Taxes in Estonia

The Estonian tax system has several convenient features, which make Estonia a low-risk, cost- effective place for e-residents to start a business from scratch:

  • Pay NO taxes on annual income and submit NO annual tax return, regardless of profits or losses
  • NO need to register as an employee or board member so NO need to pay any Estonian tax until your company starts making sufficient profit to pay salary or dividends
  • Declare and pay your taxes completely online once you are distributing profits
  • Deal with the friendliest tax authority in the world, the Estonian Tax and Customs Board

#1

Tax Competitiveness Index

Estonia has been #1 on the Tax Competitiveness Index for the last 7 years

20%

Corporate Income Tax

is payable on distributed profits

Corporate Income Taxes in Estonia

  • Standard Corporate Income Tax (CIT) rate is 20%, reduced CIT rate is 14%, calculated as 14/86 from taxable net payment if dividend payments are regular
  • CIT is payable on distributed profits (e.g. dividends, fringe benefits, gifts, donations) and taxable expenses 
  • CIT is assessed and declared monthly at the online tax portal e-MTA
Tax rates overview

Example: Calculating income tax when paying out dividends

  • A resident legal person pays 10 000 EUR of (not regular) dividends to a natural person.
  • A tax of 2500 EUR (10 000 × 20/80) has to be paid by the resident legal person (total cost 12 500 EUR).
  • In case of regular dividends paid, corporate income tax of 14/86 has to be paid instead (1627.91 EUR).
  • If the recipient of such dividend taxed at a reduced rate is a natural person (both resident or non-resident), income tax at a rate of 7% has to be withheld in addition (700 EUR).
More examples

Payroll Taxes in Estonia

Once you do decide to distribute profits, your role in the company (active employee/director vs passive shareholder), should be analyzed to make sure that each role you carry out is compensated and taxed appropriately. Types of payroll/profit distribution:

  • Directors’ Fee
  • Employee Salary
  • Dividend to Shareholder
More information

Tax rates payable in Estonia by a person receiving income from an Estonian company

Person receiving income does work in and is a resident of:
Director’s fee
Salary
Dividend
Estonia

▪ 20% Personal Income Tax (PIT)

▪ 33% Social Tax (ST)

▪ 20% PIT

▪ 33% ST

▪ Unemployment Contribution (UC): 1.6% withheld by company, 0.8% applied to gross salary

▪ 7% PIT (if CIT paid at 14% reduced rate)

▪ Otherwise no PIT or ST

EEA or Switzerland (and insured for social benefits)

▪ 20% PIT

▪ Obtain A1 certificate to avoid Estonian ST

▪ No PIT and ST payable in Estonia

▪ PIT and ST payable in home country

▪ 7% PIT (if CIT paid at 14% reduced rate)

▪ Otherwise no PIT or ST on dividends in Estonia

▪ Declare in home country and also pay PIT or withholding tax there

A country with an Agreement for Social Security with Estonia (Australia, Ukraine, Canada) (and insured for social benefits)

▪ 20% PIT

▪ Present certificate from home tax authority to avoid Estonian ST

▪ No PIT and ST payable in Estonia

▪ PIT and ST payable in home country

▪ 7% PIT (if CIT paid at 14% reduced rate)

▪ Otherwise no PIT or ST on dividends in Estonia

▪ Declare in home country and also pay PIT or withholding tax there

A third country (or a person uninsured for social benefits in EEA, Switzerland, or treaty countries)

▪ 20% PIT

▪ 33% ST (declare on TSD Annex 2)

▪ No PIT and ST payable in Estonia

▪ PIT and ST payable in home country

▪ 7% PIT (if CIT paid at 14% reduced rate)

▪ Otherwise no PIT or ST on dividends in Estonia

▪ Declare in home country and also pay PIT or withholding tax there

Example: Employing an Estonian tax resident

The gross salary agreed with the employee is EUR 1,000

  1. 1,6% employee’s unemployment insurance contribution                                       -16
  2. 2% mandatory funded pension contribution                                                           -20
  3. EUR 500 monthly tax-free income                                                                         -500
  4. 20% personal income tax                                                                                         -92,8

The employee receives net salary of EUR 871,2

5. 33% social tax calculated on top of the gross salary payable by employer       330
6. 0,8% employer’s unemployment insurance contribution                                          8

The total cost born by employer is EUR 1,338

Salary calculator