Personal taxes: income tax and social tax
20% for everyone
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.
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
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.
The Estonian Tax and Customs Board has detailed information regarding the submission of the personal income tax return. Depending on your status, you might need to fill a form R in order to be able to get the annual personal tax return.
If you have only received income from regular employment and won’t use any deductions, you won’t have to file a return at all.
Corporations and private entrepreneurs
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.
Estonia does not have a withholding tax on dividends paid to individuals.
Value added tax/sales tax
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.
There’s also a reduced VAT rate of 9%. Some goods – like books, for example – are taxed at the rate of 9%.