Taxes in Estonia
Updated in February 2022.
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).
Amount of annual tax-free income 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.
Also, as the annual tax-free amount is depending on the overall total amount of taxable income, it may be that employee has to submit income tax return in order for to apply the final tax free amount and get a possible refund of the overpaid income tax withheld or to pay any additional income tax due, because it was not possible to take all the information into account at the moment of payment of the taxable income. You can read more about calculation of tax-free amount here
When you log in to the e-services of the Estonian Tax and Customs Board, you have the possibility to check the usage of the tax-free amount and also all taxes paid on your employment income. Please be informed that there is a time lag, as the information on salaries received in November for work done in October will be available since 10 December. It is important to have a look at the information, for example because it may be needed to change the application the employee has submitted to the employer about calculation of basic exemption upon monthly payment.
You’ll also have deductible expenses, such as:
– housing loan interest,
– training expenses,
– gifts and donations,
– pension contributions,
– deductions for children,
– unemployment insurance contributions.
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 30 April.
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).
- tax free amount not applied in the amount allowed by the Estonian Tax and Customs Board, because of what any additional income tax has to be paid or overpaid income tax has to be refunded or
- 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, foreign income or other taxable income, on which no Estonian income tax has been withheld).
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%.
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.
A reduced tax rate (14/86) applies to part of dividends paid by the Estonan resident company regularly. The natural person receiving such dividends taxed at a reduced rate (14/86) in the hands of the Estonian company or a permanent establishment of a non-resident company, has to pay income tax at a rate of 7% in addition. It has to be withheld by the payer.
A non-resident natural person has to pay income tax on dividends received from the Estonian company in the resident country also and he or she cannot take into account the corporate income tax (20/80 or 14/86) paid in Estonia by the Estonian resident company to avoid double taxation of the recipient. Only the income tax withheld at a rate of 7% may qualify to avoid double taxation of the natural person recipient.
The implicit way to distribute profits is to do that through fringe benefits, gifts and donations, as well as expenses and payments unrelated to business activity.
All of these profit distributions are taxed at a rate of 20/80.
Hence, there is no obligation to submit a tax return annually by the Estonian company or a permanent establishment of a non-resident, regardless of profits or losses. Income tax is assessed monthly (Form TSD with Annexes), thus taxable amount must be declared monthly (10th day of the month following the payment) whenever profits are distributed or other taxable expenses are incurred.
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%.
FAQ - Frecuently Asked Questions
- How does the process of becoming a FIE work?
Sole proprietor (FIE) providing services in Estonia must be entered in the commercial register. Registered FIE may deduct documented expenses directly related to the business from taxable business income. Sole proprietor must submit tax return every year, no matter if there has been any profit earned. Sole proprietor has to pay advance social tax and income tax payments during a year.
If a sole proprietor is registered in Estonia, it is accompanied by a commitment to pay advance payments of social tax 4 times a year. The size of advance payment actually does not depend on the size of income, it is set each year with the state budget. Thus, there is always a minimum obligation for social tax to be paid, even if there was no profit earned.
- How to open a company in Estonia without the owner becoming a resident?
The company registered in Estonia is the Estonian tax resident, that means it has to follow the Estonian rules of tax declaration and accounting. The owner of the company is a separate taxpayer with its own status of tax residency. But if the only or all owners of the company is not present in Estonia, acting only outside of Estonia, tax obligations of the Estonian resident company may arise mainly in the country where the actual activity is situated. Because in taxation, tax residency is not the only criteria in deciding where is the profit taxable, the country where the business is actually done has also right to tax the business profit and other income derived while acting permanently in their territory.
- How is the corporation tax calculated/formulated?
The system of corporate taxation in force currently in Estonia is a unique system, which shifts the moment of corporate income taxation from the moment of earning the profits to the moment of their distribution.
There are two types of profit distribution possible – an implicit and an explicit way.
The explicit way stands for dividends and other profit distributions.
Payments upon proceeds from liquidations, payments upon capital reductions and redemption or return of participation in a company are generally subject to corporate income tax in the hands of the payer at the moment of distribution.
The resident legal person and the non-resident legal person acting through its permanent establishment registered in Estonia carrying out profit distribution has to pay income tax of the amount of profits distributed.
The Estonian company pays corporate income tax at the moment of payment, while tax rate is calculated from net amount, 20/80 of the payment. The company income tax rate is the rate of 20% as in the provisions for the taxation of salaried work payments. The difference is that 20% is applied to gross payments and 20/80 is applied to net payments.
No income tax is withheld from income of the dividend recipient generally.
A reduced tax rate (14/86) applies to part of dividends paid by the Estonian resident company regularly. The natural person receiving such dividends taxed at a reduced rate (14/86) in the hands of the Estonian company or a permanent establishment of a non-resident company, has to pay income tax at a rate of 7% in addition. It has to be withheld by the payer.
A non-resident natural person has to pay income tax on dividends received from the Estonian company in their resident country also and he or she cannot take into account the corporate income tax (20/80 or 14/86) paid in Estonia by the Estonian resident company to avoid double taxation of the recipient. Only the income tax withheld at a rate of 7% may qualify to avoid double taxation of the natural person recipient.
The implicit way to distribute profits is to do that through fringe benefits, gifts and donations, as well as expenses and payments unrelated to business activity.
All of these profit distributions are taxed at a rate of 20/80.
Hence, there is no obligation to submit a tax return annually by the Estonian company or a permanent establishment of a non-resident, regardless of profits or losses.
Income tax is assessed monthly (Form TSD with Annexes), thus taxable amount must be declared monthly (10th day of the month following the payment) whenever profits are distributed or other taxable expenses are incurred.
The tax return on form TSD (declaration of income and social tax, unemployment insurance premiums and contributions to mandatory funded pension) must be submitted in case of taxable event, by the 10th day of the following month after the payment. The form is used both for declaration of income tax payable by the Estonian company and of taxes paid or withheld from taxable income of the recipient by the payer. It may be, depending on the circumstances, there is an obligation to submit tax return TSD even in case there is no taxable event, just to give information about payments and exemptions.
The annual report of the Estonian company is to be submitted to the commercial register, where the information is entered online and made accessible to the tax administration.
- What is the annual accountants fee to submit tax returns to the government?
Government services are free of charge in Estonia. Tax administration does do the best to make declaration procedure easy and understandable. Most of tax calculation is done by computer software, while you log in to the e-service of the Tax and Customs Board. Lots of information and guidance is available online, mostly translated into English and Russian.
Should you like to hire a private accountant, you have to pay a fee.
- As a business owner, are there any additional taxes that I should be aware of?
Company has an obligation to withhold income tax on payments taxable to the recipient and pay social security taxes on payments made to natural person employee or service provider.
If a non-resident natural person receives employment income from an Estonian resident company, from work done while staying in Estonia, the income will be taxable by employment taxes in Estonia. If and when the work is done outside Estonia, employment income of an e-resident as a non-resident will not be taxable in Estonia.
In Estonia, employer has the main obligation to declare and pay all taxes from wages and other employment income at the moment of payment already. Usually the employee only has to submit tax return to get refund because of additional allowances available for the whole income of a calendar year.
In case of fees to a member of the management or controlling body, income is taxable in Estonia, no matter if the recipient is resident or non-resident and if work is done in Estonia or outside.
An Estonian entrepreneur (a company or sole proprietor registered in Estonia) is not automatically treated as a taxable person for VAT purposes. If an Estonian entrepreneur actually does not have any business in Estonia, it has in Estonia neither taxable supply nor other transactions which are taxable with VAT in Estonia (for example, intra-Community acquisition of goods where the goods are transported from the other EU Member State to Estonia) – in such case, as a rule, the entrepreneur shall not be registered in Estonia for VAT liability. If an undertaking is registered in the Estonian Commercial Register, but performs in the course of business activities only transactions, taxable with VAT in a foreign country – such undertaking must contact with the tax authority of correspondent foreign country and find out its VAT obligations in that foreign country.
Please do find additional information about taxation from website of the Estonian Tax and Customs Board. There may also be taxes depending on your type of business and property, for example land tax, state fees, heavy goods vehicle tax etc.
- If I live in Estonia, but work for EU company, how do I have to pay the Estonian taxes?
Estonian resident natural person has to pay income tax in Estonia from income received in Estonia and outside of it, no matter if the foreign country is a member of EU or a third country. If the income is received from abroad, the income has to be filled in to the tax return by taxpayers and pay tax due themselves. Any possible double taxation is avoided, but taxpayers have to have documents about income received and taxes paid abroad.
Tax residency and rules of avoidance of double income taxation may depend on the fact if Estonia has a convention for avoidance of double taxation concluded (tax treaty) with the other country.
In case of a tax treaty in force, the other country cannot assess income tax on payment received as an employment income of the Estonian resident, if the work has been done in the Estonian territory.
You can find the list and texts of tax treaties in Estonian and English languages here:
https://www.rahandusministeerium.ee/et/topeltmaksustamise-valtimise-lepingud
It is preferred that the (non-resident) employer declares payments made and pays taxes, being registered beforehand, you can read about it here
The employee submits tax return once a year and fills in income on which no income tax has been withheld and pays any additional amount of income tax to the Tax and Customs Board.
Please do get more information from the website of the Estonian Tax and Customs Board.
- If I have lived in Estonia and paid the local taxes, what happens if I move to another EU country? When will my tax residency change?
If and when you move, leave or arrive Estonia, you should submit application form R to the Estonian Tax and Customs Board, in order to determine your tax residency. Tax residency in Estonia may change from the date of your move, depending on the circumstances. It is possible that you have to declare taxes in both countries for the year of move, but usually double taxation can still be avoided. You can get more information from here https://www.emta.ee/en/private-client/e-resident-non-resident/residency/determination-residency.
- If I live in Estonia, but work for a third country company, how do I have to pay the Estonian taxes? When will my tax residency change?
The income taxation is generally not different for income from third country. The important difference is in assessment of social security taxes. Estonian resident natural person has to pay income tax in Estonia from income received in Estonia and outside of it, no matter if the foreign country is a member of EU or a third country. Tax residency may depend on the fact if Estonia has a convention for avoidance of double taxation concluded (tax treaty) with the other country. You can find the list and texts of tax treaties in Estonian and English languages here:
https://www.rahandusministeerium.ee/et/topeltmaksustamise-valtimise-lepingud
It is preferred that the employer declares payments made and pays taxes, being registered beforehand, you can read about it here
The employee submits tax return once a year and fills in income on which no income tax has been withheld and pays any additional amount of income tax to the Tax and Customs Board.
Please do get more information from the website of the Estonian Tax and Customs Board.
- What is the best way to get my salary to my bank from a foreign company? For instance I use a entrepreneur account in LHV Bank.
In case of a normal employment income or business profit, you cannot use the entrepreneur account. The last is an option in case of occasional business income or to be socially secured should your non-resident employer refuse to be registered as a non-resident employer in Estonia.
- I am a freelancer, how do I have to pay Estonian taxes?
You have an option to enter in the commercial register as a sole proprietor (FIE) or establish the Estonian company. You can read more from here https://www.emta.ee/en/private-client/taxes-and-payment/taxable-income/business-income-and-entrepreneur-account#benefit
- What is the best place to get myself acquainted to the Estonian tax laws?
Lots of information is available on website of the Estonian Tax and Customs Board, most of it has been translated into English and Russian.