Taxation in Estonia consists of state and local taxes. A relatively high proportion of government revenue comes from

consumption tax A consumption tax is a tax levied on consumption spending on goods and services. The tax base of such a tax is the money spent on consumption. Consumption taxes are usually indirect, such as a sales tax or a value-added tax. However, a consumpti ...

es whilst revenue from capital taxes is one of the lowest in the

European Union The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been de ...

Land Value Tax

Estonia Estonia, formally the Republic of Estonia, is a country by the Baltic Sea in Northern Europe. It is bordered to the north by the Gulf of Finland across from Finland, to the west by the sea across from Sweden, to the south by Latvia, a ...

levies a

Land Value Tax A land value tax (LVT) is a levy on the value of land (economics), land without regard to buildings, personal property and other land improvement, improvements. It is also known as a location value tax, a point valuation tax, a site valuation ta ...

which is used to fund local municipalities. It is a state level tax, but 100% of the revenue is used to fund Local Councils. The rate is set by the Local Council within the limits of 0.1-2.5%. It is one of the most important sources of funding for municipalities. The Land Value Tax is levied on the value of the land only, improvements are not considered. Very few exemptions are considered on the land tax and even public institutions are subject to the land value tax. Land that is the site of a church is exempt, but other land held by religious institutions is not exempt. The tax has contributed to a high rate (~90%) of owner-occupied residences within Estonia, compared to a rate of 67.4% in the

United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territori ...

Natural persons income tax

Estonia natural person

income tax An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Tax ...

is considered to be proportional, but, due to basic exemption, it is actually progressive. Standard rate for

natural person In jurisprudence, a natural person (also physical person in some Commonwealth countries, or natural entity) is a person (in legal meaning, i.e., one who has its own legal personality) that is an individual human being, distinguished from the br ...

s in year 2015 is 20% (down from 21% in 2014). A basic exemption is granted, which is increased upon provision of maintenance to a child, in event of pensions, in event of compensation for accident at work or occupational disease. Additionally, a number of expenses are

deductible In an insurance policy, the deductible (in British English, the excess) is the amount paid out of pocket by the policy holder before an insurance provider will pay any expenses. In general usage, the term ''deductible'' may be used to describe o ...

: housing loan interests, training expenses, gifts, donations, contributions to a voluntary/mandatory funded pension and unemployment insurance, social security payments mandatory in a foreign state. Amount of deductible housing loan interest, training expenses, gifts and donations is limited – in 2011, the limit was 3196 euros but no more than 50% of the taxpayer's income during the same period of taxation. There is no

capital gains tax A capital gains tax (CGT) is the tax on profits realized on the sale of a non-inventory asset. The most common capital gains are realized from the sale of stocks, bonds, precious metals, real estate, and property. Not all countries impose a c ...

but gains from transfer of securities or other financial assets are subject to standard income tax. Since 2011, a new system has been in place, which allows natural persons to defer the tax liability created on income received from financial assets until the time of taking the income into use, by using an investment account for this purpose. An investment account is just an ordinary monetary account with an obligation to record all money transfers. For attaining an objective by means of an investment account, income received from the financial assets must be transferred to an investment account without delay. A taxable amount shall be created when the disbursements made from all investment accounts exceed the balance of contributions in all investment accounts after the disbursement.

Social tax and mandatory insurance payments

Salaries paid to employees are subject to # Social tax #

Unemployment insurance Unemployment benefits, also called unemployment insurance, unemployment payment, unemployment compensation, or simply unemployment, are payments made by authorized bodies to unemployed people. In the United States, benefits are funded by a comp ...

premiums # Funded pension payment Social tax rate stands at 33%. The same rate is applied to fringe benefits that employer provides to employees. Unemployment insurance premiums are paid by both employer and employee: 2,8% is withheld is of the employee gross salary and 1,4% is paid by employers of monthly gross salaries. In 2012, a rate of a funded pension payment is 2% of the gross salary of a resident employee and are withheld by employer.

Corporations/legal persons income tax

Legal person In law, a legal person is any person or 'thing' (less ambiguously, any legal entity) that can do the things a human person is usually able to do in law – such as enter into contracts, sue and be sued, own property, and so on. The reason for ...

s income tax rate is 20% in the year 2015. However, the system of corporate earnings taxation currently in force in Estonia is a unique system, which shifts the moment of corporate taxation from the moment of earning the profits to the moment of their distribution. In other words, earning profits in itself does not bring income tax liability, which arises only when earned profit is distributed to shareholders. In case profit distributed to shareholders originates from dividends received from a subsidiary company or from a permanent establishment the corporation has in another country, then profit distribution is tax exempt. Distributed profits mean gifts, donations, representation expenses and any payments and expenses not connected to the business. Estonia does not have

withholding tax Tax withholding, also known as tax retention, Pay-as-You-Go, Pay-as-You-Earn, Tax deduction at source or a ''Prélèvement à la source'', is income tax paid to the government by the payer of the income rather than by the recipient of the income ...

on dividends paid. Nevertheless, distributed profits are taxed at a rate of 20%.

Value added tax

From 1 July 2009, the standard VAT tax rate in Estonia has been 20% and a reduced rate of 9%. A small number of goods and services are not taxed. Estonian VAT system is based on EU Council directive 2006/112/EC and its basic principles are the same as in other EU countries. As of 2018, the annual turnover threshold for mandatory registration as VAT liable person is 40,000 euros.

Tax administration in Estonia

Responsibility for administering taxes lies on the

Tax and Customs Board The Tax and Customs Board ( et, Maksu- ja Tolliamet), also known by its acronym MTA, is the taxation authority in the Republic of Estonia. It is an agency of the Ministry of Finance. The agency deals with collection of revenue for the state bu ...

. Majority of tax declarations are presented via Internet: for example, in the year 2012 94,2% of all natural persons income tax declaration were presented using the Internet. Percentages for VAT and customs declarations are even higher.

Other taxes

Taxes applied in Estonia that were not mentioned previously: # Excises on electricity, alcohol, tobacco, fuel and packaging. # Customs duties. # Tax on gambling. # Tax on heavy vehicles.

External links

Estonia Tax and Customs Board

References

{{Taxation in Europe Finance in Estonia