Taxes In A Nutshell 2018 Estonia
EUROPEAN LAW FIRM OF THE YEAR Awarded by The Lawyer
TAXES IN A NUTSHELL 2018
ESTONIA
Effective 1 January 2018
BASIC TAX FACTS ABOUT ESTONIA
Corporate income tax Standard tax rate Special rates
CIT system
Losses carry-forward Dividend participation exemption Holding regime Double-taxation treaties Reporting VAT Standard tax rate Special tax rates VAT threshold - general VAT threshold distant sale Reporting Personal income tax Standard tax rate Special tax rates
Social security contributions
Real estate tax Standard tax rate
Notary's fees on transfer of real estate Tax audits Limitation periods Binding advance ruling Availability On transfer pricing
State fee
Right of appeal
Taxes In A Nutshell 2018 Estonia
20% (net / 0.8*0.2) 14% (net / 0.86*0.14) on regular dividend payments Deferred CIT falls due only if certain payments are made by the corporate tax payer. Exception: quarterly advance CIT payments for credit institutions and branches of foreign credit institutions Unlimited 10% holding No special regime 58 Monthly (10th day)
20% 9% EUR 40,000 EUR 35,000 Monthly (20th day)
20% Business income on business account 20% or 40% (final tax)
Social tax 33% Unemployment insurance 0.8 + 1.6% Pension 0% / 2%
0.1%-2.5% (based on the cadastral value of land excluding buildings) Fees depend on transaction value (eg notary's fee on value of EUR 200,000 is EUR 313)
3 years (5 years when intentional non-payment)
Yes No EUR 1,180 (corporate) EUR 300 (individual) No
Taxes In A Nutshell 2018 Estonia
ESTONIAN TAX SYSTEM
CORPORATE INCOME TAX (CIT)
Resident companies pay CIT on a deferred basis on profit distribution, non-business expenditure, fringe benefits and gifts. Business income earned (including interest, royalties and inbound dividends) is not taxed on receipt. Reinvested profit is not CIT-taxable. This leads to an unlimited carry-forward of losses and unlimited depreciation for tax purposes. Similar tax treatment applies to permanent establishments of foreign entities (including branches).
Dividends received by a company can be distributed without further tax liability, provided a 10% shareholding requirement is met. Dividends received must be subject to tax abroad if received outside the EU.
Reduced CIT rate of 14% applies to regular dividend payments. The amount of dividends subject to the reduced rate is the arithmetical average amount of dividends paid within the last three years. An additional 7% personal income tax applies to dividends subject to 14% when distributed to a natural person but no additional CIT is applied when dividends
CIT 20% Dividend EUR 1,000 YEAR 1
CIT 20% Dividend EUR 5,000 YEAR 2
CIT 20% Dividend EUR 6,000 YEAR 3
EUR 4,000 CIT 14%
EUR 3,000 CIT 20%
Divided EUR 7,000
YEAR 4
are distributed to a corporate entity. Liquidation proceeds, capital reduction payments, and share buy-backs exceeding capital contributions are taxable at
the company level. Payments not exceeding capital contributions are not CIT-taxable. No traditional thin capitalisation rules, meaning substantial debt financing at market rate interest is tax-neutral. Transfer pricing methods in use: comparable uncontrolled price, resale price, cost plus, profit split, transactional net
margin or any other sufficiently substantiated method. Other methods can be used when justified. Threshold for mandatory documentation 250 employees / turnover EUR 50 million, consolidated balance sheet of EUR 43 million. Capital gains derived by a non-resident from sale of Estonian real estate or shares in and liquidation proceeds of "real estate companies" (50% of the assets at some point in time within the last two years) are subject to 20% income tax in Estonia. No capital gains in Estonia if a non-resident sells their shareholding in a non-real-estate company. All tax compliance can be done electronically through the e-Tax Board web page accessible with an Estonian ID card (issued to Estonian residents and e-residents).
VALUE ADDED TAX (VAT) Special regimes apply for travel services, immovables, scrap metal, precious metal and metal products, resale of second-
hand goods, original works of art, collectors' items and antiques, electronic communications services and electronically supplied services, and cash accounting.
PERSONAL INCOME TAX
Dividends received from an Estonian company are not taxed on a personal level, except for 7% personal income tax when falling under a special regime for regular dividend payments (subject to 14% CIT).
Income tax liability on capital gains on a personal level can be postponed by making a non-monetary contribution to the equity of a company and sale of the asset by the company. Profits earned by a holding company are not taxed on receipt.
When using a registered business account (bank account), business income is subject to 20 % (sales < EUR 25,000) or 40% (sales > EUR 25,000) tax (including income tax, social tax and pension payments).
A monthly income tax allowance of EUR 500 applies regressively based on annual income.
Taxes In A Nutshell 2018 Estonia
SOCIAL SECURITY CONTRIBUTIONS Employer pays social tax of 33% from gross salary (not capped). Employer pays unemployment contribution of 0.8% and withholds employee's unemployment contribution of 1.6% from
gross salary. Employer withholds mandatory pension insurance payments 0% or 2%.
Unemployment insurance payment Social tax
0.8% 33%
Employer pays Employer pays
Pension payment
Unemployment insurance payment
Income tax Employer's taxes Gross salary, employee's taxes
0% / 2% 1.6% 20%
Employer withholds Employer withholds Employer withholds
CUSTOMS & EXCISE: Mainly based on EU law. LOCAL TAXES: Insignificant local taxes (eg advertising tax, parking fees).
Estonia Tops Tax Foundation's 2017 Tax Competitiveness Index On 31 October 2017, the Tax Foundation published its International Tax Competitiveness Index. For the fourth year in a row, Estonia holds firm to its top spot in the rankings, writes taxlinked.net. According to Kyle Pomerleau, Jared Walczak and Scott A. Hodge of the Tax Foundation, Estonia ranks highly as a result of the following factors: 1) "it has a 20 percent tax rate on corporate income that is only applied to distributed profits;" 2) "it has a flat 20 percent tax on individual income that does not apply to personal dividend income;" 3) "its property tax applies only to the value of land, rather than to the value of real property or capital," and; 4) "it has a territorial tax system that exempts 100 percent of foreign profits earned by domestic corporations from domestic taxation, with few restrictions".
Country
Overall
Estonia New Zealand Switzerland Latvia Luxenbourg Sweden Australia Netherlands Czech Republic Slovak Republic
1 2 3 4 5 6 7 8 9 10
Overall Score
100.0 88.7 85.2 85.0 82.7 81.8 76.9 77.5 74.3 74.1
The full rankings table is available here.
Corporate Tax
1 18 7 2 26 6 25 19 8 10
Cons. Tax*
10 7 1 27 5 11 6 14 32 31
Property Taxes
1 3 33 7 18 6 5 24 10 2
Individual Taxes
7 1 4 6 13 22 11 14 3 5
Int'l Tax Rules
7 15 9 5 2 8 17 1 10 27
Taxes In A Nutshell 2018 Estonia
Sorainen offers expertise in all key tax and customs areas in the Baltic States and Belarus, including:
tax and customs advice and optimisation: - advance ruling requests; - transfer pricing compliance; - local and cross-border mergers; - managing the "effective tax rate"; - market entry strategies and structuring, focusing on the new Baltic holding opportunities; - permanent establishment risks; - input VAT deductibility optimisation; - special economic zones and free ports;
tax and customs disputes at all levels;
tax due diligence and local tax compliance reviews.
Cooperation partner of WTS, a global network of consulting firms represented in some 100 countries Member of Transfer Pricing Associates Global
For tax updates in the region follow us on Twitter twitter.com/Sorainen_tax and visit Sorainen Tax on Facebook facebook.com/SorainenTax.
ESTONIA
ESTONIA
ESTONIA
ESTONIA
Allar Jks Partner
phone +372 6 400 967 allar.joks@sorainen.com
Krt Kelder Of Counsel
phone +371 51 992 228 kart.kelder@sorainen.com
Kaido Knnapas Senior Associate
Paul Knnap Counsel
phone +372 6 400 923
phone +372 6 400 917
kaido.kunnapas@sorainen.com paul.kunnap@sorainen.com
LATVIA
LITHUANIA
BELARUS
Jnis Taukacs Partner, Regional Head
Saul Dagilyt Partner
Viktar Strachuk Counsel
phone+371 67 365 019
phone+370 52 639 803
phone +3375 17 306 2102
janis.taukacs@sorainen.com saule.dagilyte@sorainen.com viktar.strachuk@sorainen.com
Please note that Sorainen Taxes in a Nutshell is compiled for general information only, free of obligation and free of legal responsibility and liability. It was prepared on the basis of information publicly available on 1 November 2017. This publication does not cover all laws or reflect all changes in legislation, nor are the explanations provided exhaustive or free from exceptions. Therefore, we recommend that you contact Sorainen or other legal adviser for further information.
ISO 9001 certified www.sorainen.com
SORAINEN 2018 All rights reserved
