2. Population (01.01.2014) 1 311 870
Total area 45,227 km2
Average salary (2013) 948 EUR
Average pension (April 2014) 354 EUR
Currency EUR
GDP (2013) 18 434,7 million EUR
Economic growth (2013) 0,8%
(forecast for 2014) 2,0%
GDP per capita (2013) 13 784,2 EUR
Inflation (2013) 2.8%
3. Outline of the presentation
• The main principles of the Estonian tax system, the current
tax structure
• Taxation Act
• Direct Taxes
– Reasons for introduction of the flat rate in Estonia
– The outcome of the reform
– Personal Income Tax
– Corporate Income Tax
– Social Tax
• Indirect taxes
– VAT
– Excise duties
– Gambling tax
• Plans for the future
4. Estonian Tax System
The main principles of Estonian tax policy:
• simple tax system
• broad tax base, low rates
Estonia is a European pioneer in income taxation:
• Flat income tax rate since 1994 (followed by
Lithuania, Latvia, Russia, Ukraine, Serbia,
Slovakia, Georgia, Romania, ..)
• Unique corporate tax system since 2000
6. Estonian Tax System
• To achieve sustainable, socially and regionally
balanced economic growth Estonian tax
system consists of state taxes provided and
imposed by tax acts and local taxes imposed by
a rural municipality or city council in its
administrative territory pursuant to law
7. 1) excise duties;
2) income taxes;
3) gambling tax;
4) value added tax;
5) land tax;
6) social tax;
7) customs duty;
8) heavy goods vehicle tax.
State taxes Local taxes
1) advertisement tax;
2) road and street
closure tax;
3) motor vehicle tax;
4) animal tax;
5) entertainment tax;
6) parking charge.
8. Taxation Act
• Taxation act specifies
– Estonian tax system
– main definitions used in all tax acts
– requirements for tax acts
– rights, duties and liability of taxpayers,
withholding agents, guarantors and tax authorities
– regulations of the tax procedure and procedure for
resolution of tax disputes
– penalty interest rate 0,06% per day
9. Taxation Act
“Tax” is
• a single or periodical financial obligation
• imposed by an Act or by a local government council
regulation according to Local Taxes Act
• for the performance of the public law functions or to
obtain revenue to perform these functions
• subject to performance pursuant to the procedure, in
the amount and on the due dates prescribed by an
Act
• collected without direct compensation therefore.
10. Taxation Act
Requirements for Act concerning tax
1) name of the tax;
2) object of taxation;
3) tax rate;
4) taxpayer;
5) recipient of or place of receipt of the tax;
6) due date or term for payment of the tax;
7) procedure for payment of the tax;
8) procedure for implementation of the Act concerning a
tax;
9) possible tax incentives.
11. Tax authority
• The tax authority for state taxes is the Tax and
Customs Board with its regional offices. The tax
authority operates within the area of government of
the Ministry of Finance.
• Tax authority verifies the correctness of tax payments,
assesses amounts of tax and interest due in the cases
provided by law, collects tax arrears and implements
sanctions against persons who violate tax Acts.
12. • Corporate income tax – 21% on distributed profit
• Personal income tax – 21%
• Social tax – 33% (payable by employer)
• Unemployment insurance payment – 2,0 %
payable by employee and 1,0% payable by
employer (from Jan 1, 2013)
• Contribution to the mandatory funded pension
system - 2% (payable by employee)
• Value added tax - 20% (standard rate), 9%
(reduced rate)
Main tax rates
16. Structure of tax revenue
0%
20%
40%
60%
80%
100%
Personalincometax Corporateincometax
Social contributions VAT
Exice duties Land tax
Other taxes
Source: Statistical Office of Estonia, Ministry of Finance
17. State Budget Tax Revenue 2014
Total tax revenue 6,559.8 million EUR
Total revenue 7,880.9 million EUR
5,1% 5,0%
25,5%
12,6%
0,1%
0,4%
33,8%
0,3%
17,1%
Personal income tax Corporate income tax VAT
Excise duties Heavyvechile tax Customs duty
Socialtax Gambling tax transmittable taxes
Source: Ministry of Finance
18. Tax Revenue 2013, million € (collected)
* - The amount received by the state + local governments
State taxes 6 140,4
Direct taxes 3 652,7
Personal income tax* 1 030,6
Corporate income tax 326,6
Social tax 2 071,2
Unemployment insurance 167,1
Land tax 57,2
Indirect taxes 2 397,7
VAT 1 550,6
Excise duties 792,8
Heavy vehicle tax 4,0
Customs tax 28,7
Gambling tax 21,6
Local taxes 10,9
Source: Ministry of Finance
22. Reasons for introducing flat rate in Estonia
• High inflation rate - in case of flat rate there is no
need of frequent adjustment of tax brackets
• Flat rate system is easier to administer (for both
taxpayers and tax administrators)
• More transparency
The new law entered into force on 1 January 1994.
27. Personal income tax
• Residents pay tax on their total worldwide income.
• Non-residents pay tax only on their income received
from Estonian sources.
• Individuals are Estonian residents if they:
- have a permanent home in Estonia, or
- stay in Estonia 183 days or more during any 12-
month period.
28. Income Tax Act
Period of taxation: a calendar year
Tax rate: 21% (separate tax rate 10% for certain pensions
and payments to non-residents)
Decrease of the income tax rate (both for
individuals and legal persons):
Until the year 2004 – 26%
Income of the year 2005 – 24%
Income of the year 2006 – 23%
Income of the year 2007 – 22%
Income of the years 2008-2014– 21%
Since income of the year 2015 – 20%
29. Income Tax Act
Non-taxable minimum (annual basic exemption): 1728 EUR
Additional exemption for state pensions: 2520 EUR
since 2015 2640 EUR
for calendar year
Increase of the non-taxable minimum (per year):
Income of the year 2003 – 12 000 EEK (767 EUR)
Income of the year 2004 – 16 800 EEK (1074 EUR)
Income of the year 2005 – 20 400 EEK (1304 EUR)
Income of the years 2006- 2007 – 24 000 EEK (1534 EUR)
Income of the years 2008- 2010 – 27 000 EEK (1726 EUR)
Income of the years 2011- 2014 – 1728 EUR
Since income of the year 2015 – 1848 EUR
31. Personal income tax
For non-residents there is a limited list of taxable income in the
Income Tax Act:
• income from work under a labour contract or contractor's
agreement in Estonia;
• directors' fees paid by Estonian enterprises;
• income from a business carried on in Estonia;
• gains from disposal of assets located in Estonia;
• income from the lease of assets located in Estonia;
• royalties;
• interest received from the holding in a contractual investment
fund, whose property was made up more than 50 per cent of
immovables in Estonia (in certain conditions);
• income of a sportsman or an artist from his activities in Estonia
• pensions and scholarships.
32. Personal income tax
For non-resident individuals
• Period of taxation is a calendar year
• Tax rates: 21% and 10%
• Estonia has 56 treaties for the avoidance of
double taxation (income and capital taxes)
in force
33. Personal income tax
Tax allocation of personal income tax paid by
residents
• The amount received by local governments (from Jan 1,
2014) is 11.6% of taxable income (deductions are not
taken into account), the excess amount is received by
the state
• Income tax paid on pensions and capital gain is
received by the state
Non-residents:
• income tax is received by the state
34. Personal income tax
Avoidance of double taxation
Individuals
• Exemption method for foreign dividends and
certain salary income
• Credit method for all other types of foreign
income
36. Corporate income tax
• Corporate tax reform in year 2000
• The ultimate goal of the reform was
promotion of business and acceleration of
economic growth by making additional funds
available for investment
37. Corporate income tax
Elimination
of technical
shortcomings
Additional
funds available
for investment
Stricter
regulation
of transfer
pricing
Acceleration
of economic
growth
Introduction
of the CFC
rules
Transparency
and exchange
of information
38. Corporate income tax
The moment of taxation of corporate income is
postponed until the distribution of the profits
The system applies to:
• Estonian resident companies
- legal persons that are established pursuant to
Estonian law
• permanent establishments (PE) of non-resident
companies
- PE is an entity through which the business of a
non-resident is carried out in Estonia
39. Tax rate 26 %
(on gross
profit)
Income tax
26 EUR
Dividend
payment
74 EUR
Profit
earned
100 EUR
Time
The taxation of profit until 1999
Corporate income tax
40. Income tax
26 EUR
Dividend
payment
74 EUR
Profit
earned
100 EUR
Tax rate 26/74 (on
net amount,
equals to 26% of
gross profit)
No tax
Time
The timing of tax payment under the new system (since 2000)*
The tax rate has been decreased since 2005
Corporate income tax
41. Corporate income tax
• Tax rate in 2014: 21% (21/79 of the net amount of the
dividend or other profit distribution)
• Period of taxation: a calendar month
42. Corporate income tax
Tax base
• corporate profits distributed in the tax period;
dividends and other profit distributions, incl.
liquidation proceeds and payments made on reduction
of company’s equity or redemption or return of shares
• taxable gifts, donations and representation expenses;
• expenses and payments unrelated to business.
Fringe benefits are taxable at the level of employer.
Losses – taken into account (the Estonian Commercial Code
does not allow to distribute profits if the company has
losses from previous years)
43. Corporate income tax
+ qualified
dividend
received
100 EUR
+ foreign
interest
received
100 EUR
(source state
WHT 10)
Donations
200 EUR
Expenses
unrelated to
business
300 EUR
Gifts
100 EUR
1400EURpotentiallytaxableincome
Taxliabilitydeferred
Profit earned
in 2010
200 EUR +
Profit earned
in 2011
1000 EUR
Dividend /
liquidation
640 EUR
Exemption method
Taxable amount
640 – 100 = 540
CIT (21/79) 27
CIT (21/79) 80
CIT (21/79) 53
CIT (21/79) 144
Credit
method
144 – 10 =
134
Total CIT
liability 294
Time
44. Corporate income tax
There are 3 main methods introduced in the Estonian Income
Tax Act, the goal of which is to minimize the possibilities for
tax fraud and evasion
– CFC (Controlled Foreign Corporation) rules: residents
have to declare and pay tax on the income of off-shore
companies under their control
– Stricter regulations for minimising the use of transfer-
pricing schemes
– Withholding tax of 21% on all payments to so-called off-
shore companies for services
45. Corporate income tax
Avoidance of double taxation
Companies and non-resident’s PEs
• Exemption method for qualified (threshold 10%)
profit distributions
the income tax will not be charged on dividends or on
payments upon reduction of share capital or
contributions, redemption of shares or liquidation of a
legal person on certain conditions.
• Credit method for all other types of foreign income
46. Structure of declared corporate income
tax 2003-2018
0
100
200
300
400
2003 2005 2007 2009 2011 2013 2015* 2017*
Paymentsto non-residentlegal persons
Non-businessexpenses
Charitable gifts and donationsexceedingnon-taxableamount
Fringe benfits
Distributedprofit (dividendspaidout)
million EUR
Source: Statistical Office of Estonia, Ministry of Finance
48. Social tax
Tax Base
• Employers' payments to individuals (wage
income) – tax payable by employers
• in cash
• in kind (fringe benefits)
• Business income of self- employed– tax
payable by self- employed persons
49. Social tax
Period of taxation
• Calendar month for wage income
• Calendar year for business income of self-
employed
50. Social tax
• Tax rate is 33 % of the taxable amount
• Social tax payable is personificated and
will be taken into account in making
pension payments or health insurance
benefits.
51. • Tax allocation IF the person has joined the II
pension pillar (compulsory for the persons who
have born in 1983 or later; voluntary for older people)
Social tax
Social tax, rate 33%
(payable by employer or
self employed person)
State health
insurance
system
13% 16%
State pension
insurance system
(I pillar)
Personal pension
account of the person (II
pillar) 2% + 4%= 6%
4%
Contribution to the
II pillar (made by
employee)
2%
52. Social tax revenue and structure
million €
0
500
1 000
1 500
2 000
2 500
3 000
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014*2016*2018*
Employers' payments to natural persons Fringe benefits
State (according to social tax law §6) Business income of sole proprietors
Social tax
million EUR
Source: Statistical Office of Estonia, Ministry of Finance
56. Taxable person
• Person whose taxable supply (excluding
import) exceeds 16 000 EUR in a calendar
year
• Voluntary compliance possible for anyone,
who carries out economic activity in Estonia
VAT
57. Tax base
VAT is charged on:
• transactions of goods and services within
Estonia
• intra-Community acquisitions of goods and
services
• importation of goods and services
• provision of services which are taxable in
Estonia, supplied by the foreign taxable person
VAT
58. Tax rates
• Standard rate is 20%.
• Reduced rate is 9% (books, newspapers,
medicines, accommodation).
• Zero rated: export; intra-Community
supply; vessels and aircrafts used on
international routes, including equipment and
fuel; goods and services for consumption
supplied on board of vessels and aircrafts.
VAT
59. Exempted goods and services are:
• postal services
• health services
• social services
• insurance services
• services for the protection of children
• transportation of sick, injured or disabled
persons
• supply of immovables
• the leasing and letting of immovables, etc.
VAT
60. VAT revenue 1994-2018
million €
0
500
1000
1500
2000
2500
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014* 2016* 2018*
million EUR
Source: Statistical Office of Estonia, Ministry of Finance
62. Excise duties
Excise duties are levied on:
• Alcohol
• Tobacco
• Fuel
• Electricity
• Packaging
Duty rates on alcohol, tobacco and energy
products meet the EU minimum levels
63. Excise duty rates on alcohol
Unit
Excise duty rates
01.01.2014
EU minimum
excise duty
rates
Wine and
fermented
beverage
Hectolitre
(up to 6 %): 36,71 EUR
(> 6 %): 84,67 EUR
0
Beer 1 % alcohol in
hectolitre
6,28
(yearly production up to
3000 hl): 3,14 EUR
1,87 EUR
Intermedi-
ate product Hectolitre 180,81 EUR 45 EUR
Other
alcohol
Hectolitre of
pure alcohol 1643 EUR 550 EUR
64. Excise duty rates on tobacco products
Product Excise duty rates
01.01.2014
EU minimum
excise duty rates
CIGARETTES:
46,50 EUR 90 EUR per 1000 cigarettes,
but not less than
60% from weighted average
price of cigarettes
Specific rate (1000
cigarettes)
Ad valorem rate (% of
the retail selling price) 34 %
Minimal amount of
excise to pay (1000
cigarettes)
90,00 EUR Unlimited
CIGARS,
CIGARILLOS
(1000 cigars or cigarillos)
211 EUR
12 EUR or 5% from the retail
selling price
SMOKING TOBACCO
(1 kg ) 61 EUR 47 EUR or 43% from the retail
selling price
65. Excise duty rates on motor fuels
ENERGY
PRODUCT
Excise rates in Estonia
01.01.2014
EU minimum excise duty rate
Unleaded
petrol
422,77 EUR/
1000 l
359 EUR/
1000 l
Leaded petrol 422,77 EUR/
1000 l
Gas oil 392,92 EUR/
1000 l
330 EUR/
1000 l
Gas oil for
specific
purposes
110,95 EUR/
1000 l
21 EUR/
1000 l
LPG 125,26 EUR/
1000 kg
125 EUR/
1000 kg
Petroleum 330,1 EUR/
1000 l
330 EUR/
1000 l
66. Excise duty rates on heating fuels and
electricity
Energy
product
Excise rates in
Estonia
01.01.2014
EU minimum excise duty rate
business non-business
Light fuel
oil
110,95 EUR/
1000 l
21 EUR/
1000 l
21 EUR/
1000 l
Heavy fuel
oil
15,01 EUR/
1000 kg
15 EUR/
1000 kg
15 EUR/
1000 kg
Petroleum 330,1 EUR/
1000 l
- -
Natural
gas
23,45 EUR/
1000 m3
0,15 EUR/ GJ 0,3 EUR/ GJ
Coal, coke
and oil
shale
0,3 EUR/ GJ 0,15 EUR/ GJ 0,3 EUR/ GJ
Electricity 4,47 EUR/
MWh
0,5 EUR/
MWh
1 EUR/
MWh
68. Packaging excise duty
Object of taxation:
Excise duty on packaging shall be imposed on
packaging of goods placed on the market in Estonia
or acquired in and imported from another Member
State of the European Union.
69. Packaging excise duty
Exemption from excise duty incidentally are:
1) packaging concerning which a deposit has been
established under the Packaging Act, except metal
packaging of beverages, and from which at least 85
percent of each class of packaging material is
recovered as of 1 January 2012;
2) metal packaging of beverages of which of which at
least 50 percent is recovered as of 1 January 2010;
3) as of 1 January 2009, other packaging recovered to
the extent provided for in § 36 of the Packaging Act.
71. Gambling Tax
Objects of gambling tax
1) gambling tables and gambling machines used for organising
games of chance and on gambling machines used for
organising games of skill;
2) in the event of organising a lottery, the total amount received
from the sale of lottery tickets;
3) in the event of organising a commercial lottery, the winning
pot whose value exceeds 10 000 euros;
4) in the event of organising a toto (betting + totalisator), the
total amount net revenue of bets;
5) in the event of organising an online game of chance or an
online game of skill, the net revenue of bets;
6) in the event of organising a tournament of a game of chance,
the total amount of participation fees.
Gambling tax is paid by gambling operators.
72. Gambling Tax
Tax rates:
1) for the gambling table – 1 278.23 euro per table in month;
2) for the gambling machine – 447.38 euro per in month euro
per gambling machine;
3) 31.95 euro per gambling machine of game of skill;
4) 18 % from the sale of lottery tickets;
5) 18 % from the winning fund of the commercial lottery;
6) 5 % for the toto, amount received from net revenue;
7) 5 % for the online game, amount received from net
revenue;
8) 5 % for the tournament of a game of chance (amount
received from participation fees).
74. Future Plans for Tax Policy
• Lower labour-related taxes and increase
consumption-related and other indirect taxes
– increase of excise duties
– increase of environmental taxes
– decrease of income tax
• Maintaining the current simple tax system
• Broadening the tax base and reducing tax
incentives
• Improving tax administration
77. Estonian real convergence with the EU
76
70
69
30
35
40
45
50
55
60
65
70
75
80
1995 1997 1999 2001 2003 2005 2007 2009 2011
% of EU27
GDP per capita in PPS
Comparativepricelevel
Labour productivityper person employed
78. Growth expectations
GDP growth,
%
Consumerprice
index, %
2014 2015 2014 2015
IMF 2.4 3,2 3,2* 2,8*
OECD 1,3 3,3 0,8* 1,7*
European Commission 1,9 3,0 1,5* 3,0*
Ministry of Finance
(April 2014)
2.0 3.5 1.7* 2.9*
* Harmonised Consumer Price Index (HICP)
79. General Government budgetary balance 2003-2018
1.8 1.6 1.6
2.4
2.4
-3.0
-2.0
0.2
1.1
-0.3 -0.2
-0.7 -0.8
-0.7
-0.1
0.9
-4
-2
0
2
4
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013* 2014* 2015* 2016* 2017* 2018*
% of GDP
Central Government Local Government Social Security General Government
Source: Statistical Office of Estonia, Ministry of Finance
81. General Government debt in 2012
9,8
0
20
40
60
80
100
120
140
160
180
Estonia
Bulgaria
Luxembourg
Romania
Sweden
Lithuania
Latvia
Denmark
CzechRepublic
Slovakia
Finland
Slovenia
Croatia
Poland
Malta
Netherlands
Austria
Hungary
Germany
Spain
Cyprus
UnitedKingdom
France
Belgium
Ireland
Portugal
Italy
Greece
% of GDP
82. Tax rate on low wage earners: Tax wedge
on labour cost (single, 67% average wage)
32
34
36
38
40
42
44
46
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014* 2016* 2018*
%
Estonia Latvia Lithuania EU 27
