Estonia is a small country located in Northern Europe. The country has a taxation system that is governed by the Estonian Tax and Customs Board. In this article, we will discuss how the taxation system works in Estonia, double taxation agreements, the main taxes expats need to be aware of, special tax breaks that could apply to expats, how and when to file a tax return as an expat, and tax exit procedures for anyone leaving Estonia to move abroad.
The Taxation System in Estonia
The taxation system in Estonia is a flat tax system, meaning that everyone pays the same tax rate regardless of their income level. The tax year in Estonia runs from January 1st to December 31st, and taxes must be filed by March 31st of the following year.
There are several taxes that individuals and businesses in Estonia are required to pay. These include income tax, social tax, value-added tax (VAT), land tax, and excise duties.
Double Taxation Agreements
Estonia has signed double taxation agreements with several countries, including the United States, Canada, and the United Kingdom. These agreements are designed to prevent individuals and companies from being taxed twice on the same income.
If you are an expat living in Estonia and your home country has signed a double taxation agreement with Estonia, you may be able to avoid being taxed twice on your income. However, it is important to check the terms of the specific agreement as they can vary between countries.
Main Taxes in Estonia
All residents in Estonia are required to pay income tax on their worldwide income. The income tax rate is currently 20%. However, it is important to note that individuals are only taxed on income that is distributed or paid out, and not on income that is retained within a company.
All employees in Estonia are required to make social tax contributions. The employer and employee each contribute 33% of the employee’s salary to social tax.
Value-added tax (VAT)
The VAT rate in Estonia is currently 20%. This tax is applied to most goods and services, including imports.
Land tax is levied on the value of land owned in Estonia. The tax rate varies depending on the location and intended use of the land.
Excise duties are levied on certain products, including tobacco, alcohol, and fuel. The rate of excise duty varies depending on the product.
Special Tax Breaks
There are several special tax breaks that could apply to expats living in Estonia. These include:
If you are an entrepreneur looking to start a business in Estonia, you may be eligible for a startup visa. This visa allows you to reside in Estonia for up to one year to develop and launch your business. During this time, you will be exempt from income tax.
Estonia has a favorable tax regime for stock options. If you receive stock options from an Estonian company, you may be eligible for a reduced tax rate.
Filing a Tax Return in Estonia
If you are an expat living in Estonia, you are required to file a tax return if you meet certain criteria. If you are a resident in Estonia, you are required to file a tax return if your income exceeds €6,000 per year. If you are a non-resident and earn income within Estonia, you must also file a tax return.
The tax return must be filed annually by March 31st of the following year. The Estonian Tax and Customs Board provides an online platform where you can file your tax return, and it is recommended that you seek the assistance of a tax professional to ensure that you file correctly and take advantage of any applicable tax breaks.
Tax Exit Procedures for Estonia
If you are leaving Estonia to move abroad, you must complete a tax exit procedure with the Estonian Tax and Customs Board. This procedure involves filing a tax return for the year in which you leave, paying any outstanding taxes, and obtaining a certificate of tax compliance.
The certificate of tax compliance is required to obtain a residence permit or visa in another country. Failure to complete the tax exit procedure can result in a fine and other legal consequences.
Estonia has a flat tax system, and individuals and businesses are required to pay several taxes, including income tax, social tax, value-added tax, land tax, and excise duties. Expats living in Estonia may be eligible for special tax breaks, and it is important to file a tax return correctly and complete the tax exit procedure if leaving the country. It is recommended that you seek the assistance of a tax professional to ensure that you comply with all tax regulations in Estonia.