Taxes in Estonia
Updated in May 2019.
Personal taxes: income tax and social tax
With the 20% income tax, you can actually keep the larger portion of your salary to yourself (it’s quite a different story in the neighbouring countries of Finland and Sweden, for example).
You’ll also have deductible expenses, such as:
- housing loan interest,
- training expenses,
- gifts and donations,
- pension contributions,
- deductions for children,
- unemployment insurance contributions.
Amount of annual tax-free income for 2019 can be calculated using the calculator.
In Estonia, taxes are withheld from your gross salary by your employer on a monthly basis. This means you don’t have to make additional payments or file monthly tax returns.
Additionally, your employer is also obliged to pay the social tax of 33% from your gross salary. This is the tax for the employer: it is based on your actual gross income and not subtracted from your salary.
When your employer has registered your employment with the Employment Register and pays your social tax, you’ll automatically have social and health insurance coverage in Estonia.
Own securities without the capital gains tax
As an individual, you don’t have to report the receiving or ownership of the securities in Estonia. Capital gains tax is triggered only when you sell your securities and earn profit. Gains from transfer of securities (or other financial assets) are subject to the standard income tax rate of 20%.
Also, as a natural person you are allowed to postpone taxation of investment income by using an investment account. For that purpose, the transactions with financial assets must be made through an investment account only.
Filing the annual personal tax return online takes only 3-5 minutes
The annual personal income tax return is filed at the beginning of each year to report your previous year’s income. The deadline for the annual personal income tax return is 31 March.
Using a secure ID, a taxpayer logs onto the e-Tax system, reviews the data in pre-filled forms, makes any necessary changes, and approves the declaration form. The process typically takes three to five minutes. Even one-click tax returns are possible.
You only have to submit an income tax return if you have tax incentives (housing loan interests, training expenses, gifts, donations) to claim, or any income other than your regular job (such as foreign employment income, rental income, or profit from selling stocks).
By the way, your tax residency does not change automatically. It´s your responsibility to inform the tax authorities by submitting a Form R via email (if you have an Estonian ID-card for digital signing) or in person.
Corporations and private entrepreneurs
Estonia currently ranks first in the International Tax Competitiveness Index and enables entrepreneurs to pay Estonian taxes entirely online with minimal hassle.
The income tax rate for private entrepreneurs and corporations is 20%. There is no corporate income tax on retained and reinvested profits.
Corporate earnings taxation in Estonia is truly unique – it shifts the moment of corporate taxation from the moment of earning the profits to the moment of their distribution. This means that earning profit in itself does not trigger income tax liability. The tax obligation arises only when earnings are distributed to shareholders. If the profit distributed to shareholders originates from dividends received from a subsidiary or permanent establishment in another country, there’ll be no tax to pay on profit distribution.
Estonia does not have a withholding tax on dividends paid to individuals.
Value added tax/sales tax 20%
The value added tax/sales tax rate in Estonia is 20%. Most goods and services are taxed at 20%. VAT is always included within the price, so when you´re shopping, you won´t be hit with surprise taxes at checkout!
There’s also a reduced VAT rate of 9%. Some goods – like books, for example – are taxed at the rate of 9%.
Have questions? Book a free consultation at International House of Estonia
International House of Estonia provides free personal consultations for foreigners, their families and local employers about settling in, documentation, healthcare, language programs etc. Located in Valukoja 8, Tallinn. Book your appointment online.