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National taxes

what are national taxes

Principal Taxes

The system of taxation is described in the Law on Taxation.

The existing state taxes are:

- income tax: 21%

- value-added tax (VAT): 20%

- social tax (social security contributions - state pension and health insurance): 33%

- unemployment insurance tax: 1.4% employer + 2.8% employee

- excise taxes (tobacco, alcoholic beverages, motor fuel, motor vehicles, packages)

- gambling tax

- land tax

Estonia does not impose any gift, inheritance or estate taxes. Various transactions may be subject to payment of state fees (stamp duties).

Local governments have the authority to impose local taxes, but effectively only few municipalities have introduced local taxes, in particular: land tax, tax on advertising and commercials, tax on closure of streets and roads, motor vehicle tax, boat tax and tax for keeping the animals.

The worldwide income of Estonian resident individuals is generally subject to 21% flat income tax.

Source: Estonian Tax and Customs Board

Value Added Tax

The Estonian Tax and Customs Board informs that the VAT rate in Estonia is 20% from 1 July 2009.

Source: Estonian Tax and Customs Board

Employers registered in Estonia (including permanent establishments of the foreign entities) must pay social tax on all payments made to employees, except on those specifically exempted by law. In case of an individual engaged in business and registered as such with the Tax Authorities, social tax liability lies with the individual. Fringe benefits and the income tax thereof are also included in the taxable base. Currently only employers and individuals engaged in business are liable to make social tax contributions. Employees are not required to pay social tax.The rate of social tax is 33% (20% for social security and 13% for health insurance).

Source: Estonian Tax and Customs Board

Excise Duties are levied on tobacco, alcoholic beverages, motor fuel, electricity and packages.

Source: Estonian Tax and Customs Board

Accounting Principles

The Law on Accounting (valid from 1 January 2003) regulates basic accounting functions in all business entities registered in Estonia. It does not regulate accounting for taxes, which are regulated by other laws and acts. The essence of the law is framed in compliance with International Accounting Standards (IAS). With a few exceptions, the use of IAS was acceptable prior to 1 January


Compared with International Accounting Standards the major differences are: 1) no consolidation is required (equity method is used to account for subsidiaries); 2) notes to financial statements are usually fewer. In addition to the Law on Accounting there are a number of regulations issued by the Estonian Accounting Committee, which interpret and amend the law. Each business entity may also establish additional rules regulating some aspects of its own accounting and reporting.

A fiscal year is twelve months long. A business entity can choose a fiscal year ending on 31 March, 30 June, 30 September or 31 December. If a company wishes to use any other fiscal year, permission from the Ministry of Finance is required. The law also prescribes that a parent company and its subsidiary should have the same financial year, which may also be a fiscal year.

All accounting records should be maintained for seven years. Contracts, business plans and other documents, necessary for reconstructing business transactions should be maintained for ten years.

The Law on Taxation provides the tax administrator with a right to investigate taxpayers by commencing two different types of tax investigation:

Audit of individual cases

Tax audit

An audit of individual cases is generally commenced for the purpose of investigating the facts already known by a tax administrator.

Tax audits are used for the purpose of a comprehensive investigation of the taxpayer's overall economic activity, and to identify unknown facts. The related taxes and time ranges will be stated on the notification issued by the tax administrator seven days before the beginning of the revision.

Source: PricewaterhouseCoopers - Guide to doing business and investing in Estonia

Tax Treaties

Estonia has tax treaties in force with Armenia, Austria, Azerbaijan, Belarus, Belgium, Bulgaria, Canada, China, Croatia, the Czech Republic, Denmark, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, the Republic of Ireland, Italy, Kazakhstan, Latvia, Lithuania, Luxembourg, Malta, Moldova, the Netherlands, Norway, Poland, Portugal, Romania, Singapore, the Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, Ukraine, the United Kingdom and the United States of America. In 2010, the treaty with Macedonia will become effective.

Treaties have also been concluded with Isle of Man, Israel, Serbia, Republic of Korea and Russia, but as of 1 November 2009 these are not yet in force.

Source: PricewaterhouseCoopers - Guide to doing business and investing in Estonia

Category: Taxes

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