Estonia: Domestic Corporate Taxation

In this section:

- Estonia Scope of Income Tax
- Estonia Income Tax Rates
- Estonia Calculation of Taxable Base
- Estonia Filing Requirements and Payment of Tax
- Estonia Withholding Taxes
- Estonia Sales Taxes and VAT

Estonia Scope of Income Tax

Corporate income tax in Estonia is only levied on distributed profits. The zero rate of tax on undistributed profits is aimed at encouraging businesses to reinvest profits. There is no tax on profit that is converted to share capital by way of a share issue. Businesses registered and with a base in Estonia will pay tax on revenue generated in Estonia and worldwide. Businesses trading in Estonia but whose main base is not in the country only pay tax on revenue generated within Estonia.

Employers are required to pay social tax for payments made to employees. For details see the section on Personal Taxes.

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Estonia Income Tax Rates

The rate of corporate income tax in Estonia is 21% on the gross distributed profits and 21/79 on net dividends (2013). Where profits have not been distributed, there is a zero rate of corporate income tax. Distribution of dividends, fringe benefits, and expenses not directly concerned with business activities are taxed at 21%.

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Estonia Calculation of Taxable Base

Tax is payable on the basis of monthly returns. There is an unlimited carry forward of losses and unlimited depreciation. Employers are liable to pay social tax for employees – that is, contributions for unemployment and health insurance. Employees do not have to pay these contributions and employers must withhold and pay these contributions when due. Fringe benefits such as housing expenses, use of a company car and business trips are taxed only at employer level.

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Estonia Filing Requirements and Payment of Tax

Tax is paid based on monthly returns. Sole proprietors are generally required to make three advance payments per year towards income tax liability. Businesses are taxed by assessment and must pay any tax due by October 1 in the year following the tax liability. There are penalties for late submission of returns and late payment of taxes due.

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Estonia Withholding Taxes

For resident companies, tax is collected by way of withholding tax at a rate of 21%. Withholding tax on dividends was abolished in 2009. The rate for royalties and fees for entertainers and sports people was reduced to 10% in 2009. Payments to non-residents for services provided within Estonia are also subject to the 10% rate. Withheld taxes must be reported and paid by the 10th of the month following the withholding of the tax. Withholding taxes may be reduced where there are double taxation treaties.

Where a resident of Estonia pays interest to a non-resident or legal person, this is not subject to withholding tax. This tax could be levied if the rate paid were to exceed the average rate one might expect to pay elsewhere in the financial markets. However, Estonia was expected to abolish this provision in 2013 following a European Court of Justice ruling.

Non-residents must pay tax on profits from a commercial lease relating to property located in Estonia. Income tax is imposed on royalties from the use of intellectual rights. Royalties paid by a resident of Estonia are not liable to withholding tax if the owner is a company incorporated within the EU. This exemption requires that the owner should have a minimum holding of 25% of the capital of the resident.

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Estonia Sales Taxes and VAT

The standard rate of VAT is 20% (increased in 2009 from 18%). Certain supplies attract a reduced rate of 9%, including books, some periodicals, and certain medicines and medical equipment supplies. The provision of accommodation also qualifies for the reduced rate. International services, international transport services and exports are all zero-rated.

Exemptions from VAT include insurance, postal services, financial services, health and education.

The threshold for VAT registration is EUR16,000 per calendar year and individuals or companies must register for VAT. Where revenue is below the threshold, voluntary registration is an option.

VAT returns must be submitted monthly and there are penalties for late submission of the returns at an interest rate of 0.06% per day..

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