-sharing) from which the business association paid income tax
Profits for which a lower tax rate is applied
In a calendar year, distributed profits with a lower tax rate
Profit, which can be distributed in a calendar year with a lower tax rate
The amount of the dividend â the income of the individual and the withheld income tax on dividends â is declared in form INF 1. The form INF 1 under code 13050 has the form of MDK â dividends stamped at a lower tax rate, and still the type of DK payment â dividends, covered at the usual rate. The gross amount of dividends â the income of a natural person with the form of payment «MDK» is declared in the form INF 1 under the code 13060, the rate of withheld income tax under the code 13073 and withheld income tax under the code 13074.
If an individual is paid a dividend at a lower tax rate, or if the dividend continues to be paid to an individual from the received dividend at a lower tax rate, the income tax is usually withheld at 7%, but, in the case of a non-resident natural person, the tax treaty and the residence certificate may reduce the withholding income tax rate (respectively 0 per cent or 5 per cent).
Important things to consider:
The authorized capital must be paid
Dividends cannot be paid until the authorized capital has been paid. If dividends are paid from the net profit of a financial year, a report for the financial year must be submitted and approved.
[vc_row][vc_column][vc_column_text]In most countries tax system is designed so that the state budget is replenished, to a large extent, by tax revenues. In Estonia, about 80 per cent of the state’s income is taxed. The central taxes are corporate tax in Estonia, personal income tax, social tax, VAT, various excise taxes, etc.
Estonia offers one of the world’s most favourable tax systems for startups and small businesses.
In Estonia, income tax is 0%, which means there is no need to pay corporate tax on income earned. Instead, corporate taxes are paid distributing company profits â for example, when paying out dividends to shareholders â or other taxable payments.
Estonia’s corporate income tax is paid only after dividends (interest, royalties, etc.) have been distributed. That is, all retained profits of the company are exempt from tax. The tax is deferred until the profit is considered as distributed. After distribution, profits are taxed at 20% of the net amount.
It is worth noting that since 2018 the income tax for enterprises in Estonia is reduced to 14%. This applies to companies that regularly distribute profits. Payment of dividends in Estonia in an amount that is less than or equal to the number of taxable dividends paid during the previous three years will be taxed at a rate of 14%. If the average is exceeded, the tax will be 20%. If the beneficiary of the dividend is a natural resident or non-resident, the rate is 7 per cent.
Some domestic and foreign taxes may be applied to corporate income tax under domestic laws or double taxation agreements. Some distributions are exempt from such a tax:
Dividends obtained from Estonian, EU, EEA or Swiss tax resident companies in which the Estonian company owns at least 10% of the shares;
Profits obtained through a permanent establishment in the EU, the EEA or Switzerland; Profits earned through foreign missions in all other countries, provided that such profits are taxed in the country of the mission;
Dividends obtained from all other foreign companies in which the Estonian company owns at least 10 per cent of the shares, provided that the main profits were subject to foreign tax or the foreign income tax was withheld from the dividends received; Liquidation proceedings, repurchase of shares or reduction of capital, which are taxable by the distributor of such proceeds;
Dividends paid by Estonian companies to non-resident legal entities (including companies with «low tax jurisdictions»).
Lawyers and accountants of Wisor Group Oà can advise you on various legal issues. Our team will be pleased to advise on tax-related issues in Estonia and provide accounting services. Please do not hesitate to contact us, and it will be our pleasure to help you.
The legal department of the Wisor Group Oà can develop a package of documents within the framework of Estonian legislation according to the needs and specifics of your business.
The contents of the documents affect how your company will be managed, how its profits will be distributed, what rights the company owners share, and how decisions will be made in the company. The rights and obligations of clients and partners of your company are clearly defined in the documents.[/vc_column_text][/vc_column][/vc_row]
Taxation of income from financial assets derived from an investment account.
An investment account allows the reinvestment of the profit or income derived from a financial asset without the payment of income tax and the deferral of the tax liability for the payment of income tax on income derived from financial property.
An investment account is a regular cash account maintained with a credit institution resident in a State member of the Organization for Economic Cooperation and Development (OECD) or in a fixed place of business of a credit institution located in an OECD State.
The investment account for deferment of tax obligations can only be used by a resident of Estonia. The income from the financial assets of a non-resident is taxed in the country of residence. Thus, if the user of an investment account becomes a non-resident of Estonia, it is necessary to mark the closure of the investment account in the income declaration, pay the income tax obligation arising in Estonia, and further transactions in financial assets must be declared in the new State of residence.
A natural person may have one or more investment accounts. In order to defer the income tax obligation, transactions in financial assets should be conducted through an investment account.
Financial assets include, for example, publicly offered securities, shares and shares of an investment fund, bank deposits/deposits and contributions made under an investment risk life insurance policy.
Financial assets do not include contributory pension funds and pension fund shares, life insurance contracts, participation in non-listed business entities, money issued under loan agreements, derivatives, non-financial asset-based investments, investments in foreign currency, as well as real estate and precious metals.
Investment account and acquisition of financial assets
Local authorities establish the general rule that in order to defer a tax obligation, financial assets must be acquired from the money in the investment account, and the money received from the sale of the financial assets or the income derived from the financial assets should be transferred immediately to the investment account. This is also the case when an investment company (brokerage firm) is used for investment.
It provides an exception to the general rule that, in certain cases, financial assets that have not been purchased with money in the investment account may be included in the investment account system. The purpose of the exclusion is to prevent a person from being forced to use a system of ordinary and investment accounts at the same time, because of the content of the transaction to acquire financial assets, he or she cannot comply with the general rule.
An example is the acquisition of a financial asset by inheritance, gift, liquidation or option of participation, which is not a contract of sale, and a person is unable to pay for the transaction without changing the content of the transaction. The exception provides that, in order to defer the income tax obligation arising from income derived from financial assets that could not be purchased for money due to the content of the transaction, The value of the acquisition of the financial asset should be included in the income declaration as a contribution to the investment account.
Investment account and currency conversion
Currency is not included in the definition of a financial asset and cannot be invested from an investment account. However, a portion of the financial assets can only be purchased in a currency other than the euro. Hence, the acquisition of a currency other than the euro from the investment account is sometimes unavoidable and is not made for the purpose of investing in currency According to this provision, a person has the right to convert currency provided that the currency sold is in an investment account and the currency purchased is immediately transferred to an investment account.
Investment account declaration
Investment account data and income from financial assets are declared in schedule 6.5 of the resident individualâs income statement (hereinafter, the income statement). Only contributions made to the investment account (cash account) and payments made from that investment account are declared in the income declaration. If the payments exceed the contributions, then the income tax obligation arises.
In general, only:
Money deposited in an investment account (money account)
Withdrawals from the investment account (cash account).
As a contribution to the investment account, table 6.5 should also declare:
Cash balance in the account when opening an investment account;
Dividends on financial assets received from abroad and taxed by income;
Interest on financial assets received from abroad and subject to income tax;
Dividends on financial assets received in Estonia and taxed in Estonia;
Dividends on financial assets received in Estonia and taxed in Estonia.
Wisor Group OĂ provides legal advice on taxation in Estonia as well as accounting services. Don’t hesitate to get in touch with us and present your enquiry.[/vc_column_text][/vc_column][/vc_row]