Taxes in Estonia

The Estonian tax system has several convenient features, which make Estonia a low-risk, cost- effective place for e-residents to start a business from scratch:

  • Pay NO taxes on annual income and submit NO annual tax return, regardless of profits or losses
  • Pay 0% tax on reinvested profits
  • Declare and pay your taxes completely online once you are distributing profits
  • NO need to register as an employee or board member until your company has sufficient profits to pay dividends or salary
  • Deal with the friendliest tax authority in the world, the Estonian Tax and Customs Board

#1

Tax Competitiveness

Estonia has been #1 on the
Tax Competitiveness Index
for the last 8 years

0%

Tax on reinvested profits

Declare and pay your taxes completely online once you are distributing profits

Corporate Income Taxes in Estonia

  • Standard Corporate Income Tax (CIT) rate is 20%, reduced CIT rate is 14%, calculated as 14/86 from taxable net payment if dividend payments are regular
  • CIT is payable on distributed profits (e.g. dividends, fringe benefits, gifts, donations) and taxable expenses
  • CIT is assessed and declared monthly at the online tax portal e-MTA
Tax rates overview

How to calculate taxes when paying out dividends

  • Example: an Estonian company pays a dividend of 10,000 EUR to a shareholder
  • 2,500 EUR (10,000 x 20/80) in taxes must be declared and paid by the Estonian company to the Estonian Tax & Customs Board
  • If the Estonian company pays regular dividends to the shareholder, taxes will be 1,627.91 EU (10,000 x 14/86)
  • If the shareholder is a natural person (either resident or non-resident) and receives a dividend taxed at the reduced rate, additional personal income tax of 7% (700 EUR) is withheld
More examples

Payroll Taxes in Estonia

Once you do decide to distribute profits, your role in the company (active employee/director vs passive shareholder), should be analyzed to make sure that each role you carry out is compensated and taxed appropriately:

  • Directors’ Fee
  • Employee Salary
  • Dividend to Shareholder
More information

Tax rates payable in Estonia by a person
receiving income from an Estonian company

Director’s fee
Salary
Dividend
Resident of Estonia
20% Personal Income Tax (PIT)
33% Social Tax (ST)
20% PIT
33% ST
Unemployment Contribution (UC): 1.6% withheld by company, 0.8% applied to gross salary

7% PIT (if CIT paid at 14% reduced rate)
Otherwise no PIT or ST
Resident of EEA or Switzerland *
20% PIT
Obtain A1 certificate to avoid Estonian ST
No PIT and ST payable in Estonia
PIT and ST payable in home country
7% PIT (if CIT paid at 14% reduced rate)
Otherwise no PIT or ST on dividends in Estonia
Declare in home country and also pay PIT or withholding tax there
Resident of treaty countries **
20% PIT
Present certificate from home tax authority to avoid Estonian ST
No PIT and ST payable in Estonia
PIT and ST payable in home country
7% PIT (if CIT paid at 14% reduced rate)
Otherwise no PIT or ST on dividends in Estonia
Declare in home country and also pay PIT or withholding tax there
Resident of a third country ***
20% PIT
33% ST (declare on TSD Annex 2)
No PIT and ST payable in Estonia
PIT and ST payable in home country
7% PIT (if CIT paid at 14% reduced rate)
Otherwise no PIT or ST on dividends in Estonia
Declare in home country and also pay PIT or withholding tax there

* Applies only to persons insured for social benefits in their country of residence.
** Applies only to persons insured for social benefits in countries with a treaty for social security with Estonia (e.g. Australia, Ukraine, Canada)
*** Applies to persons who are resident in third countries, or uninsured for social benefits in EEA, Switzerland or treaty countries

Example: Employing an Estonian tax resident with a gross salary of 1000 €

Employee’s unemployment insurance contribution: – 16 EUR (1,6%)
Mandatory funded pension contribution: -20 EUR (2%)
Monthly tax-free income: 500 EUR
Personal income tax: -92,8 (20%)

Employee’s net salary: 871,2 EUR

Social tax calculated on top of the gross
salary payable by employer: 330 EUR
Employer’s unemployment insurance contribution: 8 EUR

Total cost for the employer: 1338 EUR

Salary calculator