Corporate Taxation in Estonia 2021: The Detailed Guide

Oct 26, 2020 · 2 min read
So you are looking to register a company in Estonia, huh? Or perhaps you already did? Anyway, understanding the taxation rules might be rather complicated anywhere from Estonia to Timbuktu. In order to help you, we have prepared a detailed guide that will help you get your taxes straight and avoid tricky situations in the future.

The Estonian tax regime is often considered to be one of the most comfortable tax regimes in the EU. However, there is the first vital thing that we must outline: in this article, we are focusing on the corporate tax.

E-Residency Doesn't Make You an Estonian Tax Resident

Even if you already received an e-Residency, your personal tax will stay in the country in which you are a tax resident. Being an E-Resident doesn't make you an Estonian tax resident, but your Estonian company will be. In regard to companies' simple rule applies — a company is a tax resident in Estonia if it is incorporated under Estonian laws.

Right after the incorporation, companies will be automatically recorded into the taxpayer's registry (company's registration number is also the company's tax identification number) and there is no separate registration as Estonian taxpayers, except for VAT purposes.

Which Taxes a Company Needs to Pay

As to which taxes have to be paid at which rate, this depends on the specific characteristics of your company. Here is the of all tax types:

  • Income tax
  • Value-added tax
  • Social tax
  • Customs tax and excise duties
  • Unemployment insurance premium
  • Environmental charges
  • Taxes payable in the case of cross-border operations
In most cases, Estonia only taxes income, to be exact distributed profits at a 20% tax rate. This means that if a business in Estonia earns $100 and pays that $100 to its shareholders, the business would be required to pay a tax of $20 on the distributed profit. Instead, if that business decides to reinvest that $100, the business would not have to pay tax on that $100.

Now, this does not mean that the income goes untaxed. Instead, the profit is potentially taxed as at Estonia's 21 percent capital gains rate. If the business reinvests its $100 profit, it is probable that the value of the business would increase and, with it, the value of a shareholders shares. If a shareholder were then to sell their shares, they would face the 21 percent capital gains tax rate. In some other cases, a reduced rate of 14/86 may apply.

E-Tax System

Estonia currently ranks first in the International Tax Competitiveness Index and, almost everything can be uploaded online.
Estonian officials set up an electronic tax filing system — E-Tax. Around 95% of all tax declarations in Estonia are filed electronically. If you have your e-Residency card, you should have automatic access permissions for the use of e-services on behalf of the legal person and for the management of the access permissions.

Through the e-Tax system you are going to be able to:

  • pay taxes and view payment history;
  • submit all your necessary tax returns;
  • communicate with the Estonian Tax and Customs Board;
  • register your company liable to value-added tax, etc.

VAT

The VAT rate is 20%. However, obtaining the VAT number isn't mandatory until you reach €40 000 in sales in a calendar year.

After a company exceeds the threshold, there are only 3 business days to register yourself as a taxable person. VAT payers must pay VAT to the Estonian Tax and Customs Board and submit monthly VAT returns (even for the months when there could be nothing to declare). Voluntary registration before reaching the registration threshold is also possible.

The VAT basics are:
1. Sales to non-VAT registered EU entity or natural person: 20% VAT must be added.
2. Sales to VAT-registered EU entity : 0% VAT
3. Sales to non-EU entities or natural persons: no VAT is added.

It's important to understand where the turnover is created, what type of service/product you're selling (some niches have lower tax rates as well), etc, as there are several exceptions to these rules.

Physical products have different VAT rules, and once you exceed the turnover threshold the Member State has, you need to register and declare VAT in that target market. You can find the thresholds from here.

VAT number can be obtained via e-tax office (you can ask your support company and accountant to give you instructions) or at the time of registering the company.

And that's it! Of course, each case is quite specific, if your company plans to hire someone, special taxes will apply, please feel free to address your questions to our specialists in order to get more information on taxation for your specific case. We will be delighted to answer your questions via email or schedule a call with you.
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