Tax system - Doing Business in Estonia
Estonia is renowned for its business-friendly environment with a simple tax system and digital-first approach to government services.
Whether you wish to launch a startup, expand your corporation through a local branch, or work here as a freelancer, Estonia offers excellent opportunities and an efficient digital ecosystem.
Here are a few reasons why Estonia is an ideal place to do business:
- A company can be established in a day through a fast and straightforward registration process.
- The minimum share capital of a private limited liability company is 0.01 euros.
- Almost all reports and applications can be easily submitted online.
- Estonia's tax system is simple, with a 0% corporate income tax on undistributed profits.
- There are very few restrictions to foreign ownership or management and foreign entrepreneurs are treated equally to Estonian citizens.
- As an EU member state, Estonia provides access to the European single market and operates under the EU legal framework.
Estonia is also an excellent base for your business, even if you don't plan to live here. With the e-Residency program, you can easily manage your company remotely from anywhere in the world. For more detailed steps on establishing a company in Estonia, please see here.
The following guide will answer common questions that may arise when conducting business in Estonia. We hope to provide an overview of the most important things to expect or keep in mind. For any specific inquiries, please contact our team of expert lawyers who are ready to assist you with any issues you may have.
Tax system
Overview of Estonia’s tax system and different taxes.
- Unique System: Estonia employs a deferred corporate tax system where profits are only taxed when they are distributed to shareholders, not when they are earned. This system encourages reinvestment into the company.
- Tax Rate: The standard corporate income tax rate is 22%, but it is calculated as 22/78 of the net distribution.
- Reinvested Profits: Profits retained within the company are not subject to corporate income tax, providing significant benefits for businesses focusing on growth and reinvestment.
- Standard Rate: The standard VAT rate in Estonia is 22%, applicable to most goods and services.
- Reduced Rates: Certain goods and services, such as books, periodicals, and accommodation services, may be subject to reduced VAT rates.
- Registration Threshold: Businesses must register for VAT if their taxable turnover exceeds 40,000 euros in a calendar year.
- VAT Compliance: Registered businesses must file periodic VAT returns and comply with VAT regulations, including charging VAT on taxable supplies and reclaiming VAT on business expenses.
- Tax-Free Allowance: Residents are entitled to a tax-free allowance, which varies based on income levels, providing relief for lower-income individuals.
- Non-Resident Taxation: Non-residents are taxed at 22% on income earned from Estonian sources, including employment, business, and property income.
- R&D Incentives: Estonia offers tax incentives to companies engaged in research and development (R&D) activities. Expenses related to R&D can be deducted from taxable income, and additional support may be available through grants and subsidies.
- Investment Incentives: Various tax incentives are available for investments in certain sectors, such as technology and green energy, aimed at fostering economic growth and innovation.
- Non-Profit Organizations: Non-profit associations benefit from special tax exemptions and incentives, encouraging social, cultural, and charitable activities.
- Overview: Estonia has signed double taxation treaties with over 60 countries, helping to avoid double taxation on income and capital.
- Benefits: These treaties reduce or eliminate taxes on certain types of income (e.g., dividends, interest, royalties) and provide clear rules on tax residency and relief methods.
- Application: Businesses and individuals can benefit from these treaties by claiming tax relief or exemptions on income earned in multiple jurisdictions.
- Digital Filing: Estonia's e-Tax system allows businesses and individuals to file tax returns, make payments, and manage their tax affairs online, providing a streamlined and efficient process.
- User-Friendly: The system is user-friendly and supports various tax-related functions, including VAT returns, income tax filings, and employee tax reports.
- Security and Accessibility: Secure authentication methods ensure safe access to the system, and the e-Tax platform is available 24/7, offering flexibility and convenience.
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ALFA International is a leading network of independent law firms, established in 1980. It is the largest legal network offering effective solutions worldwide. We are the only member of this network in Estonia.
Gazelles are rapidly growing companies that have increased their revenue and profit by over 50% in three years and created many new jobs. Less than 1% of Estonian companies are gazelles. We have won the Gazelle Company title twice.
The Estonian Chamber of Commerce and Industry is the largest and most influential organization representing entrepreneurs in Estonia, with 99 years of activity. The Chamber has over 3,500 members, whose contribution accounts for more than 40% of the net turnover and tax revenue of Estonian companies.