Tax system and administration
Considerations for the investor:
- Main principles of Estonian tax policy: simple tax system, broad tax base and low rates.
- Flat income tax rate since 1994 (flat income tax rate at 20% applies to both individuals and companies, there is a reduced rate of 14% available for companies making regular dividend distributions under certain conditions).
- Unique corporate tax system since 2000: all undistributed corporate profits are tax-exempt.
- Local taxes play an insignificant role in the Estonian tax system.
- Estonia operates a self-assessment system.
- The Government’s intention is to improve tax administration (electronic tax administration is well established).
The structure and basis of the tax system are set out in the Law on Taxation.
The existing state taxes are:
- Income tax (corporate and personal);
- Social tax;
- Land tax;
- Gambling tax;
- Customs duty;
- Excise duties (alcohol, tobacco, fuel, some packaging materials and electricity);
- Heavy load vehicles tax.
Currently, Estonia does not impose any gift or estate taxes. Various transactions subject to registration with the authorities are liable to payment of a state fee (stamp duty).
Employers and employees must also make mandatory unemployment contributions and compulsory accumulative pension contributions to the state budget.
As permitted by the Law on Local Taxes, a few municipalities have introduced the following local taxes:
- advertisement tax;
- road and street closure tax;
- motor vehicle tax:
- animal tax;
- entertainment tax;
- parking charges
Corporate Income Tax
- All undistributed corporate profits are tax-exempt.
- The period of taxation is a calendar month.
- Corporate income returns are due by the 10th day of the month following the taxation period
All undistributed corporate profits are tax-exempt. This exemption covers both active (e.g. trading) and passive (e.g. dividends, interest, royalties) types of income, as well as capital gains from sales of all types of assets, including shares, securities and immovable property. This tax regime is available to Estonian companies and permanent establishments of foreign companies that are registered in Estonia.
Corporate profits are not taxed until the profits are distributed as dividends, share buy-backs, capital reductions, liquidation proceeds or deemed profit distributions, such as transfer pricing adjustments, expenses and payments that do not have a business purpose, fringe benefits, gifts, donations and business entertainment expenses.
Estonian resident companies and permanent establishments of foreign entities (including branches) are subject to income tax only in respect to all distributed profits (both actual and deemed), including:
Estonian Tax and Customs Board: www.emta.ee
Ministry of Finance: www.fin.ee
Ellex Raidla: www.ellex.ee
KPMG Baltics: www.kpmg.ee
Ernst & Young: www.ey.com/ee
Deloitte Eesti: www.deloitte.ee
BDO Eesti: www.bdo.ee
Rödl & Partner: www.roedl.ee
Source: Doing Business in Estonia 2019