The Estonian tax system is simple and consists of national or state taxes and local taxes. Consumption taxes bring the biggest revenue to the government, while capital taxes bring one of the lowest incomes in the European Union.
National taxes are the income tax, social tax, and land tax, gambling tax, value-added tax, duty and excise tax and heavy goods vehicle tax. The local authorities can impose taxes as well but only few of them have. Advertisement taxes, motor vehicle taxes, taxes on pets and parking fees are a few examples.
Estonian companies and subsidiaries or branches of foreign companies are subject to the Estonian income tax on corporate profits, gifts, donations, expenses and payments not related to their business.
The employer must also pay the income tax and social tax on fringe benefits. The income tax for legal persons in Estonia is rated at 21 % and it is only enabled in the moment of distribution to the shareholders, this particularity making the system unique in Europe. In case the distribution of the profit comes from dividends received from subsidiaries or branches in other countries than Estonia, the profit distribution is exempt from income tax.
Do not hesitate to contact our attorneys for legal advice regarding the corporate tax in Estonia.
The personal income tax in Estonia applies to residents on salaries, wages, bonuses, business incomes, interests, royalties, rents, capital gains, pensions. Residents are exempt from paying the income tax on dividends for Estonian or foreign companies when profits have already been taxed.
Non-residents will only pay the income tax if the money is earned on Estonian territory and it includes employment contracts or business conducted in Estonia, royalties, leasing or vending of properties in Estonia, pensions.
In Estonia VAT is applied to supplies of goods and services.
All persons or companies engaged in business are subject to the Estonian VAT system. A taxable person or company must add the VAT to the goods or services provided, calculate the amount, pay the VAT and issue invoices.
In Estonia the standard VAT rate is 20 % and is applicable if the threshold is 16, 000 euros. There is also a 9 % VAT rate and a zero percent rate for some cases.
The social tax in Estonia is 33 % for employers and it is divided into 20 % for social security and 13 % for health insurance. Employers will pay this amount on all payments made to employees except for those exempt by law. Fringe benefits and the income tax are included too. Only employers and persons engaged in business have to pay social tax.
Salaries are subject to unemployment insurance premiums of 2,8% of the employee gross salary and 1,4% paid by employers of monthly gross salaries and the funded pension payment of 2% of the gross salary of a resident employee.
Estonia has double tax treaties with more than 50 countries, therefore providing foreign investors with an advantageous business climate avoiding the double taxation of their incomes.
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