Estonian Tax System

•         is simple, motivating and transparent

•         is focused on taxing consumption

•         has very few exemptions and deductibles

Principal Taxes
The system of taxation is described in the Law on Taxation.

The existing state taxes are:

• income tax: flat 21% rate for individuals;
• value added tax (VAT): 18% (some goods and services 9%);
• social tax: 33% (20% for social security contributions - state pension and 13 % for health insurance);
• unemployment insurance tax: 0.3% employer + 0.6% employee (since 01.07.2009 - 0.5% employer + 1.0% employee;
• excise taxes (tobacco, alcoholic beverages, motor fuel, motor vehicles, packages);
• gambling tax;
• land tax.

Income Tax:

The personal income tax rate is currently flat 21%. However the Income Tax Act provides for a gradual reduction of this rate over the next several years and the expected tax rate after 2012 should be 18%.

Corporate Income tax

·         New approach – corporate income tax is not paid for the period of income generation, instead upon profit distribution.

From 1 January 2000, resident companies and permanent establishments of the foreign entities (including branches) are subject to income tax only in respect of all distributions (both actual and deemed), including:

· dividends and other profit distributions;
· fringe benefits;
· gifts, donations and representation expenses; and
· expenses and payments not related to business.

·         Profit retained in the company is taxed 0%.

·         Any profit distribution and similar disbursement is recognized as taxable event (income tax is paid when profit is taken out of the company).

·         No tax avoidance, only tax deferral on company’s level.

Estonia does not impose any estate taxes. Various transactions may be subject to payment of state fees (stamp duties).

·         Due to EU accession-treaty changes in taxing dividend payments between mother-daughter companies since 2009, but the principles remain the same. 

Local governments have the authority to impose local taxes, but effectively only few municipalities have introduced local taxes, in particular: sales tax, boat tax, advertisement tax, tax on closure of streets and roads, motor vehicle tax, entertainment tax, tax for keeping the animals and parking charge.

Taxation Act is a basic act for all other tax Acts. It specifies Estonian tax system, requirements for tax Acts, rights, duties and liability of taxpayers, withholding agents, guarantors and tax authorities, and procedure for resolution of tax disputes and main definitions used in all tax acts. Taxation Act provides precise regulation of carrying out administrative procedures of tax authorities and creates stronger sense of reliability for taxpayers.
 
Tax authority for state taxes is the Tax and Customs Board. It is government agency which operates within the area of government of the Ministry of Finance. Tax administrators are required to verify the correctness of tax payments, assess amounts of tax and interest due in the cases provided by law, collect tax arrears and implement sanctions against persons who violate tax Acts.

More Information on Taxes:

Estonian Tax and Customs Board: www.emta.ee

Law Office Raidla & Partners: Roosikrantsi 2, 10119 Tallinn, Tel: +372 640 7170 www.roschierraidla.com

PricewaterhouseCoopers AS: Pärnu mnt. 15, 10141 Tallinn, Tel: +372 614 1800 www.pwc.ee

KPMG Baltics AS: Narva mnt 5, 10117 Tallinn, Tel: +372 626 8700 www.kpmg.ee

Ernst & Young: Harju 6, 10130 Tallinn, Tel: +372 631 0614 www.ey.com/ee

Deloitte & Touche Audit AS: Maakri 23, 10145 Tallinn, Tel: +372 640 6500 www.deloitte.com

Luiga Mody Hääl Borenius: Pärnu mnt 15, 10141 Tallinn, Tel: +372 665 1888 www.lmh.ee