Corporate Income Tax
The system of corporate earnings taxation in force currently in Estonia is a unique system, which shifts the moment of corporate taxation from the moment of earning the profits to the moment of their distribution. Distributed profits are:
- corporate profits distributed in the tax period;
- gifts, donations and representation expenses;
- expenses and payments not related to business.
All of these profit distributions are taxed at a rate of 20/80 (or 25%). Undistributed profits are not subject to tax.
Fringe benefits are taxable at the level of employer. Fringe benefits are subject to income tax of 20/80 and social tax at the rate of 33%
For the recipient, dividends are not taxable income and additional income tax shall not be withheld on the amount of dividends.
Royalties
Nonresidents are liable for income tax on profits derived from a commercial lease involving
immovable property located in Estonia or movable property entered into a register or used in
Estonia. In addition, income tax is imposed on a number of other payments, including royalty
payments for use of intellectual property rights.
Royalty payments between Estonian companies are not taxed.
When an Estonian company receives royalties abroad, withholding income tax may apply in the country where royalties are paid. That tax can be used to reduce corporate income tax liability on dividends in Estonia.
Transfer pricing rules
Transactions between related parties should be conducted on an arm’s length basis. Five transfer pricing methods are in use: comparable uncontrolled price, resale price, cost plus, profit split, and transactional net margin.
Payroll taxes
Personal income tax
The personal income tax is withheld monthly by the employer at a rate of 20% of the gross salary of the employee. The following deductions can be made – 170€ monthly basic exemption, withheld funded pension payment and withheld unemployment insurance premiums.
Social tax
The social tax is paid at a rate of 33% on all payments made to employees for salaried work performed. Employers pay the social tax in full.
Unemployment insurance premium
An unemployment insurance premium is withheld at a rate of 1,6% of the gross salary of the employee. In addition employers pay the unemployment insurance premium at a rate of 0,8% of the amount of gross salaries monthly.
Funded pension payment
A funded pension payment is withheld at a rate of 2% for the persons under the obligation, applicable only to Estonian residents.
Value Added Tax
Value-added tax (VAT) is 20% for most goods. The VAT for some goods, such as books, medicines etc., is 9%. VAT is charged on supplies of goods and services in the course of business activities and self-supply of goods and services.
Goods and services sold outside EU or to a VAT liable person in EU are taxed with 0% VAT.
The threshold for obligatory registration as a taxable person is 16000€. The taxable period is one calendar month.
Monthly reporting to the Tax and Customs Board:
Income tax, social tax, unemployment insurance premiums and funded pension payments have to be withheld, paid, declared and transferred to the Tax and Customs Board by the 10th of every month, following the month of payment.
A VAT return is filed and the VAT is payable by the 20th of the month following the period of taxation.
All tax returns should be submitted electronically through e-Tax Board/e-Customs portal