Overview of Corporation Tax in Estonia [2024]
Corporation Tax Rate in Estonia
What is the Basic Rate of Corporation Tax in Estonia?
Corporation tax in Estonia is a tax imposed on the profits of companies. It is calculated based on the company’s annual taxable income. The current corporate tax rate in Estonia is 20%. In 2025 the corporate income tax will increase to 22%
The 20% corporate tax rate in Estonia is applied to the annual taxable income of companies. This tax is specifically levied on the profits generated by businesses operating in Estonia. The calculation of the corporation tax takes into consideration the company’s yearly taxable earnings.
Reduced Corporation Tax Rate
The Reduced Corporation Tax Rate in Estonia is applicable to certain companies that meet specific criteria. These companies qualify for a reduced tax rate of 14% on their taxable income, instead of the regular 20%. This is known as the 14/86 rule.
Example
| Scenario | Calculation | Amount (€) |
|---|---|---|
| Estonian company pays a dividend of 12,000 € to a shareholder | – | – |
| Taxes declared and paid by the Estonian company | 12,000 x (20/80) | 3,000 |
| Regular dividends paid to the shareholder | 12,000 x (14/86) | 1,963.77 |
| Additional personal income tax withheld (7%) | 12,000 x 0.07 | 840 |
Is Estonia 0% tax country?
In Estonia, corporate income tax is incurred by companies solely upon the distribution of profits, whether in the form of dividends or other means. This includes fringe benefits, gifts, donations, expenses related to entertaining guests, and costs unrelated to business activities
Tax Residency of a Legal Person
If you create a company in Estonia under Estonian laws, it automatically becomes a tax resident in Estonia. So, if you register your OÜ, your company is considered a tax resident in Estonia and needs to pay taxes there.
§ 6 (2) A legal person is a resident if it is established pursuant to Estonian law
Source: https://www.riigiteataja.ee/en/eli/509012020002/consolide , Income Tax in Estonia
BUT….
Some countries have different rules for deciding if a company is a tax resident. They might consider not only where it’s registered but also where it’s effectively managed. If you run your company in a country with such rules, it could end up being seen as a tax resident in two places. This means that two states may want to tax the profits of your company.
What Acts Decide About Tax Residency?
| Source of Law | Legislation | Country/Agreement |
|---|---|---|
| Local Law – Income Tax, paragraph 6 | Estonian country | Estonia |
| International Bilateral Agreement about Avoiding Tax | Relevant Bilateral Tax Agreement | Bilateral Agreements (e.g., Estonia and another country) |
Certificate of Tax Residency
The Estonian Tax and Customs Board (EMTA) issues a Tax Residency Certificate in Estonia to validate a company’s tax residency according to Estonian laws. This official document confirms the company’s tax residency status, although it’s important to consider international tax regulations that may impact your residency status.
What Expenses You Can Deduct?
If you have an Estonian company, you can deduct business expenses related to your business. This allows you to optimize your tax liabilities and ensure compliance with Estonian laws. Remember to consult international tax regulations to understand how your tax residency status may be affected.
| Category | Examples |
|---|---|
| Acquiring Fixed Assets | Land, buildings, machinery, patents |
| Renovation and Supplementation | Upgrading existing assets |
| Non-Fixed Assets | Miscellaneous property |
| Goods Acquisition | Materials, raw materials, fuel, energy |
| Services Acquisition | Facility rental charges, professional services |
| Employee Compensation | Wages, salaries, remuneration |
| Social Tax and Unemployment Insurance | Social tax on employee payments |
| Fringe Benefits | Provided benefits after taxes |
| Social Tax for Spouse | Social tax for spouse involved in the business |
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