Corporate Income Tax
Profits are taxed only upon distribution to shareholders, not when earned.
- 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 20%, but it is calculated as 20/80 of the net distribution. From 2025, the rate is set to increase to 22%.
- Reinvested Profits: Profits retained within the company are not subject to corporate income tax, providing significant benefits for businesses focusing on growth and reinvestment.
Value Added Tax (VAT)
VAT in Estonia is charged at a standard rate of 22% on most goods and services.
- 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.
Personal Income Tax
Estonia applies a flat personal income tax rate of 20% on all taxable income.
- 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 20% on income earned from Estonian sources, including employment, business, and property income.
Tax Incentives
Estonia offers tax breaks for investment in R&D and key sectors.
- 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.
Double Taxation Treaties
Estonia's treaties prevent double taxation on international income.
- 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.
e-Tax System
Estonia's e-Tax system allows secure online tax management.
- 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.
