Accounting Outsourcing and
Tax compliance in Estonia

Estonia – Accounting Outsourcing and Tax Compliance

Global Expansion Plus provides accounting outsourcing and tax compliance in Estonia. We provide services with support of our local accountants and tax specialists. We will perform bookkeeping, accounting and filling tax return on your behalf bearing all associated compliance risks.

Estonian entities and individuals working or generating their income in the country are liable to taxation by the state. Nonetheless, not everything business or individual will be subject to contribute to the economy in the form of tax. There are terms and conditions in applying a particular rate of taxation, which comes with variant types of taxes and rates.

Estonia in facts

  • Location: Baltic State
  • Territory: 45,227 square kilometers
  • Capital: Tallinn
  • Official language: Estonian
  • Currency: Euro (EUR)
  • Population: 1,32 million

Corporate income tax (CIT) in Estonia

An Estonian company with corporate profits is only liable to pay CIT, if it intends to distribute or has distributed the profits. Otherwise, the profits are exempt from this kind of taxation. Exemption covers even the capital gains, as a result of proceeds from the sale of assets such as shares, stocks and fixed assets, among others.
The normal rate for distributed corporate profits is 20%. Computation of CIT rate in Estonia is not as in many countries. It follows a unique norm of distributed profits. If they are not distributable, then they are not taxation when it comes to CIT. For example, for every EUR 100 of distributed profits, 20 euros is CIT while the rest can be distributed to the shareholders as dividends.
Not all Estonian companies are subject to the 20% CIT. A lower rate of 14% was introduced in 2008 for companies distributing profits on a regular basis. If the amounts of dividends paid in the last 3 years is equal or lower than the dividends taxed, then the company in question will benefit from the 14% CIT. It implies that for every 100 euros of distributable profits, the company will pay 14 euros in CIT. The 14% however is not final, the shareholders receiving the dividends will be subjected to a further withholding tax (WHT) of 7%.

Value-added Tax (VAT) in Estonia

Most local goods and services are subject to VAT at a standard rate of 20%. Imports are also vatable at variant rates. A lower rate of 9% is applied to goods and services such as books, pharmaceutical products and services, and accommodation services in the hotel industry. All exports are VAT exempt and services in healthcare, insurance, financial services fall in this category of exemption.
For a resident entity with annual revenue of more than 40,000 euros, they qualify to register for VAT. All in all, there is an option for any entity to register for the same, if it does not meet the threshold. For non-resident businesses, it is a mandatory requirement that they register for VAT, regardless of the revenue they generate yearly.

Personal Income tax (PIT) in Estonia

Personal income by resident persons in Estonia are subject to a flat rate of 20%. All incomes generated in the country will be subject to that. However, there is a special rate of 10% for pension payments subject to the tax code.

Accounting for Withholding Tax (WHT) in Estonia

Most incomes are subject to WHT. The payers of the incomes have to withhold a proportion of the gross amount before remitting the same to their recipients. It is a requirement by the state, which places the payers of the amounts liable to deduct the same before remitting the payments. For example, the of CIT, companies must withhold 20% of the distributable corporate profits before distributing it to the shareholders in the form of dividends.
For one to withhold, you have to register as a withholding agent with the relevant stage agency. It gives you the power to withhold a proportion of the gross amount before paying your employees. WHT reporting is done on a monthly basis and should be paid by 10th of the subsequent for the previous month.
There are exemptions to WHT. Any company or sole trader registered and a resident will have payments to them being exempt from WHT.

Payroll-Related Taxation in Estonia

An employee earning a monthly salary is subject to WHT. The employer, as the payer of the income, is liable, when it comes to computing the amount to be withheld. A standard rate of 20% applies to the deduction from the net salary of the employees. The employer is expected to deduct and remit, on behalf of their employee, to the state. The net salary is the gross income less contributions to the pension and insurance schemes.
Social taxes apply directly to employers based on the payments they make to their employees. They contribute 33% of the payments they make to individual employees. Whether resident or non-resident, it is a requirement for the employers to pay this tax. 20% of the social tax contribution goes to pension insurance funding, and the remainder in the health insurance fund.
For the insurance contributions, employers withhold about 2% of the employees’ salaries while they themselves contribute 1% to the same scheme.
There is a compulsory pension scheme that makes it a must for all employees born after 31st December 1982. Anyone born before this period has the option to join the pension scheme and contribute 2% of their gross salary to the fund. It is, nonetheless, a permanent status once you join as there is no option to leave.

Import/ Export related taxation in Estonia

Custom duty

Estonian government has a tax regime that offers goods coming into the country to be subject to custom duty. Certification of goods at the border has to be done before they can be allowed to get into the country. However, not all goods are subject to this tax. Estonia is a member of the European Union (EU). As such goods coming from countries whose membership in the EU is intact, custom duty is zero. If otherwise, then custom tariffs will apply based on the agreeable rates.

Excise taxes

Goods produced in Estonia or imported are subject to excise duty. Harmful products such as tobacco, and alcoholic products will attract this type of taxation. Others include petroleum products and electricity, among others.
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