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ADVICE #97

Peculiarities of the tax system of Estonia

Despite the fact that almost all European countries are committed to the unity of laws and integration in the areas of economic and social policies, tax systems of European countries do not differ with unity.

Russian analysts of the consulting company "Texart Group researched the tax system 38 European countries with developed market economies, and weak, still "wobbly" after the collapse of the socialist states.

Some of the investigated countries are already EU members, others are candidates for membership in the single currency area, but in the meantime, in most States, a United Europe, you may encounter drastic differences in tax systems and the principles of taxation.

If you are going to live abroad and operate your business, you should carefully review the tax code of the country: what size of income tax in this country; the amount of tax "at the source"; VAT; what are the taxes levied on the income of individuals and their property, and more.

We offer to your attention an analytical report with detailed information about the economy, the characteristics of the market, as well as tax rates and the criteria for levying taxes in each country of Europe.

Estonia is an EU member since 2004. Estonian tax system is simple and progressive from the point of view of administration, with a focus on indirect taxes. The most attractive factor is considered to be no tax on retained earnings.

The income tax

A tax resident of Estonia is a company registered in accordance with the legislation of Estonia. Residents are taxed for the profits regardless of the geographical location of the source, non – residents only on income from sources in Estonia.

Income tax of legal entities at the rate of 0% is taxed obtained and retained earnings. The magnitude of the corporate tax on distributed profits shall be calculated by the formula 21/79 of the amount of dividends (approximately 26.6%).

Income from capital gain is taxed in the composition of income tax.

The magnitude of the corporate tax on distributed profits is 21% of the amount of income before income tax and 0% if the dividends received from companies from the EEA (European economic area) or Switzerland, or other countries in the case of less than 10% of shares or votes in a subsidiary owned by the Estonian company. Dividends are not subject to income tax if part of the profit, which is the basis of their payment, income tax paid or if income tax is withheld from dividends in a foreign country.

In Estonia, the provisions of transfer pricing rules: in particular, in determining the tax base for transactions between affiliated persons, whose price differs from the market, the tax authorities in certain cases entitled to set the tax base as the market price of similar transactions.

Withholding tax

Dividends are not taxed at the source.

Interest payments are not taxed at source, except for some special cases.

Royalties paid to nonresidents are subject to tax withheld at source at the rate of 10%. Rate may be reduced in the presence of SODNOM, and according to the EU directives.

VAT

The standard VAT rate is 20% of the taxable value of goods or services. With tax rates at 9% for a number of operations, as well as 0% on transactions with securities, real estate transactions, insurance transactions, lease transactions. Also exempt from VAT intra-Union trade (EU) and the export – 0% rate.

Taxation of incomes of physical persons

Income tax is levied on all incomes of physical persons-residents, irrespective of the territory on which it was received. Non-residents pay tax on income from sources in Estonia.

A resident is a person residing in Estonia for 183 days.

A tax-free minimum in 2014 1728 Euro and a tax rate of 21%. Thus to account for non-taxable minimum, you should submit the appropriate application to the person making the payment.

The real estate tax of individuals

The annual rate ranges from 0.1% to 2.5% of the taxable value of the land. Subject to certain conditions the land on which is located a residential property owner, shall be exempt from tax. In addition, municipalities may establish other benefits.

The text prepared by the Russian consulting company TaxArt Group LLC specifically for Banki.ru

Эстония

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