Estonia

Local time: :
Tax Policy

TAX POLICY

Income Tax Rate 21%

Corporate Tax Rate 21%

Sales Tax / VAT Rate 20%

Individual Income Tax

2010 tax rate for individuals in Estonia is a flat 21%.

Basis – Residents are taxed on their worldwide income. Nonresidents pay tax only on income received from Estonian sources.

Tax Deductions and Tax allowances – The first EEK 27,000 is tax exempt. Deductions include maintenance support paid, interest on a residential mortgage, training expenses (including those of dependents), donations to non-profit associations (up to 5% of taxable income) and voluntary pension insurance payments (up to 15% of taxable income).

Tax Rates – The 2010 tax rate is a flat 21%.

Other taxes on individuals:

Capital duty – No

Stamp duty – Stamp duty in insignificant amounts may apply on certain transactions (e.g. real estate transactions).

Capital acquisitions tax – No

Real property tax – No

Inheritance/estate tax – No

Net wealth/net worth tax – No

Social security – Social security is an employer-borne cost, except for the selfemployed. The combined social and health insurance rate paid by employers on cash and in kind (fringe benefits) employee remuneration is 33%.

Administration and compliance:

Tax year – Calendar year

Tax Filing and Tax payment – Tax on employment income is withheld by the employer and remitted to the tax authorities. The tax return must be submitted by 31 March and tax paid by 1 July of the following year. If a person has declared capital gains, the deadline for any additional income tax payable would be 1 October instead of 1 July.

Tax Penalties – A penalty is levied on late tax payments at a rate of .06% per day.

Corporate Income Tax

Estonia corporate tax rate is 21% on the gross profits distributed, or 21/79 % (approximately 26.6%) on the net amount of the dividend distributed to the shareholders. Although the tax applies like a withholding tax on the recipient of the dividend it is, strictly speaking, a tax on the company. Estonian resident companies are liable for corporate income tax on their worldwide income. Corporate income tax is not levied when the company makes profits but when those profits are distributed to the company's shareholders.

Taxable income – Estonia levies a distribution tax (in lieu of an annual corporate tax) on a company's profits. Profit distributions may be specific (i.e. dividends, share buy-backs or profit distributions via capital reductions) or deemed (which include expenditure and payments unrelated to business activities, as well as gifts and donations).

Taxation of dividends – The distribution tax applies to dividends and is paid by the resident legal person making the distribution. A similar regime applies to an Estonian permanent establishment of a nonresident. Based on the decision of the European Court of Justice in the Burda case, Estonia may continue to impose the corporate tax on distributed profits. There is no separate dividend withholding tax.

 Capital gains – Capital gains are treated as ordinary income of Estonian resident companies, but they are taxed only where there is a profit distribution.

Losses – No

Tax Rate – The distribution tax is levied at a rate of 21/79 of the net amount (21% of the gross amount) of the profit distribution made in 2010.

Surtax – No

Alternative minimum tax – No

Foreign tax credit – As from 1 January 2009, a foreign tax credit is available for all types of foreign-source income unless the Estonian participation exemption applies.

Participation exemption – The distribution tax will not be charged if underlying dividends are received from a subsidiary that is tax resident in an EEA member state or Switzerland and the Estonian parent holds at least 10% of the shares or votes of the payer company. The participation exemption also applies to dividends received from other countries if the Estonian company holds at least 10% of the shares or votes and income tax has been paid on the underlying share of profit or income tax on the dividends has been withheld in a foreign state.

Holding company regime – No

Tax Incentives – No tax incentives.

Withholding tax:

Dividends – As from 2009, there is no dividend withholding tax.

Interest – Interest paid to a nonresident company and significantly exceeding the market interest rate is subject to taxation at a rate of 21% on the difference between the actual interest rate charged and the market rate. Otherwise, interest is generally exempt from withholding.

Royalties – A 10% withholding tax applies to royalties paid to nonresidents. Royalty payments to qualifying EU companies may be exempt if they meet the requirements for the EC interest and royalties directive. The withholding tax exemption will not apply to any part of the royalty that exceeds the value of similar transactions carried out between unrelated persons.

Branch remittance tax – No

Other taxes on corporations:

Capital duty – No

Payroll tax – Both the employer and the employee must contribute to unemployment insurance. As from 1 August 2009, the employer contributes 1.4% and the employee 2.8% of taxable remuneration.

Real property tax – An annual municipal land tax is imposed on the assessed value of land and is paid by the owner or the user of land at rates ranging from 0.1%-2.5% (see under "Transfer tax").

Social security – The combined social and health insurance rate paid by the employer on cash and in kind (fringe benefits) employee remuneration is 33%.

Stamp duty – Stamp duty in insignificant amounts may apply.

Transfer tax – No

Other – Excise duties include those levied on fuel, motor vehicles, packaging, alcohol, tobacco and electricity.

Administration and compliance:

Tax year – Given the nature of the distribution tax, the relevant taxable period is the calendar month.

Consolidated tax returns – Consolidated returns are not permitted; each company must file a separate return.

Tax Filing requirements – Tax filing and tax payment must be made monthly by the 10th day of the calendar month following the month of taxation. For non-VAT registered taxpayers, filing is required only if distribution tax is due for the period.

Penalties – A penalty is levied on late tax payments at a rate of .06% per day.

Rulings – For non-transfer pricing issues, advance rulings are available and are binding on the tax authorities.

Value-Added Tax (VAT)

The standard rate of VAT in Estonia is 20%.

Taxable transactions – VAT is levied on the sale of goods and the provision of services within Estonia, intra-Community acquisitions of goods, the import of goods and the provision of services that are taxable in Estonia and supplied by a foreign taxable person.

Estonia VAT Rates – The standard VAT rate increased from 18% to 20% on 1 July 2009. A reduced rate of 9% is available on such items as books, newspapers, medicines and accommodations. Zero-rated items include exports, intra-Community supply of goods, sale of certain services to foreign persons and goods supplied on board vessels and aircrafts. Exemptions are provided for postal, health, social and insurance services, as well as services for the protection of children and young persons; the supply, letting and leasing of immovable property; and transportation of sick, injured or disabled persons.

VAT Filing and payment – Filing and payment is made on a monthly basis by the 20th day of the following month. EC Sales Lists are to be submitted quarterly – by the 20th day of the month following the reporting period.