Estonia: Business Environment

Company Tax

20% CIT at 20/80 of the net amount of profit distribution

Tax Rate For Foreign Companies

Resident companies are taxed on profits distributed from their worldwide income, while permanent establishments of non-resident companies are taxed only on profits distributed from Estonian-source income. Other income sourced in Estonia derived by non-residents may be subject to final withholding tax or corporate income tax rate by way of assessment.
Companies are considered resident if they are established pursuant to Estonian law.

Capital Gains Taxation

Capital gains are treated as ordinary income of Estonian resident companies; however, they are taxed only where there is a profit distribution.

Main Allowable Deductions and Tax Credits

Companies are no longer subject to income tax, they are only taxed on distributed benefits according to the Estonian Company Tax Law. According to the terms of this new law, legal entities are exempt from tax on profits that are not distributed, whether reinvested or retained. Payments made to foreign affiliates are also exempt from tax when they serve the business interests of the company. As a result, there is no provision for depreciation or for carrying forward or backward tax losses.
Since 1 January 2018, companies that are subject to tax on benefits in kind granted to staff may be exempted up to a maximum of EUR 100 per quarter if these benefits relate to expenditure on sports or health programmes. Entertainment expenses may be exempted from corporate tax up to a maximum of EUR 32 per month.
All taxes paid are deductible.

Other Corporate Taxes

Land is subject to a tax which is calculated according to the estimated value of the land at rates varying between 0.1% and 2.5% depending on the municipality. The tax can be paid by the owners or the users.
The social tax payable by the employer amounts to 33% of the salary (20% for the pension fund, 13% for the health insurance). Employers also contribute 0.8% of the salary for unemployment insurance and withhold 1.6% for their employees' contributions to the compulsory accumulative pension scheme, if the employee has joined such scheme.
Employers are liable for tax on fringe benefits granted to employees. Benefits are subject to a 20/80 corporate income tax and 33% social tax on the sum of the benefit and the 20/80 CIT (a fringe benefit of EUR 100 would give rise to a EUR 25 CIT and a EUR 41.25 social tax with a 33% tax applying to EUR 125).
A gambling tax is levied on income derived from the operation of games of skill, totalizers, betting, lotteries and promotional lotteries. The tax is also levied on gaming tables and machines used for games of chance in authorised premises.
Taxes apply on heavy goods vehicles, at rates varying between EUR 0 and 930.4 per year.
Local authorities may also levy certain taxes, often at negligible rates for companies.

Other Domestic Resources

Consult Doing Business Website, to obtain a summary of the taxes and mandatory contributions.

Tax Rate

Allowable Deductions and Tax Credits

There is a basic personal allowance of EUR 6,000 (i.e. EUR 500 per month) for annual income up to EUR 14,400. The yearly allowance is gradually reduced for annual incomes between EUR 14,400 and EUR 25,200 and is zero for any annual income exceeding EUR 25,200. Click here for more info.
Residents can deduct an extra EUR 2,160 for his/her resident spouse when their total combined taxable income is below EUR 50,400. A lump-sum 20% deduction is available for income from renting out immovable property.

Further deductions are available for certain additional personal allowances, as well as certain deductible documented expenses, which fall into two categories:

- the first category includes certain mandatory payments, which can be deducted without any limitations, including unemployment insurance contributions, contributions to a compulsory accumulative pension scheme, and certain obligatory contributions to foreign social security schemes;

- the second category includes deductions that are allowed for tax policy reasons and which have various limitations on deductibility. It includes certain bank and leasing interest paid in relation to acquiring a personal residence, certain educational expenses, certain gifts and donations, and certain payments to personal pension schemes.

Special Expatriate Tax Regime

Resident individuals are liable to tax on worldwide income, irrespective of the origin of the income. Non-residents are taxed on their Estonian-source income.
A limited list of taxable items applies to non-residents: income from work under an employment contract or contractor's agreement in Estonia; income from a business carried on in Estonia; royalties; income from the lease of assets located in Estonia; gains from the disposal of assets located in Estonia; directors' fees paid by Estonian enterprises or non-residents; income of a sportsperson or an artist from activities in Estonia; and pensions and scholarships.
Starting from 2022, non-residents from another member state of the European Economic Area are allowed to apply for calculation of the basic exemption monthly, at the moment of payment.
Consult the website of the EMTA for further details.