Corporate tax in Estonia
The tax system in Estonia does not require the payment of a corporate tax for undistributed profits, a characteristic quite unique to Estonia. The exempted undistributed profit covers both active and passive types of income, as well as gains from sales. This tax regime is available for both Estonian companies and foreign companies registered in Estonia.
Taxable income in Estonia
Estonian Tax Authorities
levy a corporate income tax only on profits that are distributed as capital reductions, dividends, share buy-backs, liquidation incomes or profit distributions. This tax is regarded as a corporate income tax in Estonia
, and not a withholding tax and therefore it cannot be subject to double tax treaties
. The distributed profits are subject to a 21% tax rate.
Dividend tax in Estonia
Dividends are not subject to a tax rate in Estonia.
Fringe benefits for employees in Estonia
Companies that employ in Estonia
is liable for taxation on any fringe benefits granted to any of its employees, including directors. Only the employer has the obligation to pay taxes on the fringe benefits given to the employees. These benefits are subject to 21/79 corporate income tax and 33% social tax. Please address to our company formation specialists
for more details on this topic.
Foreign exchange taxes in Estonia
Gains from foreign exchange gains are tax neutral because in Estonia there are no taxes levied on undistributed corporate profits.
VAT in Estonia
In Estonia, the standard VAT rate
is 20%, but there are also some exceptions. For example, a 9% VAT rate applies to books, newspapers, medicine and accommodation, while postal, health and insurance are exempt from VAT altogether.
Local taxes in Estonia
There are some local taxes imposed by the municipality in certain areas in accordance with their Local Taxes Act, however these cases are very rare. The few municipalities that actually impose taxes, refer to sales and advertisement taxes, road and street closure taxes, parking charges and vehicle taxes, taxes on keeping animals and entertainment taxes.
Real estate and land tax in Estonia
Land owners must pay a tax on an annual basis that is calculated based on the land value and rates between 0.1% and 2.5%, depending on the local authorities. The land taxes can be paid in three instalments, by 15 April, 15 July and 15 October. There is no tax on the value of buildings. Transfers of properties are generally subject to state and notary fees.
Benefits for foreign investors in Estonia
Even though there are no special tax benefits for foreign investors in Estonia
, the tax system is rather unique and very favorable for any type of investments
. The lack of corporate tax for certain profits
is very attractive, together with economic stability, excellent location and well developed infrastructure.