There are two types of income tax – personal income tax and corporate income tax.
Taxation of corporate income
A special feature of corporate income tax in Estonia is that only the distribution of profits in the form of dividends or wages is taxed. The profits and funds of the company are not taxed before the distribution of profits.
Income tax must be payable on distributed income, expenses and payments not related to the business of the company, as well as gifts, donations, hospitality, and fringe benefits provided to employees.
Income tax is also levied on reduction of corporate capital, redemption of shares and payment of liquidation income in excess of cash and non-cash contributions to the share capital of the company.
Payment of dividends – 23%-25%
The tax on the payment of dividends tax in 2020 is 20/80. Dividends paid on a regular basis are subject to the lower tax rate of 14/86. When paying dividends to an individual with a reduced tax rate, an additional income tax of 7% is withheld.
The tax period is a calendar month, and the income tax return (TSD) must be submitted to the Tax and Customs Board by the 10th day of the following month.
If payment is made in one month:
- up to 1,200 EUR, then the tax-free income is 500 EUR;
- in the amount from 1,200 EUR to 2,100 EUR – is calculated according to the formula 500 – 500 ÷ 900 × (payment);
- over 2,100 EUR – the tax-free income is 0.
Sole proprietor income taxation (FIE)
If you do business as FIE, business income will be subject to income tax minus corporate expenses. The FIE income tax rate is 20%.
The tax period is a calendar year, the FIE is required to declare income once a year on their tax declaration. You must file your income tax return by April 30 of the year following the tax period. If taxable income was received in a previous taxation period, advance income tax payments must be made by 15 September and 15 December. The advance payment must be 25% of the total income tax accrued on business income in the previous tax period.