Taxation rates in Estonia
Corporate income tax (non-distributed profit)
Corporate income tax (distributed profit)
VAT
Private person income tax
Social security tax
Unemployment tax
0%
22%
24%
22%
33%
0.8 + 1.6%
Corporate income tax
is 22% from distributed profit. Shareholders receive 78%.
Private person income tax
is from gross income and is deducted from income.
Social security tax
is from gross income and is paid on top of salary by employer.
Unemployment tax
is from gross salary, 0.8% is paid on top of salary by employer and 1.6% is deducted from employee's salary.
Responsibility of tax payments
is always on company (employer).
Tax exempt income
12 x 654 = 7 848 EUR/year .
Tax return dates
VAT
If your company has a VAT ID, then VAT returns must be submitted and VAT paid at the latest on the 20th of the month following the month that the tax return concerns. It means that the accountant must receive source documents and bank statements latest by the 10th day of that month.
Social security and income tax
If your company is making payments subject to income and/or social tax, the tax returns must be submitted and taxes paid at latest on the 10th of the month following the month when such payments are made. It means that you must provide the source documents related to these payments at the latest on the 5th day of that month.
Annual reports
must be submitted within 6 months following the end of a fiscal year.
Taxation of profits in Estonia
How Corporate Income Tax is applied in Estonia
The core of the corporate income tax in Estonia is that the corporate taxation is shifted from the moment of earning the profit to the moment of their distribution. It means that as long the profit is not distributed, there is no corporate income tax applicable to the company (unless some other costs must be taxed). In other words, it does not matter how successful your company is, it is possible to run your company without any taxation at all and many entrepreneurs already do so.
Corporate profit without distribution sample
100 000 EUR
0 EUR
0%
100 000 EUR
Gross profit of the company
Corporate income tax applicable
Real taxation
Profit available for the company
Implicit and explicit way of profit distribution
There are two types of profit distribution possible – an implicit and an explicit way.
The explicit way stands for dividends and other profit distributions (except for bonus issue, which is taxable for resident natural persons upon the alienation of assets received through the bonus issue).
Dividends or explicit way of distributing profits sample
200 000 EUR
100 000 EUR
22%
22 000 EUR
78 000 EUR
22%
0%
100 000 EUR
78 000 EUR
Gross profit of the company
Gross profit decided to distribute
Corporate income tax rate
Corporate income tax to pay
Dividend paid to shareholders
Real taxation of gross distributed profit
Withholding tax
Will remain on company account
Shareholders receive
In other words - if a resident legal (Estonian company) person pays 78 000 EUR of dividends to a natural person, a tax of 22 000 EUR (100 000 x 22/78) has to be paid by the resident legal person (total cost 100 000 EUR).
Payments upon proceeds from liquidations, payments upon capital reductions and redemption or return of participation in a company are generally subject to corporate income tax in the hands of the payer, an Estonian company at the moment of distribution.
The implicit way to distribute profits is to do it through fringe benefits, gifts and donations, as well as expenses and payments unrelated to the business activity.
Implicit way of distributing profits sample
7 800 EUR
22%
2 200 EUR
Fringe benefits costs or costs without document
Corporate income tax rate
Corporate income tax to pay
It might seem that taxation here is 28.2% (2 200 from 7 800 = 28.2%), but actually the taxation is always calculated from gross (distributed) profit, which in this case is 7800 + 2 200 = 10 000 EUR. 2 200 out of 10 000 is 22%.
The resident legal person and the non-resident legal person acting through its permanent establishment registered in Estonia carrying out profit distribution has to pay 22/78 of the amount of profits distributed.
For the recipient, dividends are not taxable income and additional income tax shall not be withheld on the amount of dividends.
Some more examples of company profit taxation:
A resident legal person pays 78 000 EUR of dividends to a non-resident legal person who owns less than 10% of the profit-distributing entity. A tax of 22 000 EUR (78000 x 22/78) has to be paid by the resident legal person.
A resident legal person pays 78 000 EUR of dividends to a resident legal person, who owns less than 10% share in the profit-distributing entity. A tax of 22 000 EUR (78 000 x 22/78) has to be paid. When the receiving entity pays out dividends further to other persons, then the tax of 22/78 of the amount paid out has to be paid again.
A resident legal person pays 78 000 EUR of dividends to resident legal person, who owns more than 10% share in the profit-distributing entity. A tax of 22 000 EUR (78 000 x 22/78) has to be paid. When the receiving entity pays out dividends further to other persons, then the tax of 20/80 of the amount paid out shall not be paid.
This guideline is to be considered as informative and very general and should not be treated as a final law.
Taxation of dividends in Estonia
As a rule, payment of dividends is not taxed in Estonia.
At the moment of profit distribution, corporate income tax corresponding to the distributed sum must be paid.
How Estonian tax residents are taxed when receiving dividends
1. Dividends from an Estonian company to an Estonian private person
If an Estonian tax resident is receiving dividends from an Estonian company, then he does not need to pay any additional tax. All taxation (22% from gross profit) happens on the level of the company in the moment of profit distribution (latest next month 10th date). For example if a company distributes dividends 78 000 EUR during October, then corporate income tax 22 000 EUR (22% from distributed gross profit, which in this example is 100 000 EUR), must be paid latest November 10th. The corporate income tax will be paid by the company who is distributing the dividends.
As dividends from an Estonian company are not considered taxable income, then there is no need and it can't be added into the receiver's annual tax return. However, as on a company level the dividend payments are declared, then the tax authorities have a full overview of one's (official) income.
2. Dividends from a foreign company to an Estonian private person
If an Estonian tax resident (private individual) is receiving dividends from other jurisdictions, then the same taxation rule applies here as well. In other words, taxation happens in the company level and if corporate income tax is paid, then there is no taxation on the level of a dividend receiver. However, these dividends must be declared on annual tax return and proof of payment of corporate income tax must be provided. If this profit was not taxed on a company level or required proof presented, then 22% income tax must be paid on the level of a private individual.
For example, if an Estonian tax resident (private person) receives dividends from a Finnish company, then as a rule the Finnish company profit is taxed with Finnish corporate income tax (22%) and dividends, received by the Estonian tax resident, are tax free.
3. Dividends from a foreign company to an Estonian company
If an Estonian company receives dividends from a foreign company, then as a rule the corporate income tax is taxed on the level of first appearance of profit. Once it is taxed there and documented proof given, this money will not be taxed when distributed from an Estonian company (documented proof is not required if dividends are received from an OECD country). However, if the Estonian company share of the subsidiary is less than 10%, then the earned profit will be taxed on the moment of distribution of dividends regardless of the previous taxation.
How foreign tax residents are taxed by receiving dividends
1. Dividends from an Estonian company to a foreign private person
In most countries, dividends are not tax free and it means that beside corporate income tax, most foreign shareholders of an Estonian company will be taxed on a private level as well. Often taxation of such dividends is 15% and this (private person income) tax must be paid to the local tax authorities where the dividend's receivers tax residence is currently.
For example: If the Estonian company's sole shareholder is a foreign private person and he decides to distribute 78 000 EUR of dividends, then on the company level 22 000 EUR corporate tax must be paid. In addition, 15% (might be different in many countries) from 78 000 EUR must be paid by the shareholder, which is 11 700 EUR. This makes effective taxation 33.7%. In other words from cross profit, 100 000 EUR total taxes are 33 700 EUR and money after taxation left to the shareholder is 66 300 EUR, meaning the shareholder receives 66.3%.
Real taxation in each case depends on the tax residency of the dividend receiver and how it is regulated by the mutual tax treaties.
2. Dividends from an Estonian company to a foreign company
As a rule, especially if there is a double taxation avoidance agreement, foreign companies who are shareholders of an Estonian company are not taxed when they receive dividends from Estonia.
It is also valid if dividends are paid from an Estonian company to low tax rate territories companies.
Payroll taxation in Estonia
Employee's payroll calculation
Gross salary
Tax exempt income
Unemployment tax paid by the employer 1.6%
Taxable income
Income tax 22%
Social security tax 33%
Unemployment tax paid by the employee 0.8%
Employee to receive
Total taxes
Total cost for the employer
2 000 EUR
645 EUR
32 EUR (1.6% x 2 000)
1346 EUR
296.2 EUR
660 EUR
16 EUR (0.8% x 2 000)
1671.8 EUR (2 000 – 296.2 – 32)
1004.2 EUR (296.2 + 32 + 660 + 16)
2676 EUR (2 000 + 660 + 16)
From the total cost 2676 EUR - 62.47% (1671.8 EUR) is received by the employee and 37.53% (1004.2 EUR) is paid in taxes.
Remuneration of the management board in Estonia
Remuneration payable to a member of the management board with A1/E101
With an A1/E101 certificate, a person who works outside the country where he/she has social security insurance can prove that he/she is covered under that country's social insurance legislation for e.g. old age pension, child benefit and unemployment. All European Union countries use A1/E101 certificates. To avoid paying social security tax in Estonia you must present your A1/E101 certificate to Estonian tax authorities.
Gross salary
Tax exempt income
Taxable income
Income tax 22%
Social security tax to be paid in Estonia
Employee to receive
Total taxes
Total cost for the employer
2 000 EUR
0 EUR
2 000 EUR
440 EUR
0 EUR
1560 EUR (2 000 – 440)
440 EUR
2000 EUR
Board member's salary to resident or person without A1
Gross salary
Tax exempt income
Taxable income
Income tax 22%
Social security tax 33%
Employee to receive
Total taxes
Total cost for the employer
2 000 EUR
0 EUR
2 000 EUR
440 EUR
660 EUR
1 560 EUR (2 000 – 440)
1 100 EUR (440 + 660)
2 660 EUR (2 000 + 660)
From the total cost 2 660 EUR - 58.6% (1 560) is received by the employee and 41.4% (1 100 EUR) is paid in taxes.
Taxation of company cars in Estonia
To avoid these taxes and to receive a full VAT return, the company must prove that the car is used 100% for business purposes.
Taxation of company cars applies only for passenger cars. A passenger car for the purposes of the Value Added Tax Act is an M1 category vehicle, the laden mass of which is not more than 3500 kilograms and which does not have more than 8 seats in addition to the driver’s seat.
If the company would like to buy or cover the cost of using a passenger car, then the company has two tax consequences:
From 01.01.2018 the company must pay 1.3 EUR per kW of taxes per month, as long as the car is in use for private purposes - no car use declarations done.
The Company has a right for only 50% of VAT return.
Daily allowance during assignments abroad
The tax-exempt limit for daily allowances during assignments abroad is 75 euros for the first 15 days of the assignment (15 days per calendar month at most) and 40 euros for each day thereafter (Income Tax Act § 13(3)(1)).
Taxation of fringe benefit costs in Estonia
For example
Price of fringe benefit (for example housing expenses) 1000 euros
Income tax 282 EUR = 1000 x 22/78
Social tax 423,1 EUR = (1000 + 282) x 33%
A total cost to employer is 1 705,10 EUR = 1000 + 282 + 423,1 payment.
Fringe benefits and expenses not related to business
Fringe benefits are subject to income tax of 22/78 at the employer’s level and social tax at the rate of 33% (social tax is levied on the amount which includes both income tax and non-deductible VAT).
On practical level it is wise to avoid fringe benefit costs at all as it has maximum taxation - similar to payroll taxation. Extra disadvantage is that it increases accounting costs as every additional transaction or documents adds job.
Taxation of licence fees (intellectual) property in Estonia
Pursuant to the Income Tax Act, income tax is charged on consideration for transfer of the right to use a copyright of an intellectual property*, received as royalties.
The license fee generally shall be withheld on the payment of a royalty by a company resident in Estonia.
The withholding tax rate of license fee is usually 10%, unless for cross-border transactions the tax treaty does not provide for a more favorable tax rate.
In the case of cross-border transactions, it has to be checked whether a tax treaty has been concluded between Estonia and that country. The purpose of the tax treaties is to avoid double taxation, and if Estonia has a contract with the licensee, the tax treaty must be applied.
List of tax treaties concluded with Estonia can be found here Link.
* literary, artistic or scientific work, including cinematographic films or videos, recordings of radio or television programs or computer programs.
How to become an Estonian tax resident
Estonian ID-card does not grant an Estonian tax-residency status automatically
Being the holder of an Estonian ID-card does not automatically grant you an Estonian tax-residency. A general disbelief is that if non-residents are already paid salary from an Estonian company, they presume that the company must have taken care of all the residency related documentation. It is not so and the person itself has to and can submit the necessary documentation as stated below.
In order for the person to become an Estonian tax resident, one has to personally submit to the Estonian Tax and Customs Board a filled and signed form R („Füüsilise isiku residentsuse määramise vorm“)
Filled and signed form R shall be submitted to the Tax and Customs board by the applicant itself. It can not be done by the employer.
Among other data that has to be stated in form R, the applicant must state the date of issuance of the residence permit. Hence the prerequisite of granting the tax-residency is the existence of a valid residence permit.
Persons from third countries who have been granted a residence permit, will be issued a residence permissing card, similar to the id card.
How to distribute profits from an Estonian company
Share capital must be paid
According to the Commercial Code it is not allowed to distribute profits in case the registered company's share capital is not paid in (company is created without contribution of share capital) and corresponding registration process is done in the Commercial register.
Profit distribution
In case conditions mentioned above are fulfilled, you can simply pay maximum 78% of the last fiscal year's profit to the shareholder's bank accounts with the description "profit distribution" or similar.
Payment of the corporate income tax
In Estonia the payment of dividends is not taxed, but at the moment of profit distribution the company must pay 22% corporate income tax, which must be done by the latest on the 10th of the next month after profit distribution.
Tax returns
The company who is distributing profit must submit corresponding tax returns latest on the 10th of the next month after profit distribution. It is better if your accountant will take care of it, as for practical reason it is considered too complicated to do it without assistance.
Tax payment details
Banking details
Reference number must be entered into payment order.
By entering registration number to the field you receive reference number for payment
Payment description
Amount
https://www.emta.ee/eng/business-client/taxation-payment-taxes/requisites-payment-taxes
http://apps.emta.ee/e-service/doc/a0004.xsql
"corporate income tax"
If you distribute 7800 EUR to shareholders, you must pay 2200 EUR corporate income tax, which means it is 22% from gross amount or 28.2% from net amount (what you paid out as profit distribution).
Changes regarding loans in the Income Tax Act
The new wording of the Income Tax Act is valid from 01.01.2018
The new Income Tax Act will start regulating the declaration of loans in legal entities.
When the legal entity gives a loan to its subsidiaries or to a parent company for a period longer than 48 months, the lender has to be ready to prove, upon the request of tax authorities, that the borrower is able to pay back the loan and that it has the intention to do so. The tax authorities will give at least 30-days to prove such facts.
If the facts of such transaction reference that it might be a concealed profit distribution instead of a loan between partnering companies the loan will be taxed with income tax.
Companies are obliged to submit a declaration to the Tax and Customs Board for the 20th date of the following month to the quarter when the loan was given.
The obligation to declare the loans comes to effect regarding loans that were given since 1st July 2017. The loans must be declared not later than 10th of February 2018. The obligation also extends to loans where the loan amount has increased, the date of repayment extended or other essential requirements were changed.
Black list countries in Estonia
List of tax exempt and low tax rate territories
1. Principality of Andorra
2. Anguilla (GBR)
3. Antigua and Barbuda
4. Aruba
5. Commonwealth of the Bahamas
6. Kingdom of Bahrein
7. Barbados
8. Belize
9. Bermuda Colony (GBR)
10. British Virgin Islands
11. State of Brunei Darussalam
12. Cook Islands
13. Republic of Costa Rica
14. Republic of Djibouti
15. Dominican Republic
16. Republic of the Philippines
17. Gibraltar (GBR)
18. Grenada
19. Territory of Guam
20. Republic of Guatemala
21. Guernsey (GBR)
22. Netherland Antilles (Curaçao and Sint Maarten)
23. Hong Kong
24. Jamaica
25. Cayman Islands (GBR)
26. State of Qatar
27. Republic of Kenya
28. State of Kuwait
29. Labuan
30. Republic of Liberia
31. Principality of Liechtenstein
32. Republic of Lebanon
33. Macau (Aomen)
34. Republic of the Maldives
35. Republic of the Marshall Islands
36. Republic of Mauritius
37. Principality of Monaco
38. Montserrat Colony (GBR)
39. Republic of Nauru
40. Republic of Niue
41. Sultanate of Oman
42. Republic of Panama
43. Commonwealth of Puerto Rico (USA)
44. French Polynesia
45. Saint Kitts and Nevis (Federation of Saint Christopher and Nevis)
46. Saint Lucia
47. Saint Vincent and the Grenadines
48. Republic of San Marino
49. Republic of Seychelles
50. Republic of Chile
51. Colony of Turk and Caicos Islands (GBR)
52. Eastern Republic of Uruguay
53. New Caledonia (FRA)
54. Republic of Vanuatu
55. Republic of Venezuela
56. United States Virgin Islands
White list countries in Estonia
Territories, not considered low-tax territories
United States, with the exception of the United States Virgin Islands and Marshall Islands
Republic of Austria
Kingdom of Belgium
Republic of China, with the exception of Hong Kong, Aomen (Macao)
Kingdom of Spain
Kingdom of the Netherlands, with the exception of Aruba, the Netherland Antilles
Ireland
Republic of Iceland
Italian Republic
Japan
Canada
Hellenic Republic
Republic of Lithuania
Republic of Latvia
Republic of Moldova
Kingdom of Norway
Republic of Poland
Republic of Portugal
French Republic
Kingdom of Sweden
Federal Republic of Germany
Republic of Finland
United Kingdom of Great Britain and Northern Ireland, with the exception of Anguilla, Bermuda, British Virgin Island, Cayman Islands, Gibraltar, Channel Islands (Jersey, Guernsey) Isle of Man, Montserrat, Turks and Caicos Islands
Kingdom of Denmark
Czech Republic
Ukraine
Republic of Kazakhstan
Republic of Belarus
Republic of Armenia
Republic of Malta
Republic of Cyprus
Grand Duchy of Luxembourg
Slovak Republic
Republic of Slovenia
Republic of Hungary
Republic of Croatia
Swiss Confederation
Republic of Turkey
Romania
Republic of Bulgaria
Georgia
Republic of Singapore
Republic of Azerbaijan
Republic of Macedonia
State of Israel
Isle of Man
Republic of Korea
Republic of Serbia
Republic of Albania
Jersey
United Arab Emirates
India
Exchange of information for tax purposes
Essence of the act
Credit institutions of countries listed below will automatically forward account information to your tax residence country if:
on your private account is more than 10 000 USD at the end of the year.
On the company account (where you are beneficiary owner) is at the end of the year at least 250 000 USD.
Estonian credit institutions will start reporting in 2017
Jurisdictions undertaking first exchanges by 2017
Anguilla, Argentina, Barbados, Belgium, Bermuda, British Virgin Islands, Bulgaria, Cayman Islands, Colombia, Croatia, Curaçao, Cyprus, Czech Republic, Denmark, Dominica, Estonia, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Greenland, Guernsey, Hungary, Iceland, India, Ireland, Isle of Man, Italy, Jersey, Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mauritius, Mexico, Montserrat, Netherlands, Niue, Norway, Poland, Portugal, Romania, San Marino, Seychelles, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Trinidad and Tobago, Turks and Caicos Islands, United Kingdom
Jurisdictions undertaking first exchanges by 2018
Albania, Andorra, Antigua and Barbuda, Aruba, Australia, Austria, The Bahamas, Belize, Brazil, Brunei Darussalam, Canada, Chile, China, Costa Rica, Ghana, Grenada, Hong Kong (China), Indonesia, Israel, Japan, Marshall Islands, Macao (China), Malaysia, Monaco, New Zealand, Qatar, Russia, Saint Kitts and Nevis, Samoa, Saint Lucia, Saint Vincent and the Grenadines, Saudi Arabia, Singapore, Sint Maarten, Switzerland, Turkey, United Arab Emirates, Uruguay
Jurisdictions that have not indicated a timeline or that have not yet committed
Bahrain, Cook Islands, Nauru, Panama, Vanuatu
