Estonia - Taxation

As of 2003, Estonia had one of the most liberal and simple tax regimes in the world. The Law on Taxation of 1994 has been amended several times, and a new Income Tax Law was passed 15 December 1999 (effective 1 January 2000). The corporate income tax rate is 26% on distributed profits, and 0% on reinvested profits. Corporations can choose when they will pay their taxes.

Personal income taxes are assessed at the same flat rate of 26% as corporate profits. The standard tax-free deduction is 6,000 Kroon (about $432). Some school fees, living allowances, and interest on loans for the purchase of residential housing are deductible from taxable income. A withholding tax of 26% is imposed on dividend paid to nonresidents that hold less than 25% of the share capital in the paying company. However, Estonia has double tax treaties with at least 22 countries in which withholding taxes are eliminated or substantially reduced. A new Law on Social Tax came into effect in January 1999. The rate of social tax is 33% (10% for social security and 13% for health insurance), all payable by the employers and self-employed individuals. There are relatively few allowable deductions from taxable income in the Estonian tax code. The annual land tax varies from 0.1% to 2.5% of assessed value.

Main indirect tax is a value-added tax (VAT) set at a with a standard rate of 18% by a new Law on VAT passed in July 2001 and effective in January 2002. Reduced rates of 0% and 5% apply to some goods and services, including a 0% rate on exported goods and a specific list of exported services. Excise duties are levied on tobacco, alcoholic beverages, motor fuel, motor oil, and fuel oil (but not liquefied or compresses gas), motor vehicles, and packages (imposed to encourage recycling of package material. There is a gambling tax, and a customs processing fee of 200 Kroon (about $14) on each customs declaration submitted. Rights of recording are taxed are taxed at0.4%. Local governments have the authority to impose taxes and municipal taxes range from 1% to 2%.