2. Population (01.01.2012) 1,339,662
Total area 45,227 km2
Average salary (2010) 792 EUR
(2011 IV quarter) 865 EUR
Currency EUR
GDP (2011) 15,973 mill EUR
Economic growth (forecast for 2012) 1.7%
(forecast for 2013) 3.0%
GDP per capita (2011) 11,918 EUR
Inflation (forecast for 2012) 3.3%
3. Outline of the presentation
• The main principles of the Estonian tax system,
the current tax structure
• Taxation Act
• Direct Taxes
– Reasons for introduction of the flat rate in Estonia
– The outcome of the reform
– Personal Income Tax
– Corporate Income Tax
– Social Tax
• Indirect taxes
– VAT
– Excise duties
– Gambling tax
• Plans for the future
4. Estonian Tax System
The main principles of Estonian tax policy:
• simple tax system
• broad tax base, low rates
Estonia is a European pioneer in income taxation:
• Flat income tax rate since 1994 (followed by
Lithuania, Latvia, Russia, Ukraine, Serbia,
Slovakia, Georgia, Romania, ..)
• Unique corporate tax system since 2000
6. Estonian Tax System
• To achieve sustainable, socially and regionally
balanced economic growth Estonian tax
system consists of state taxes provided and
imposed by tax acts and local taxes imposed by
a rural municipality or city council in its
administrative territory pursuant to law
7. State taxes
1) excise duties;
2) income taxes;
3) gambling tax;
4) value added tax;
5) land tax;
6) social tax;
7) customs duty;
8) heavy goods vehicle tax.
8. Local taxes
1) advertisement tax;
2) road and street closure tax;
3) motor vehicle tax;
4) animal tax;
5) entertainment tax;
6) parking charge.
9. Taxation Act
• Taxation act specifies
– Estonian tax system
– main definitions used in all tax acts
– requirements for tax acts
– rights, duties and liability of taxpayers,
withholding agents, guarantors and tax
authorities
– regulations of the tax procedure and
procedure for resolution of tax disputes
– penalty interest rate 0,06% per day
10. Taxation Act
“Tax” is
• a single or periodical financial obligation
• imposed by an Act or by a local government
council regulation according to Local Taxes Act
• for the performance of the public law functions
or to obtain revenue to perform these functions
• subject to performance pursuant to the
procedure, in the amount and on the due dates
prescribed by an Act
• collected without direct compensation therefore.
11. Taxation Act
Requirements for Act concerning tax
1) name of the tax;
2) object of taxation;
3) tax rate;
4) taxpayer;
5) recipient of or place of receipt of the tax;
6) due date or term for payment of the tax;
7) procedure for payment of the tax;
8) procedure for implementation of the Act
concerning a tax;
9) possible tax incentives.
12. Tax authority
• The tax authority for state taxes is the Tax
and Customs Board with its regional
offices. The tax authority operates within the
area of government of the Ministry of Finance.
• Tax authority verifies the correctness of tax
payments, assesses amounts of tax and
interest due in the cases provided by law,
collects tax arrears and implements sanctions
against persons who violate tax Acts.
13. Main tax rates
• Corporate income tax – 21% on distributed profit
• Personal income tax – 21%
• Social tax – 33% (payable by employer)
• Unemployment insurance payment – 2,8 %
payable by employee and 1,4% payable by
employer
• Contribution to the mandatory funded pension
system - 2% (payable by employee)
• Value added tax - 20% (standard rate), 9%
(reduced rate)
15. Structure of tax burden (% of GDP)
Source: Statistical Office of Estonia, Ministry of Finance
16. Structure of general government tax revenue
Source: Statistical Office of Estonia, Ministry of Finance
17. Tax burden ( % of GDP)
Source: Statistical Office of Estonia, Ministry of Finance
18. State Budget Tax Revenue 2011
Total tax revenue 4,342.1 million EUR
Total revenue 5,872.2 million EUR
Source: Ministry of Finance
19. Tax Revenue 2011, million € (collected)
State taxes 4 342,1
Direct taxes 3 093,8
Personal income tax* 845,9
Corporate income tax 201,1
Social tax 1 801,4
Unemployment insurance 194,0
Land tax 51,5
Indirect taxes 2 112,3
VAT 1 343,3
Excise duties 717,0
Heavy vehicle tax 3,7
Customs tax 29,1
Gambling tax 19,3
Local taxes 25,5
* - The amount received by the state + local governments Source: Ministry of Finance
23. Reasons for introducing flat rate in Estonia
• High inflation rate - in case of flat rate there
is no need of frequent adjustment of tax
brackets
• Flat rate system is easier to administer (for
both taxpayers and tax administrators)
• More transparency
The new law entered into force on January
1st 1994.
28. Personal income tax
• Residents pay tax on their total worldwide
income.
• Non-residents pay tax only on their income
received from Estonian sources.
• Individuals are Estonian residents if they:
- have a permanent home in Estonia, or
- stay in Estonia 183 days or more during
any 12-month period.
29. Income Tax Act
Period of taxation: a calendar year
Tax rate: 21% (separate tax rate 10% for certain pensions
and payments to non-residents)
Decrease of the income tax rate (both for
individuals and legal persons):
Until the year 2004 – 26%
Income of the year 2005 – 24%
Income of the year 2006 – 23%
Income of the year 2007 – 22%
Since 2008 – 21%
30. Income Tax Act
Non-taxable minimum (annual basic exemption): 1728 EUR
Additional exemption for state pensions: 2304 EUR
for calendar year
Increase of the non-taxable minimum (per year):
Income of the year 2003 – 12 000 EEK (767 EUR)
Income of the year 2004 – 16 800 EEK (1074 EUR)
Income of the year 2005 – 20 400 EEK (1304 EUR)
Income of the years 2006- 2007 – 24 000 EEK (1534 EUR)
Income of the years 2008- 2010 – 27 000 EEK (1726 EUR)
Since 2011 - 1728 EUR
32. Personal income tax
For non-residents there is a limited list of taxable income in the
Income Tax Act:
• income from work under a labour contract or contractor's
agreement in Estonia;
• income from a business carried on in Estonia;
• interest income received from Estonia (only if it is substantially
higher than that on similar debt claims);
• royalties;
• income from the lease of assets located in Estonia;
• gains from disposal of assets located in Estonia;
• directors' fees paid by Estonian enterprises;
• income of a sportsman or an artist from his activities in Estonia
• pensions and scholarships.
33. Personal income tax
For non-resident natural persons
• Period of taxation is a calendar year
• Tax rates: 21% and 10%
• Estonia has 49 treaties for the avoidance of
double taxation (income tax and capital
taxes) in force
34. Personal income tax
Tax allocation of personal income tax paid by
residents
• The amount received by local governments is 11.4 % of
taxable income (deductions are not taken into account),
the excess amount is received by the state
• Income tax paid on pensions and capital gain is
received by the state
Non-residents:
• income tax is received by the state
35. Personal income tax
Avoidance of double taxation
Natural persons
• Exemption method for foreign dividends and
certain salary income
• Credit method for all other types of foreign
income
37. Corporate income tax
• Corporate tax reform in year 2000
• The ultimate goal of the reform was
promotion of business and acceleration of
economic growth by making additional funds
available for investment
38. Corporate income tax
Additional
funds available
for investment
Stricter
Transparency
regulation
and exchange
of transfer
of information
pricing
Acceleration
of economic
growth
Elimination Introduction
of technical of the CFC
shortcomings rules
39. Corporate income tax
The moment of taxation of corporate income is
postponed until the distribution of the profits
The system applies to:
• Estonian resident companies
- legal persons that are established pursuant to
Estonian law
• permanent establishments (PE) of non-resident
companies
- PE is an entity through which the business of a
non-resident is carried out in Estonia
40. Corporate income tax
The taxation of profit until 1999
Tax rate 26 %
(on gross Income tax
profit) 26 EUR
Profit
earned Dividend
100 EUR payment
74 EUR
Time
41. Corporate income tax
Corporate income tax
The timing of tax payment under the new system (since 2000)*
The tax rate has been decreased since 2005
Income tax
No tax 26 EUR
Profit Tax rate 26/74
(on net amount,
earned Dividend equals to 26% of
gross profit)
100 EUR payment
74 EUR
Time
42. Corporate income tax
• Tax rate in 2012: 21% (21/79 of the net amount)
• Period of taxation: a calendar month
43. Corporate income tax
Tax base
• corporate profits distributed in the tax period;
dividends and other profit distributions, incl.
liquidation proceeds and payments made on reduction
of company’s equity or redemption or return of shares
• taxable gifts, donations and representation expenses;
• expenses and payments unrelated to business.
Fringe benefits are taxable at the level of employer.
Losses – taken into account (the Estonian Commercial Code
does not allow to distribute profits if the company has
losses from previous years)
44. Corporate income tax
Profit earned Gifts
in 2009 100 EUR CIT (21/79) 27
200 EUR + Expenses
unrelated to CIT (21/79) 80
Profit earned 1400 EUR potentially taxable income
business
on 2010 Total CIT
300 EUR
liability 294
Tax liability deferred
1000 EUR CIT (21/79) 53
Donations
+ qualified 200 EUR
dividend
Dividend / Exemption
received
liquidation method Taxable Credit
100 EUR 640 EUR amount method
+ foreign 640 – 100 = 540 144 – 10 = 134
interest
CIT (21/79) 144
received
100 EUR
(source state
WHT 10)
Time
45. Corporate income tax
There are 3 main methods introduced in the Estonian
Income Tax Act, the goal of which is to minimize the
possibilities for tax fraud and evasion
– CFC (Controlled Foreign Corporation) rules:
residents have to declare and pay tax on the income
of off-shore companies under their control
– Stricter regulations for minimising the use of
transfer-pricing schemes
– Withholding tax of 21% on all payments to so-called
off-shore companies for services
46. Corporate income tax
Avoidance of double taxation
Companies and non-resident’s PEs
• Exemption method for qualified (threshold 10%)
profit distributions
the income tax will not be charged on dividends or on
payments upon reduction of share capital or
contributions, redemption of shares or liquidation of a
legal person on certain conditions.
• Credit method for all other types of foreign income
47. Structure of declared corporate income
tax 2003-2016 million €
Source: Statistical Office of Estonia, Ministry of Finance
49. Social tax
Tax Base
• Employers' payments to natural persons (wage
income) – tax payable by employers
• in cash
• in kind (fringe benefits)
• Business income of sole proprietors – tax
payable by self employed persons
50. Social tax
Period of taxation
• Calendar month for wage income
• Calendar year for business income of sole
proprietors
51. Social tax
• Tax rate is 33 % of the taxable amount
• Social tax payable is personificated and
will be taken into account in making
pension payments.
52. Social tax
• Tax allocation IF the person has joined the II
pension pillar (compulsory for the persons who
have born in 1983 or later; voluntary for older people)
Social tax, rate 33% Contribution to the
(payable by employer or self II pillar (made by
employed person) employee)
13% 16% 4% 2%
State health State pension Personal pension
insurance insurance system account of the person (II
system (I pillar) pillar) 2% + 4%= 6%
58. VAT
Taxable person
• Person whose taxable supply (excluding
import) exceeds 16 000 EUR in a calendar
year
• Voluntary compliance possible for anyone,
who carries out economic activity in Estonia
59. VAT
Tax base
VAT is charged on:
• transactions of goods and services within
Estonia
• intra-Community acquisitions of goods and
services
• importation of goods and services
• provision of services which are taxable in
Estonia, supplied by the foreign taxable person
60. VAT
Tax rates
• Standard rate is 20%.
• Reduced rate is 9% (books, newspapers,
medicines, accommodation).
• Zero rated: export; intra-Community
supply; vessels and aircrafts used on
international routes, including equipment and
fuel; goods and services for consumption
supplied on board of vessels and aircrafts.
61. VAT
Exempted goods and services are:
• postal services
• health services
• social services
• insurance services
• services for the protection of children
• transportation of sick, injured or disabled
persons
• supply of immovables
• the leasing and letting of immovables, etc.
62. VAT revenue 1994-2016
million €
Source: Statistical Office of Estonia, Ministry of Finance
64. Duty rates
• Alcohol and tobacco products – all rates
meet EU minimum levels
• Energy products – all rates meet the EU
minimum levels except for oil shale for which
there is a transitional period up to 2013
65. Excise duty rates on alcohol 01.02.2012
Excise duty rates in EU minimum
Unit euros excise duty
rates
Wine and
fermented (up to 6 %): 33,30
Hectolitre 0
beverage (> 6 %): 76,80
5,70
Beer
1 % alcohol in
(yearly production up 1,87
hectolitre
to 3000 hl): 2,85
Intermedi-
ate product Hectolitre 164,00 45
Hectolitre of
Other
pure alcohol 1490 550
alcohol
66. Excise duty rates on tobacco products
01.01.2012
Product Excise duty rates EU minimum
in euros excise duty rates
CIGARETTES:
Specific rate 42,18 64 EUR per 1000 cigarettes,
(1000 cigarettes) but not less than
Ad valorem rate 57 % from weighted average
( % of the retail selling 33 % price of cigarettes
price)
CIGARS 12 EUR or 5% from the retail
(1000 cigars) 191,73 selling price
CIGARILLOS 12 EUR or 5% from the retail
(1000 cigarillos) 191,73 selling price
SMOKING
TOBACCO 55,79 40 EUR or 40% from the retail
(1 kg ) selling price
67. ENERGY PRODUCTS: national excise duty rates on
MOTOR FUELS and the EU minimum excise levels
ENERGY Excise rates in Estonia The EU minimum levels of
PRODUCT 01.01.2012 taxation
Unleaded 422,77 EUR/ 359 EUR/
petrol 1000 l 1000 l
Leaded petrol 422,77 EUR/
1000 l
Gas oil 392,92 EUR/ 330 EUR 1000 l
1000 l
Gas oil for 110,95 EUR/ 21 EUR/
specific 1000 l 1000 l
purposes
LPG 125,26 EUR/ 125 EUR/
1000 kg 1000 kg
Petroleum 330,1 EUR/ 330 EUR 1000 l
1000 l
68. National excise duty rates applicable to heating fuels
and electricity and the EU minimum excise levels
Energy Excise rates in The EU minimum levels of taxation
product Estonia
01.01.2012 business non-business
Light fuel 110,95 EUR/ 21 EUR/ 21 EUR/
oil 1000 l 1000 l 1000 l
Heavy fuel 15,01 EUR/ 15 EUR/ 15 EUR/
oil 1000 kg 1000 kg 1000 kg
Petroleum 330,1 EUR/
1000 l
- -
Natural 23,45 EUR/ 0,15 EUR/ GJ 0,3 EUR/ GJ
gas 1000 m3
Coal and 0,3 EUR/ GJ 0,15 EUR/ GJ 0,3 EUR/ GJ
coke
Electricity 4,47 EUR/ 0,5 EUR/ 1 EUR/
MWh MWh MWh
69. Excise duty revenue 1994-2016
million €
Source: Statistical Office of Estonia, Ministry of Finance
70. Packaging excise duty
Object of taxation:
Excise duty on packaging shall be imposed on
packaging of goods placed on the market in Estonia
or acquired in and imported from another Member
State of the European Union.
Exemption from excise duty incidentally are:
1) packaging concerning which a deposit has been
established under the Packaging Act, except metal
packaging of beverages, and from which at least 85
percent of each class of packaging material is
recovered as of 1 January 2012;
71. Packaging excise duty
2) metal packaging of beverages of which of which at
least 50 percent is recovered as of 1 January 2010;
3) as of 1 January 2009, other packaging recovered to
the extent provided for in § 36 of the Packaging Act.
73. Gambling Tax
Objects of gambling tax
1) gambling tables and gambling machines used for organising
games of chance and on gambling machines used for
organising games of skill;
2) in the event of organising a lottery, the total amount received
from the sale of lottery tickets;
3) in the event of organising a commercial lottery, the winning
pot whose value exceeds 10 000 euros;
4) in the event of organising a toto (betting+totalisator), the
total amount net revenue of bets;
5) in the event of organising an online game of chance or an
online game of skill, the net revenue of bets;
6) in the event of organising a tournament of a game of chance,
the total amount of participation fees.
Gambling tax is paid by gambling operators.
74. Gambling Tax
Tax rates:
1) for the gambling table – 1 278.23 euro per table in month;
2) for the gambling machine – 447.38 euro per in month euro
per gambling machine;
3) 31.95 euro per gambling machine of game of skill;
4) 18 % from the sale of lottery tickets;
5) 18 % from the winning fund of the commercial lottery;
6) 5 % for the toto, amount received from net revenue;
7) 5 % for the online game, amount received from net
revenue;
8) 5 % for the tournament of a game of chance (amount
received from participation fees).
76. Future Plans for Tax Policy
• Lower labour-related taxes and increased
consumption-related and other indirect taxes
– increase of excise duties
– increase of environmental taxes
– decrease of income tax
• Maintaining the current simple tax system
and broad tax base.
• Improving tax administration
77. Plans for the future
The main goal for the future- shifting tax burden
from income and employment to consumption
and environmental taxes
86. Tax rate on low wage earners: Tax wedge
on labour cost
Editor's Notes
The main objective of the medium-term fiscal framework is to ensure conditions for economic stability and sustainable development through budgetary system. Due to the prescriptions of the currency board arrangement, the fiscal policy is the main instrument for the government to influence economy. The government has set balanced budget as its objective, thus trying to make opportunities for further stabile development. Objectives have been set up to ensure long-term economic stability, the stability of the financial system and compliance with international requirements. Balanced fiscal policy determines maintaining conservative lending policies.
