Taxation of Income from Investments in Estonia

Investments are an integral part of the modern economy.

Cash, securities, other property, including property rights, other rights that have a monetary value, all of this applies to investments.

Investing is the safest and most long-term way to increase your income. The principle of operation is simple: You invest your money in a project that grows in price over time, and then you make a profit.

Estonia is consistently 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 infrastructure and human capital. This 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 a large number of foreign investors, as well as the dominance of world-famous foreign companies in some sectors of the Estonian economy.

The main factors of Estonia’s investment attractiveness are considered to be:

  • The country’s low public debt (one of the lowest in Europe)
  • Independent judicial system, and as a result a low level of corruption
  • Predictable fiscal and taxation policy of the state
  • Electronic state (e-Estonia) and developed IT infrastructure in all sectors of the economy
  • High level of freedom of entrepreneurship and business expansion opportunities in the European Union countries
  • No tax on retained earnings of enterprises
  • The Government of the country has signed an agreement on the avoidance of double taxation with 60 countries.

Taxation of investment income for individuals

Taxation of income received from an investment fund depends on the residence and legal form of the investor.

According to the current Income Tax Law, income from the alienation of securities (including from the sale of investment fund units) received by a resident individual is taxed at a rate of 20%. The investor is obliged to declare income and pay income tax from it.

Income tax is not levied on income that an individual who is a resident receives from the exchange of shares for shares of another investment fund with which the same management company works, and income from shares of an investment fund or from the exchange of other participation shares during the merger of investment funds.

The income of a non-resident individual investor received from the sale of shares is not subject to income tax in Estonia

Taxation of investment income for legal entities

Income from the sale of shares received by a legal entity is not taxed. The income from investments is added to the profit and is taxed in the general order when distributing the profit.

It is estimated that more than 500 million euros are available on the Estonian private and venture capital market today.

A novice investor can use a variety of investment methods to make a profit in the future, for example, many entrepreneurs whose only asset is an idea are looking for investors to implement their goals and ideas.

Also, potential investors can find entrepreneurs who have joined the community in search of investors for the development of the project, which unites and supports Startup Estonia.

At the moment, Estonian startups have accumulated solid experience and skills to build a successful business, and the search for the necessary partners creates the foundation for success.

Many aspiring entrepreneurs have joined the co-financing/crowdfunding platform in search of investors. Co-financing platforms offer the opportunity to attract investors quickly and efficiently. They are used both by companies in the early stages of development and by entrepreneurs who have achieved their first successes and are seeking to expand their activities.

Another investment opportunity in Estonia is Private and Venture Capital Funds.

At a later stage of development, private and venture funds continue to finance startups. One idea is no longer enough here – a start-up company must have a team and a working prototype of a service or product.

As a rule, private and venture capital funds are not limited to providing money, they also support startups with their experience and contacts to help a new company achieve profit and growth as quickly as possible or successfully reach the next stage of financing.

For detailed advice on taxation of investment income for both individuals and legal entities in Estonia, we recommend contacting an accountant or tax consultant of LKS Consult OÜ and getting answers to your questions. Also LKS Consult OÜ provides professional accounting services for Estonian companies.



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