Taxation in Estonia

Yes and no. Estonia has a deferred corporate tax system, which means that all undistributed corporate profits are tax-exempt. However, if the profit is distributed then the corporate income tax (“CIT”) rate is 20%, calculated as 20/80 from taxable net payment.

CIT is assessed on a monthly basis and only when the profits have been distributed. Such profits would be dividends, share buy-back, capital reductions, liquidation proceeds, including transactions that are considered as deemed profit distributions (e.g. transfer pricing adjustments, expenses and payments that do not have a business purpose, fringe benefits, gifts, donations and business entertainment expenses).

Dividend distribution is subject to income tax at the rate of 20/80 of net dividends (20% of gross disbursement). For companies making regular profit distributions (dividends) a reduced rate of 14/86 of net dividends (14% of gross dividends) is applicable. If the natural person receives reduced rate (14%) dividends then the 7% withholding income tax applies, unless a tax treaty provides for a lower WHT rate (5% or 0%).

Dividends distributed by Estonian companies are exempt from corporate income tax if the dividends are paid from:

• the European Union (“EU)”, European Economic Area (“EEA”) and Swiss tax resident companies in which the Estonian company has at least a 10% shareholding;
• profits derived through a PE in the EU, EEA or Switzerland;
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Based on the Estonian Value-Added Tax Act a company is obligated to register itself as a VAT liable person. That is, if the taxable supply of the transactions carried out by the company exceed 40 000 euros, as calculated from the beginning of the calendar year. The threshold for distance sales is 35 000 euros. An obligation to register as a taxable person arises the latest on the date on which the supply reaches the aforementioned thresholds.

It is possible to register yourself on a voluntary basis as a VAT liable person. To register as a VAT payer you are required to submit an application to the Estonian Tax and Customs Board. The prerequisite for the registration is that the company is already engaged in business or is about to commence business in Estonia.

If the provided evidence (regarding the company’s business or start of business) is insufficient, the Tax Authority has the right to request additional proof. Leinonen Estonia helps a company register itself as a VAT liable person and also communicate with the Estonian Tax Authorities.

We provide VAT compliance services in Estonia, i.e. preparation and submission of tax returns and related reports, as well as statistical reports. Moreover, we provide a fiscal representation service with a special license no ME 003-2018 (serving the clients from third country). In addition to compliance work we provide VAT consultations.

On the one hand, submitting the personal income tax declaration is not complicated in Estonia. No need to submit a declaration on paper. Estonian residents already have prefilled electronic declarations in the e-Tax system. However, you might need our assistance to add information to the prefilled declaration, such as income received from a foreign country and expenses (tax incentives) paid in a foreign country, which can be deducted from taxable income, and data on the transfer of other property.