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.
Residence - An individual is a resident if his/her place of residence is in Estonia or if he/she stays in Estonia for at least 183 days over 12 consecutive calendar months (and will be deemed to be a resident as of the date of his/her arrival in Estonia). Estonian state public servants who are in the foreign service also are residents.
Tax Filing status - Joint filing is permitted if both spouses are residents or, subject to certain conditions, if at least one spouse is a resident of another EU member state.
Taxable income - Residents are subject to tax on such items as: employment income; business income; gains from the transfer of property dividends; interest; rent and royalties; maintenance support received, pensions, scholarships, grants, benefits, certain awards and lottery prizes; insurance indemnities and payments from pension funds; and income of a legal person located in a low-tax jurisdiction (i.e. income inclusions from CFCs). A limited list of taxable items applies to nonresidents: income from work under a labour contract or contractor's agreement in Estonia; income from a business carried on in Estonia; interest income received from Estonia (only if it is substantially higher than that on similar debt claims); royalties; income from the lease of assets located in Estonia; gains from the disposal of assets located in Estonia; directors' fees paid by Estonian enterprises; income of a sportsman or an artist from his activities in Estonia; and pensions and scholarships.
Capital gains - Capital gains are treated as ordinary income.
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.
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.
Residence - A legal person is resident if it is established pursuant to Estonian law.
European public limited companies and European associations with their registered seat in Estonia also are resident.
Basis - Residents are taxed on worldwide income, while nonresidents are taxed only on income derived from Estonian sources. This rule applies both to Estonian resident companies and to permanent establishments of foreign companies.
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.
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.
Transfer pricing - If the value of a transaction conducted between a resident legal person and a person associated with the resident legal person differs from the value of similar transactions conducted between nonassociated persons, the tax authorities may, upon determining the income (i.e. distribution) tax, use the values of transactions applied by non-associated independent persons under similar conditions. Income tax is charged either on the income the taxpayer would have derived or the expense the taxpayer would not have incurred if the transaction had been conducted with unrelated persons under similar conditions.
Thin capitalisation - No
Controlled foreign companies - Given the nature of the distribution tax, the CFC regime applies only to individuals.
Other - A general anti-avoidance rule allows the tax authorities to apply what is, in effect, an economic substance rule and special scrutiny is given to payments and fees to lowtax jurisdictions.
Disclosure requirements - No
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.
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 Registration - Registration is required of any person whose taxable supply (excluding import) exceeds EEK 250,000 in a calendar year. For a foreign person engaged in business in Estonia, the registration obligation arises as of the first date on which the taxable supply occurs.
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.
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Last Update: Nov 2010
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