| Estonia Income Tax Estonia Personal Income Tax rates for 2008 and 2009 are:
Income of the year 2008 - 21%
Income of the year 2009 - 21%
In Estonia, annual basic exemption (non-taxable amount) per year is:
Income of the year 2008 - 27 000 EEK
Income of the year 2009 - 27 000 EEK
Tax Base Residents pay tax on their worldwide income. Taxable income includes, in particular, income from employment (salaries, wages, bonuses and other remuneration); business income; interest, royalties, rental income; capital gains; pensions and scholarships (except scholarships financed from state budget or paid on the basis of law) and alimony payments received. Taxable income does not include dividends paid by Estonian or foreign companies when the underlying profits have already been taxed.
Unilateral relief for double taxation in respect of income derived from abroad is available in the form of ordinary tax credit with per country limitation. The credit is limited to the Estonian tax computed on the item of income. Moreover, double taxation of employment income is avoided by way of exemption method if all the following conditions are fulfilled:
1. the person has stayed in the foreign state for the purpose of employment for at least 183 days over the course of a period of 12 consecutive calendar months;
2. the specified income has been the taxable income of the person in the foreign state and if this is certified and the amount of income tax is indicated on the certificate (even if the amount is zero).
Non-residents pay income tax on their income from Estonian sources as listed in the Income Tax Act. Income taxable in Estonia includes income from employment or government services provided in Estonia; income from a business carried on in Estonia; part of interest received from Estonian sources that is above market conditions; royalties arising in Estonia; certain types of capital gains; gains from disposal of assets located in Estonia; directors' fees paid by Estonian enterprises; and income of a sportsman or an artiste from his activities in Estonia, pensions, insurance payments. Tax Exemptions The basic exemption for resident individuals is EEK 27 000 (EUR 1726) in 2009. The basic personal allowance will be increased to EEK 30 000 (EUR 1917) in 2010, EEK 33 000 (EUR 2109) in 2011 and EEK 36 000 (EUR 2301) as of 2012. The following income of resident individuals is not subject to tax: certain capital gains; scholarships paid on the basis of law; fringe benefits (taxable at the level of employer); per diem and accommodation reimbursements for business trips; compensation for the use of private vehicles; insurance proceeds and other payments received under insurance contracts; child allowances and other subsidies and compensation paid from the State, local, or Social Insurance budgets; inheritances and gifts received; gains from the alienation of assets returned in the course of property reform; and lottery winnings; compensation prescribed by law or established by the Government of the Republic of Estonia and international cultural and scientific awards and prizes; expropriation payments and compensation received for expropriation.
Income of the following persons is not subject to tax in Estonia: foreign diplomatic representatives, consular representatives, special or diplomatic missions, representatives of international or intergovernmental organisations and co-operation programs exercising their official functions in Estonia, plus persons employed with them who are not citizens or permanent inhabitants of Estonia. The above-mentioned persons, with the exception of the members of representations of co-operation programs, must be registered in the Ministry of Foreign Affairs.
Taxable income derived by a self-employed person from the realisation of self-produced, unprocessed agricultural products up to the amount of EEK 45,000 is not subject to income tax. Tax Rate Structure The tax rate for the years 1994-2004 was 26 per cent, for 2005 – 24 per cent, for 2006 – 23 per cent, for the 2007 – 22 per cent, for 2008 and 2009 – 21 per cent of the taxable income. From 01.01.2010, the general tax rate is 20 per cent and will decrease by 1 per cent per annum to 18 per cent by 2012. The withholding tax rate on royalties, payments to non-residents for services provided in Estonia, and on payments to non-resident artists and sportsmen is 10 per cent. The withholding tax rate for certain pensions is also 10%. The period of taxation is a calendar year.
Employment income is subject to a withholding tax at the general rate of 21 per cent. The withholding agent (enterprise or employer) has the obligation to remit the relevant amounts to the tax authority monthly. A taxpayer does not have to file a tax return when his annual income comprises only income on which the tax has been correctly withheld or when his annual income does not exceed the basic exemption. Otherwise, tax returns are due by March 31 of the year following the period of taxation. Tax allocation From January 1, 2004, the amount of personal income tax received by local municipalities does not depend on tax deductions anymore. Introduction of new deductions, increasing basic exemption or reducing tax rate will have an impact only on the state budget tax revenue. The amount of income tax revenue for the municipality where a resident natural person lives is calculated as 11,93% of the taxable income of the person (for 2004 the rate was 11,4%, for 2005 11,6% and for 2006 11,8%).
Decrease of the income tax and corporate tax rates in Estonia:Decrease of the income tax rate:
Until the year 2004 - 26%
Income of the year 2005 - 24%
Income of the year 2006 - 23%
Income of the year 2007 - 22%
Income of the year 2008 - 21%
Income of the year 2009 - 21%
Taxation Period: Period of taxation for natural persons is a calendar year.
In Estonia, annual basic exemption (non-taxable amount) per year is:
Income of the year 2000 - 9 600 EEK
Income of the year 2001 - 12 000 EEK
Income of the year 2002 - 12 000 EEK
Income of the year 2003 - 12 000 EEK
Income of the year 2004 - 16 800 EEK
Income of the year 2005 - 20 400 EEK
Income of the year 2006 - 24 000 EEK
Income of the year 2007 - 24 000 EEK
Income of the year 2008 - 27 000 EEK
Income of the year 2009 - 27 000 EEK
The moment of corporate income taxation is shifted until the distribution of profits in Estonia. Period of taxation for legal entities and non-residents with registered permanent establishments in Estonia is one calendar month.
Resident: A natural person is a resident if his or her place of residence is in Estonia or if he or she stays in Estonia for at least 183 days over the course of a period of 12 consecutive calendar months. A person shall be deemed to be a resident as of the date of his or her arrival in Estonia. Estonian state public servants who are in foreign service are also residents. A resident natural person shall pay income tax on all income derived by him or her in Estonia and outside Estonia.
Decrease of the corporate income tax rate in Estonia:
Until the year 2004 - 26/74 of the net amount (equals to 26% of gross profit)
Distribution in the year 2005 - 24/76
Distribution in the year 2006 - 23/77
Distribution in the year 2007 - 22/78
Distribution in the year 2008 - 21/79
Distribution in the year 2009 - 21/79
…of the net amount.
Estonia Corporate Income TaxTax BaseFrom 1 January 2000, resident companies and permanent establishments of the foreign entities (including branches) are subject to income tax only in respect of all distributed profits (both actual and deemed), including:
- dividends and other profit distributions;
- as of January 1, 2009 including liquidation proceeds and payments made on reduction of company's equity or redemption or return of shares in the amount which exceeds monetary and non-monetary contributions in the company's equity;
- gifts, donations and representation expenses; and
- expenses and payments not related to business.
Fringe benefits are taxable at the level of employer. Employer pays income tax and social tax on fringe benefits.
Rate StructureAll distributions are subject to income tax at the grossed-up rate of 21/79 of the amount of taxable payment. The transfer of assets of the permanent establishment to its head office or to other companies is also treated like a distribution. As of January 1, 2009 dividends paid to non-residents are no longer subject to withholding tax at the general rate of 21%, irrespective of participation in the share capital of the distributing Estonian company. However, various withholding taxes may still apply to other payments to non-residents if they do not have a permanent establishment in Estonia or unless the tax treaties otherwise provide.
As the tax period of corporate entities is a month, the income tax shall be returned and paid monthly by the 10th day of the following month.
As there is no need, the corporate entities are not subject to tax depreciation rules. The tax depreciation calculated under the previous income tax laws cannot be taken into account for the income tax payable after 1 January 2000. The tax losses carried forward under the previous tax laws cannot be set off or carried forward against the taxable payments under the new income tax legislation.
Estonia Value-Added Tax (VAT)The standard rate of VAT is 20%, the reduced rate is 9% and 0% in some cases.
The VAT rate is 9 per cent for:
- books (excluding books for education);
- medicinal products, contraceptive preparations, sanitary and toiletry products, and medical equipment or medical devices intended for the personal use of disabled persons within the meaning of the Social Welfare Act and specified in the list established by a regulation of the Minister of Social Affairs
- accommodation services or accommodation services with breakfast;
- periodical publications.
The VAT rate is zero for:
- exports;
- intra-Community supply;
- sea-going vessels and aircrafts used in international routes, equipment, spare parts and fuel used on such vessels or aircrafts and the repair, maintenance, chartering and hiring of or establishment of a usufruct of such vessels or aircrafts;
- goods and services supplied to passengers for consumption on board of vessels and aircrafts moving on international routes; the provision of port services to meet the direct needs of vessels navigating in international waters and the provision of navigation services and airport services to meet the direct needs of aircraft used mostly on international routes;
- goods transferred and transported to another Member State to a diplomatic representative, consular agent (except honorary consul), a representative or representation of a special mission or an international organisation or consular post of a foreign state, a special mission or Community institution or to Member State of NATO intended either for the use of the forces of other NATO Member States or of the civilian staff accompanying them, or for supplying their messes or canteens when such forces take part in the common defence effort;
- non-Community goods placed in a free zone or free warehouse under customs procedures;
- Community goods placed under tax warehousing arrangements.
In case of VAT exempted goods or services, input VAT is not deductible.
Exempted goods and services are:
- postal services
- health services
- social services
- insurance services
- services for the protection of children
- transportation of sick, injured or disabled persons
- supply of immovables
- the leasing and letting of immovables
Estonia Social TaxSocial tax rate is generally 33 per cent, in particular special cases 13 per cent of the taxable amount. Taxes are due monthly and the remittance of tax is made congruent with the remittance of withholding tax; the tax is paid by the 10th day of the following month. Taxable period for business income of sole proprietors is a calendar year, whereas quarterly advance payments of tax are due.
Tax Allocation - From January 1, 1999 the social tax payable is personalized and in making pension payments will be taken into account. Tax accrues to the budget of state health insurance fund (13%) and pension insurance fund (20%; 16% + 4% in case of persons who have joined the second pillar of the pension insurance system).
Estonia Land TaxEligibility
National land tax is paid on all land except: (1) where economic activity is prohibited; (2) land attached to buildings of diplomatic or consular missions of foreign countries; (3) cemeteries and land under churches and temples of congregations; (4) land used by foreign country or international organisation; (5) land in the use of the headquarters of allied forces. In addition, local land tax is not paid on land in municipal ownership or land in public use based on the decision of the local authority.
Tax Base
Taxable value is determined by Law on Land Value.
Exemptions
There are exemptions, which are following:
1. The rate of land tax for areas under cultivation used for the production of agricultural products and for natural grassland is 0,1 to 2,0 per cent of the assessed value of the land annually.
2. Recipients of pensions and persons who were repressed by Soviet authorities may be exempted from the obligation to pay land tax on up to 0,1 hectares in cities and 1,0 hectare in rural municipalities on the condition that the applicant for the tax exemption uses the land for living and does not receive rent on the basis of the right of use of land.
Tax Rates
Land tax rate is 0,1 - 2,5 per cent of taxable value. Land where economic activity is restricted by law is either exempted from tax completely or by 50% of the standard tax rate, depending on the nature of restriction. Tax is paid 3 times a year on the 15th of April, July, and October.
Tax Allocation
The tax accrues wholly to local budgets of the cities and rural municipalities. The tax is administered by the Estonian Tax and Customs Board.
| 
