Taxation in Estonia

Taxation in Estonia

Another reason to work and do business in Estonia is the fact that it has one of the most flexible taxation laws in the European Union as well as the rest of the world. The 0% tax on retained and reinvested profits alone has got local and foreign investors on a rat race trying to squeeze their way through immigration just so they can have a piece of that proverbial “pie” of the Estonian economy. But there are more tax benefits from Estonian company that any investor could enjoy if he decides to
start a business in Estonia that are just too good to ignore.

Taxes in Estonia

  1. Corporate Income Tax
  2. Labour Tax
  3. Value Added Tax (VAT)
  4. Personal Income Tax

Corporate Income Tax – 0% tax in Estonia!

As stated above there is no more corporate income tax on retained and reinvested profits, which means that local and foreign companies alike no longer have to pay this kind of tax to the Estonian government. Only distributed profits will be taxed at the amount of 20% of the net
(both actual and deemed).

What means “distributed profits” ?

  • Distributed corporate profits during tax period
  • Gifts, donations and representation expenses
  • Payments and expenses that are not connected to the business
  • Asset transfers of the business entity that has a permanent establishment in Estonia
  • (local or foreign) to its head office or to different companies

Labour Tax

Labour taxes also called social taxes is 33% of the total the share of labour costs attributable to
income taxes and social-security contributions minus cash benefits. It is divided into 2 parts one
being the social security (20% of the labour tax goes here) and health benefits (13% of the
labour tax is allocated to this as well). Estonia also levies an unemployment tax to businesses at
0.8% is paid on the gross salary. The government also withholds an additional 1.6% tax from
the employee’s wages.

Value Added Tax

The standard VAT rate is 20% for a business or a taxable person (if
your business is just a sole proprietorship), then it can be reduced to 9% depending on the circumstances of your acquisition of goods.

E-Tax System

The e-Tax System is not a form of tax law but just a means to easily and efficiently file your
taxes on an electronic platform on the internet. In fact, 95% of all taxes in Estonia are declared
online which makes government transactions from their agency that handles the taxes of
Estonia get processed smoothly.

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