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Tax rates in Estonia 2021

We have put together a compact overview of current tax rates in Estonia, which might be helpful for you.  For more detailed information contact Leinonen Tax advisors for assistance.


Corporate income tax

Tax rate

N/A

No corporate income tax is paid and undistributed profit is exempt from income tax.

20%, i.e. 20/80 of the net amount

Profit is taxed upon distribution of profit, e.g. when distributing dividends. Additionally, income tax must be charged on fringe benefits, costs of entertaining guests, gifts, donations, expenses not related to enterprise and transfer price.

Additionally, income tax must be charged on reducing a company’s capital, repurchase of shares and payment of liquidation proceeds in the amount that exceeds the monetary and non-monetary payments made to a company’s equity.

14%, i.e. 14/86 of the net amount

Regularly paid dividends are subject to a discount rate of 14/86. Please note: if the payment is made to a private person, income tax of 7% is charged on dividends.

The income tax withheld can be 5% or 0% (depending on the tax agreement) in the case of a non-resident shareholder.

 

Fringe Benefit

Non-monetary benefits to the employees are taxed with fringe benefit. Employers shall pay the full amount of income (20/80) and social tax (33%) calculated on granted fringe benefits. There is also special rules for fringe benefit such as company car taxation and also there are some exemptions.

 

Representation costs

Income tax at the rate of 20/80 is applicable, if the amount of representation costs exceeds 32 EUR /month +2% from total gross salaries

 

Donations

Income tax at the rate of 20/80 is applicable. Exemptions for donations to the list of non-profit associations, foundations and religious associations benefiting from income tax incentives.  

Gifts

20/80, except gifts provided for the purposes of advertising which value excluding value added tax is up to 10 euros.

Costs not related to the business

20/80

Taxation period

Calendar month. Income tax must be declared and paid by the 10th day of the month following the month on which the payment is made.

withholding income tax

Withholding income tax rates

7%

dividend payments made to resident or non-resident individuals, if dividends have been subject to the reduced corporate income tax at the level of the paying.

10%

  • Royalties paid to non-residents, but reduced rates or exemptions may apply under double tax treaties;
  • Payments to non-resident companies for services provided in Estonia, including management and consultancy fees. Exemptions may apply under double tax treaties;
  • Payments for the activities of non-resident artists or sportsmen carried out in Estonia.

20%

  • Salaries, directors’ fees and service fees paid to individuals under domestic law, but double tax treaties may exempt service fee payments to non-resident individuals from withholding tax;
  • Rental payments to non-residents for the use of immovable property located in Estonia and movable property subject to registration in Estonia (excluding payments for the use of industrial, commercial or scientific equipment), but double tax treaties may exempt payments for the use of movable property from withholding tax;
  • Interest, royalties and rental payments to resident individuals. There is no withholding tax on interest payments to non-residents;
  • Service fee payments to “tax haven” entities;
  • Certain pensions, insurance benefits, scholarships, prizes, lottery winnings, alimony, etc. paid to non-residents and resident individuals;
  • Etc. 

Taxation period

Calendar month. Withholding income tax must be declared and paid by the 10th day of the month following the month on which the payment is made.

personal inome tax

Tax rate

20%

Taxation period

Calendar year. Natural persons must submit their income tax returns by the 30 April of the year following the taxation period.

WAGE TAXES

Income tax

20%    income tax withheld by employer

Basic exemption

The annual basic exemption is up to 6,000 EUR (500 EUR per month). If a person’s annual income is up to 14,400 EUR, they can use the exemption in full. If the annual income is between 14,400 to 25,200 EUR, the amount of the basic exemption is reduced pursuant to the following formula: 6,000 – 6,000 / 10,800 × (amount of income – 14,400).

Social security contributions

Employer’s obligation to pay on gross wages

Withheld from employee’s wages

  • 33% social tax (the minimum monthly obligation for social tax is 584 EUR, it means, for an employer, the minimum obligation for social tax is 192,72EUR monthly).
  • 0.8% unemployment insurance premium.

  • 1.6% unemployment insurance premium
  • 2% funded pension contribution (if the person as joined 2nd pillar 20% for social security and 13% for health insurance kui

Value added tax (VAT)

Tax rates

20% Standard rate

9%

0%

Taxation period

Calendar month. Value added tax returns are submitted by the 20th day of the month following the taxation period.

Registration thresholds in Estonia

  • The turnover threshold for mandatory VAT registration is 40,000 EUR from the beginning of a calendar year;
  • A person liable to value added tax with limited liability:

a). the obligation to register as a VAT payer with limited liability shall be created as of the date of receiving the services listed in subsection 10 (5) of the Value-Added Tax Act (more information available: link)

b).  purchases goods (except new means of transport and excise goods) from another VAT payer of the other Member State the taxable value of which exceeds 10,000 EUR as calculated from the beginning of a calendar year;

  • Distance sales threshold (goods)- 35,000 EUR;
  • an annual turnover threshold of 10,000 EUR for intra-EU cross-border supplies of telecommunications, broadcasting and electronic (TBE) services. Until this threshold is not exceeded, an entrepreneur has the right to follow the VAT rules of its own country of residence upon the taxation of the digital services;
  • Tax changes as of 01.07.2021 it is possible in certain cases (distance sales to non-taxable person, TBE and services with the supply in another Member States) it is possible to use OSS instead of VAT registration in another Member state, more information available in our article: Changes to value-added tax in 2021: how will cross-border trade change, waiting for VAT recovery on bad debts, etc.

  

If any further questions, please do not hesitate to contact with Leinonen’s tax advisory unit.



07.01.21


Author:   

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Kristiina Alt

Kristiina Alt

Senior Tax Advisor

+372 611 7734

Email: kristiina.alt(at)leinonen.ee

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