Income tax in Estonia
May 03, 2017
Residents of Estonia are taxed on their worldwide income. One becomes a resident of Estonia if: (1) one has a place of residence there; or (2) one stays in Estonia for 183 days or more during any given 12-month period.
Married couples are taxed separately, but filing joint tax returns are allowed for residents. Children are taxed separately.
Residents of other EU member states who have received at least 75% of their taxable income for the tax year from Estonian sources must file an income tax return in Estonia.
Income tax is levied on the following sources of income (1) employment income, (2) business income, (3) income from disposal of property, and (4) income from other sources. Taxable income is computed separately for each category and then aggregated.
Income is taxed at a flat rate of 21%. In certain cases, income tax is levied at a flat rate of 10%.
Income tax rate will decrease to 20% in 2015.
The annual basic personal allowance is €2,160. In addition, starting from the second child, a parent is given an additional allowance (of the same amount as the basic allowance: €2,160) for every child under 18 years old.
Rental income is generally declared as business income. Taxable rental income is simply computed as rental income less related expenses and maintenance costs. This is then subject to withholding tax at a flat rate of 21%. The amount withheld is credited against income tax due.
Capital gains are aggregated with other income and taxed at the standard income tax rate of 21%. Capital gains are usually computed by deducting acquisition costs and transaction costs from selling price.
Some gains are exempt from taxation, such as:
- Gains from the sale of a taxpayer’s primary residence;
- Gains from the transfer of a summer cottage or garden house that the taxpayer has owned for more than 2 years.
Land in Estonia is subject to annual land tax, levied on the market value of the land. The rate is established by the municipal council and varies between 0.1% and 2.5%.
Land tax is generally paid by land owners, but users may be liable to pay the tax in some cases. Land tax is generally payable in two installments, every 31 March and 01 October.
Income and capital gains earned by companies are subject to distribution tax on the company’s distributed profits. Profit distributions may be (1) specific, such as dividends, share distributions via capital reductions, and (2) deemed, which may include expenditure and payments unrelated to business activities, gifts, donations.
The distribution tax is levied at a rate of 21/79 of the net amount or 21% of the gross amount of the profit distribution.