Estonian taxation, taxes in Estonia

The main tax rates in Estonia

• Corporate Income tax 0%
• VAT 20%
• Social Tax 33%
• Individual Income tax 22%
• Income Tax payable on dividend 22/78
• Unemployment Tax on employee’s salary 0.5%

Additional taxation:

• Income tax on gifts and donations, representational expenses as well as other expenses not related to enterprise: 22/78
• Income tax on fringe benefits: 22/78, plus 33% Social Tax. (Fringe benefits mean, for example, payment of holiday trips or restaurant bills by the company).

In Estonia there are two main corporate taxes: income tax (tulumaks) of 0% (in some cases, 22/78) and VAT (ka"ebamaks) of 20%.

In addition to main taxes, an enterprise pays taxes connected with salary – the Individual Income tax of 22% and Social Tax of 33%. As you can see, the above taxes are related to the enterprise’s contractual employees.

In Estonia there are also different excise taxes but they are connected with specialized kinds of business activity such as import of combustive-lubricating substances, medicaments, packages, etc.

Let’s view two main taxes in details:

Income Tax of 0%.

Since 2000 Estonia has imposed a Corporate Income Tax with rate of 0%. This relates to only re-invested company’s profit, i.e. not distributed. If the company’s shareholders (owners) come to the conclusion to distribute the profit as dividends, the company pays for its shareholders an additional income tax of 22/78 (approximately, 28,2%).
Income tax on fringe benefits, which are granted to the company’s employees and connected with them persons, is levied in the similar way.
A company delivers a Report on Individual Income Tax and Social Tax to the Tax Department by the 10th date of each month.

Value Added Tax of 20%(VAT).

VAT rate is 20% in Estonia. VAT is imposed on sale of goods and rendering the services in the course of business activity in the territory of Estonia. In some cases the VAT rate is 5% (books, medicines, tickets for shows and concerts), or the rate is 0% (export of goods and services from Estonia).
If an entrepreneur renders services or sells goods outside of Estonia, a VAT is not levied as well as it’s not reflected in the Report on VAT. The special Report is to be delivered to the Tax Department by the 20th date of each month.