Taxes in Estonia
The Baltic Sea region is the fastest growing economic region in Europe. The trade flows between the states of this region increase steadily from year to year. The Estonian tax system is considered to be one of the most liberal tax systems in the world. In 2000, Estonia carried out a comprehensive tax reform with the aim of making the tax system as simple, understandable and convenient as possible. The main advantage of Estonia is the low tax system, which can be described as a simple system with no hidden surprises, and which is essentially set up to promote the economy and increase profits.
Estonia's taxation system includes state taxes set by tax legislation and local taxes levied by local governments or city councils in the respective territories in accordance with laws and regulations.
The state taxes are as follows:
Heavy goods vehicle tax.
As a result of the reforms, the main benefit for entrepreneurs was corporate tax exemption on reinvestment of profits. Thus, Estonian companies only have to pay income tax on their distributed profits, namely dividends. Corporate income tax (tax on distributed profits) is 21% of gross dividends.
This taxation system differs conceptually from the classic income tax system, as the tax is levied on distributed profits (including hidden distributed profits) instead of on corporate profits.
Value Added Tax (VAT)
Companies subject to VAT are those whose taxable performance (excluding imports) does not exceed EUR 16,000 in a calendar year. The tax is levied on transactions in goods and services in Estonia and on the importation of goods. The tax rate is 20% of the taxable value.
The tax period is one calendar month, VAT must be paid into the state budget by the 20th of each month. The tax is paid in full to the state budget.
The companies are registered by the tax and customs authorities, which also manage VAT on domestic goods and services.
Personal income tax
In 2010, the tax rate is 21 % of taxable income, and residents must pay the tax on their income received both inside and outside Estonia. The taxable income includes the income from employment (salary, wage, bonus and other remunerations), business income, interest, royalties, rent, capital gains, maintenance support, pensions, scholarships (except for scholarships paid from the state budget or pursuant to law).
This tax is imposed to ensure state pensions and health insurance. It is paid by legal persons, natural persons and non-residents with regular income. The tax rate is 33 % of the taxable amount. The tax must be calculated monthly, and a corresponding amount of money must be transferred no later than by the tenth day of each month.
Since 1 January 1999 the social tax payments have been personalised, and they form pension funds which will be considered in each specific case. The tax is accumulated in a special account of health and pension insurance funds within the state budget.
In Estonia, the excise duty is levied on tobacco, alcohol, fuel, packaging and vehicles.
The excise duty helps to control the amount of a specific product or provision of a specific service seeking to adjust the consumption of domestically sold goods.
Like value added tax revenues, also excise duty revenues are affected by changes in domestic demand, increase in imports of excise goods, as well as changes in excise duty rates.
The gambling tax is levied on income from games of skill, totalisators, betting and lotteries, as well as gambling tables and machines used for organising games of chance in licensed places. The tax is based on payments out of which the winnings are paid. The taxable period for organising lotteries, games of chance and skill is one calendar month. The taxable period for totalisators is the period during which the betting is organised (it must be within the same financial year).
Tax rates are the following:
EUR 447 per one gambling machine;
EUR 1278 per one gambling table.
The tax rate on betting is 5 %, on totalisators - 5 %, on games of skill - 18 %, and on lotteries - 18 %.