Estonian Taxes and Tax Structure (as of 1 january 2016)

ESTONIAN TAXES AND TAX
STRUCTURE
Tax Policy Department
As of January 1, 2016

Outline of presentation
• The main principles of the Estonian tax
system, the current tax structure
• Taxation Act
• Direct Taxes (Personal Income Tax, Corporate
Income Tax, Social Tax, Land Tax)
• Indirect taxes (VAT, Excise duties, Gambling
Tax, Heavy Goods Vehicle Tax, Customs Duty)

Estonian Tax System
The main principles of Estonian tax policy:
• simple tax system
• broad tax base, low rates
Flat income tax rate since 1994 (followed by Lithuania,
Latvia, Russia, Ukraine, Serbia, Slovakia, Georgia,
Romania, ...)
Corporate income tax reform in 2000.

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

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.

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

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.

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.

• 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.
Tax Authority

• Corporate income tax – 20% on distributed profit
• Personal income tax – 20%
• Social tax – 33% (payable only by employer)
• Unemployment insurance payment – 1,6%
payable by employee and 0,8% payable by
employer
• Contribution to the mandatory funded pension
system - 2% (payable by employee)
• Value added tax - 20% (standard rate), 9%
(reduced rate)
Main tax rates

0
5
10
15
20
25
30
35
40
2000 2002 2004 2006 2008 2010 2012 2014* 2016* 2018*
Direct taxes Indirecttaxes Social security contributions
Structure of tax burden (% of GDP)
Source: Statistical Office of Estonia, Ministry of Finance

Tax burden ( % of GDP)
31,0
30,2
31,0
30,8
30,6
30,6
30,7
31,4
31,9
35,3
34,0
32,3
32,5
32,3 32,4
31,9
31,6
31,6 31,7
29
30
31
32
33
34
35
36
37
2000 2002 2004 2006 2008 2010 2012 2014* 2016* 2018*

Structure of tax revenue
0%
20%
40%
60%
80%
100%
Personalincometax Corporateincometax
Social contributions VAT
Exice duties Land tax
Other taxes

Tax Revenue 2015
Total tax revenue 7 127.8 million EUR
Transmittable taxes* 1 187.3 million EUR
Personalincome
tax*
16,6%
Corporate
income tax
6,0%
VAT
26,1%
Excise duties
12,2%
Heavygoods
vehicle tax
0,1%
Customs duty
0,5%
Socialtax
33,6%
Gambling tax
0,3%
Land tax*
0,8%
Unemployment
insurance*
2,1%
Mandatory
funded
pension*
1,7%
Source: Ministry of Finance

Tax Revenue 2015, million € (collected)
* - The amount received by the state + local governments
**- transmittable taxes
million EURO
TAXES
State taxes 7 127,8
Direct taxes 4 334,4
Personal income tax* 1 182,5
Corporate income tax 424,3
Social tax 2 392,8
Unemployment insurance payment** 152,1
Mandatory funded pension contribution** 124,7
Land tax** 58,0
Indirect taxes 2 793,6
VAT 1 858,4
Excise duties 873,0
Heavy goods vehicle tax 5,1
Customs tax 34,1
Gambling tax 23,0
Local taxes 13,2
Source: Ministry of
Finance

• Income tax (personal and corporate income
tax both stipulated in the Income Tax Act)
• Social tax
• Land tax
Direct taxes

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.

Personal income tax revenue
1994-2019 million €
0
200
400
600
800
1 000
1 200
1 400
1 600
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016* 2018*
Local government State
millionEUR

Corporate income tax revenue
1995-2019
0
50
100
150
200
250
300
350
400
450
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015* 2017* 2019*
67,1 56,9
78,5
122,3
104,5
54,6 47,8
86,2
137,8
161,2159,5
199,6
261,0266,3
256,3
193,8201,1
252,4
326,6
344,7
424,3
389,4
362,0
382,0
397,0
million EUR
* - includes revenue under the prior Income Tax Act (taxable period 1999)
million €

• 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.
Personal income tax

Personal income tax
Period of taxation: a calendar year
Tax rate: 20% (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 years 2008-2014 – 21%
Since income of the year 2015 – 20%

Personal income tax
Non-taxable minimum (annual basic exemption):2 040 EUR
Additional exemption for state pensions: 2 700 EUR
Increase of the non-taxable minimum (per year):
Income of the year 2003 – 12 000 EEK (767 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 – 1 728 EUR
Income of the year 2015 – 1 848 EUR
Income of the year 2016 – 2 040 EUR

26
24
23
22
21
2019
32
51
64
89
109
128
144
154
170
180
190
0
20
40
60
80
100
120
140
160
180
200
18
20
22
24
26
28
%
Income tax rate (left scale) Monthly basic exemption (€, right scale)
Income tax reduction

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;
• income from a business carried on in Estonia;
• gains from disposal of registered 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.

Personal income tax
For non-resident individuals
• Period of taxation is a calendar year
• Tax rates: 20% and 10%

Personal income tax
Tax allocation of personal income tax paid by
residents
• The amount received by local governments 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

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

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

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

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

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

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 (in 2000)

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)

Tax rate
• Tax rate in 2016: 20% (20/80 of the net amount
of the dividend or other profit distribution)
Period of taxation
• calendar month

+ 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 (20/80) 25
CIT (20/80) 75
CIT (20/80) 50
CIT (20/80) 135
Credit
method
135 – 10 = 125
Total CIT
liability 275
Time

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 20% on all payments to so-called off-
shore companies for services

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

Double tax treaties (DTT)
• Estonia has 56 treaties for the avoidance of
double taxation (income and capital taxes) in
force
• Estonia has concluded DTTs with all EU
Member States and with most of OECD
Member States (except for Australia, Japan,
Chile and New Zealand)

Structure of declared corporate
income tax 2003-2019
0
100
200
300
400
500
2003 2005 2007 2009 2011 2013 2015 2017* 2019*
Payments to non-resident legal persons
Non-business expenses
Charitable gifts and donations exceeding non-taxable amount
Fringe benfits
Distributed profit (dividends paid out)
million EUR

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

Social tax
Tax rate
• Tax rate is 33 % of the taxable amount
Period of taxation
• Calendar month for wage income
• Calendar year for business income of self-
employed
Social tax payable is personificated and will be
taken into account in making pension payments or
health insurance benefits.

• 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%

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'paymentstonaturalpersons Fringe benefits
State (accordingto social tax law §6) Businessincome of sole proprietors
Social tax
million EUR

Land tax
Tax base
• Land tax is paid on all land (with some exemptions)
based on the taxable value of land.
Taxable person
• Tax is paid by land owners and in some cases by the
land users
Tax rate
• Land tax rate is established by the local government
and it ranges from 0.1-2.5% of the taxable value of land

Indirect taxes
• Value added tax
• Alcohol excise duty
• Tobacco excise duty
• Energy products excise duty
• Packaging excise duty (budget revenues
insignificant)
• Heavy goods vehicle tax
• Gambling Tax

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

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

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

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

VAT revenue 1994-2019
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*
million EUR

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

Excise duty rates on alcohol
Unit
Excise duty
rates
01.02.2016
EU minimum
excise duty
rates
Wine and
fermented
beverage
Hectolitre
(up to 6 %): 48,55
EUR
(> 6 %): 84,67
EUR
0
Beer
1 % alcohol in
hectolitre
8,30
(yearly production
up to 3000 hl):
4,15 EUR
1,87 EUR
Intermediate
product Hectolitre 239,12 EUR 45 EUR
Other alcohol
Hectolitre of pure
alcohol 2172 EUR 550 EUR

Excise duty rates on tobacco
products
Product Excise duty rates
01.01.2016
EU minimum
excise duty rates
CIGARETTES:
58,00 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) 30 %
Minimal amount of excise to pay
(1000 cigarettes)
97,20 EUR Unlimited
CIGARS, CIGARILLOS
(1000 cigars or cigarillos) 211 EUR
12 EUR or 5% from
the retail selling
price
SMOKING TOBACCO
(1 kg ) 65,88 EUR 54 EUR or 46%
from the retail
selling price

Excise duty on energy products
The excise duty rate of:
- unleaded and leaded petrol will rise by 10% in 2016-2018;
- diesel and light heating oil 14% in 2016 and 10% in 2017-2018;
- diesel for specific purposes (agriculture + fishing) the rate will
constitute 27% of diesel excise duty rate from 2016;
- heavy fuel oil will rise from 15,01 to 58 EUR per 1000 kgs from
2016;
- shale oil will rise from 15,01 to 57 EUR per 1000 kgs from 2016;
- coal, coke and oil shale form 0,3 EUR to 0,93 EUR per GJ of
upper calorific value from 2016.

Excise duty rates on motor fuels
Energy product Excise rates in
Estonia 01.01.2016
EU minimum excise
duty rate
Unleaded petrol 465 EUR/ 1000 l 359 EUR/ 1000 l
Leaded petrol 465 EUR/ 1000 l
Gas oil 448 EUR/ 1000 l 330 EUR/ 1000 l
Gas oil for specific
purposes
121 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

Excise duty rates on heating fuels
and electricity
Energy product Excise rates in
Estonia 01.01.2016
EU minimum excise duty rate
business non-business
Light fuel oil 448 EUR/ 1000 l 21 EUR/ 1000 l 21 EUR/ 1000 l
Heavy fuel oil 58 EUR/ 1000 kg 15 EUR/ 1000 kg 15 EUR/ 1000 kg
Petroleum 330,1 EUR/ 1000 l - -
Natural gas 33,77 EUR/ 1000
m3
0,15 EUR/ GJ 0,3 EUR/ GJ
Coal, coke and
oil shale
0,93 EUR/ GJ 0,15 EUR/ GJ 0,3 EUR/ GJ
Electricity 4,47 EUR/ MWh 0,5 EUR/ MWh 1 EUR/ MWh

Excise duty revenue 1994-2019
million €
0
200
400
600
800
1 000
1 200
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016* 2018*
Alcohol Tobacco Fuel
million EUR

Packaging excise duty
Object of taxation:
Excise duty on packaging is imposed on packaging launched to
the market of Estonia, acquired from another EU Member State
or imported into Estonia.
Excise is paid by the importer of packages, by the user of packages
or by the person acquiring packaging
Object of packaging
excise duty
Excise duty rate in EUR
per kilogram
Glass and ceramics 0.6 €
Plastic 2.5 €
Metal 2.5 €
Paper 1,2 €
Other 1.2 €

Packaging excise duty
Excise is not charged:
• on alcohol or nonalcoholic beverages packaging
with deposit imposed on the packaging under
packaging law, of which at least 75 per cent is
recovered;
• on beverage packaging from metal of which at least
50 per cent is recovered;
• on other packaging which is recovered according to
the rates of package law § 36.

Heavy Goods Vehicle Tax
Mandatory tax imposed by EU law.
Object of Heavy Goods Vehicle Tax
Trucks or road trains intended for the carriage of
goods with a gross laden weight of not less than 12
tonnes which are registered in the traffic register.
Tax rate of Heavy Goods Vehicle Tax
Minimum rates stipulated in the Directive 1999/62/EC
are in effect

Gambling Tax
Gambling tax is paid by gambling operators.
Period of taxation
• calendar month or
• the period during which the commercial
lottery or a tournament of a game of
chance is organised

Gambling tax
Object of gambling tax Tax rate
Gambling tables for games of chance, (except
tables used for tournaments) and gambling
machines for games of skill
1278.23 euros per
gambling table
31.95 euros per gambling
machine
Gambling machines for games of chance and
the total amount of bets, less the winnings
300 euros per gambling
machine and 10 per cent
of the total bets made,
less the winnings
Lottery, the total amount received from the sale
of lottery tickets
18%
Commercial lottery, the winning pot whose
value exceeds 10 000 euros
18%
Totaliser, the total amount of bets, less the
winnings
5%

Gambling tax
Object of gambling tax Tax rate
Online game of chance or online game of
skill, the total amount of bets, less the winnings
5%
Tournament of a game of chance (Gambling
Act § 7 (1) 1)), the total amount of participation
fees, less the portion accruing to the prize pool;
5%
Act § 7 (1) 1) by way of remote gambling, the
total amount of participation fees, less the portion
accruing to the prize pool
5%
Act § 7 (1) 2)), the total amount of participation
fees;
5%
Act § 7 (1) 2)) by way of remote gambling, the
total amount of participation fees.
5%

Customs duty
Tax base
• Common customs tariff duties are generally applicable to all
goods imported into the EU
Tax rate
• The customs duty rates (ad valorem and specific duty rates)
are based on customs value and are dependent on the type of
goods and the country of origin
• All EU Member States use online customs tariff database
TARIC (integrates all measures relating to tariffs, commercial
and agricultural legislation)
• Information relating to national levies (rates of VAT and
excises) can be obtained from Estonian Master Tariff System.

GDP Growth 2005–2014
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
SK
PL
LT
BG
RO
EE
MT
LV
LU
CZ
IE
SE
UK
DE
SI
AT
BE
NL
EU28
HU
FR
EZ19
FI
CY
ES
DK
PT
IT
EL
2005–2014 average
2014

Estonian real convergence with the EU
(% of EU28 average)
0
10
20
30
40
50
60
70
80
90
2000 2002 2004 2006 2008 2010 2012 2014
SKP per capita PPS
Price level
Nominal labour productivity per hour
worked

Growth expectations
GDP growth,
%
Consumer price
index, %
2015 2016 2015 2016
IMF 1.6 2.5 0.2* 1.6*
OECD 1.8 2.5 0.1* 1.3*
European Commission 1.9 2.6 0.1* 1.8*
Ministry of Finance
(September 2015)
1.7 2.6 0.2* 2.3*
* Harmonised Consumer Price Index (HICP)

General Government budgetary balance
2003-2019
1.8
2.4
1.1
2.9 2.7
-2.7
-2.2
0.2
1.2
-0.3
-0.1
0.8
0.0
-0.1
0.1
0.8
1.4
-4
-2
0
2
4
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015* 2016* 2017* 2018* 2019*
% of GDP
Central Government Local Government Social Security General Government

General Government tax burden
1995-2018
36,3
34,3 34,3 34,0
32,5
31,0 30,2 31,0 30,8 30,6 30,6 30,7 31,4 31,9
35,9
34,0
32,3 32,5 32,3 32,4 31,9 31,6 31,6 31,7
0
10
20
30
40
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013* 2015* 2017*
Direct taxes Indirect taxes Social security contributions Tax burden
% of

General Government debt in 2014
10,4
0
20
40
60
80
100
120
140
160
180
Estonia
Luxembourg
Bulgaria
Romania
Latvia
Lithuania
CzechRepublic
Sweden
Denmark
Poland
Slovakia
Finland
Netherlands
Malta
Germany
Hungary
Slovenia
Austria
Croatia
UnitedKingdom
France
Spain
Belgium
Ireland
Cyprus
Portugal
Italy
Greece
% of GDP

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

Estonian Taxes and Tax Structure (as of 1 january 2016)

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