Present-day Estonia is a tax haven that has a number of advantages, and here are just some of them:
- Corporate and reinvested profit tax rate — 0%
- No real estate tax, while the land tax in the country is very low
- A possibility to use an Estonian company as a holding company’s financial center
- A highly digitized society that enables company management from any part of the world
- Estonia’s excellent reputation in the world
- No capital gains tax
- No red tape
Estonia is located on the Baltic Sea shore. In 2004 the country joined the European Union and became a Schengen Agreement member, and on December 9, 2010, it also became an OECD member. In 2011 the country joined the single European currency and started using euros for settlements.
Estonia’s convenient geographic location (on the border of the European Union and Russia), as well as deep-sea Baltic ports that do not freeze in winter, make the country a very convenient transit territory. Moreover, Estonian ports have state-of-the-industry infrastructure, and three of them are Free Customs Zones (the northern port of Paldiski, the port of Muuga, and the port of Sillamäe).
Over the past years, Estonia has been a stable top 20 country in the economic freedom rankings by Heritage Foundation, and it even took 6th place in 2023. This country is rarely referred to as a tax haven as it has never been an offshore jurisdiction. However, in 2000 the republic’s liberal government passed a law that reduced the corporate income tax to 0% to attract investors to the country.
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General Taxation Laws in Estonia
Just like many other countries, Estonia applies a multi-level taxation system that provides for governmental and local taxes. The first category is paid to the country’s budget, while the second one is used to fill the local treasury.
Governmental Taxes and Mandatory Payments in Estonia
|Income tax||20%||Paid at a rate of 20% on practically all kinds of individual’s income, with dividends being the only exception.|
|Social tax||33%||Companies that operate in Estonia (including local representative offices of non-residents or local employees) should pay a local tax at a rate of 33% (where 20% is pension insurance and 13% is medical insurance). The amount of local tax is unlimited, and it is mainly applicable to salary, remuneration of directors, payment for services, and also to additional individual benefits.|
|Unemployment insurance contributions||1% and 2%||These are levied from employers at a rate of 1%, while the employees pay 2%. The base for contribution calculation is the salary and payment for the services made to an individual.|
|Land tax||0.1-2.5%||Land in Estonia is subject to an annual tax calculated on the basis of the assessment value at a rate from 0.1% to 2.5% (depending on the municipality). The tax is payable by land owners (and sometimes land users) in two parts, before March 31 and October 1 (amounts that do not exceed €64 are paid in one go before March 31). The land occupied by the house is usually exempted from land tax.|
|VAT||0%/9%/20%||The standard rate is 20%. Books, newspapers, magazines, hotel accommodation services, and registered pharmaceutical drugs are subject to a lower VAT of 9%. Some services, such as healthcare, insurance, certain financial operations, and operations with securities, are tax-exempt.|
|Lottery and gambling tax||from 5% to 18%||It depends on the kind of game and is paid for by authorized operators on a monthly basis.|
|Customs duty||Depending on the product/service||Upon becoming an EU member, Estonia automatically adopted the conditions of the Customs Union. It means that the European Union members have duty-free trade between them. The goods imported from non-EU member countries are subject to duties at the rates set by the European Union. Plus, Estonia is covered by all the free-trade agreements that are effective between the EU and other countries.|
|Excise duty||Depending on the product||It is imposed on alcohol, tobacco, fuel, electricity, and some packaging materials exported to the country.|
|Tax on heavy-weight transport (over 12 tons)||from €0 to €232.60 per truck||It is paid on a quarterly basis. The amount depends on the transport.|
Find out the latest news about life in Estonia.
Local Taxes in Estonia
The local tax rates are set and kept by regional and city councils in accordance with the law “On Local Taxes.” It should be noted that their share in the budgets is minor, therefore local authorities do not use them very often.
Local taxes include:
- The advertising tax paid for advertisement placement in public spaces
- The roads and streets closure tax paid for the temporary closure of streets and roads to hold events
- The motor vehicles tax paid for ownership of motor vehicles registered in Estonia
- The pet tax paid by pet owners
- The entertainment tax paid for participation in entertainment events, such as cinema, theater, concert, etc.
- The parking tax is paid for the use of parking spaces in designated areas.
The pet, entertainment, and motor vehicle taxes are not currently levied by any local authorities in Estonia.
Peculiarities of Business in Estonia
Since 2011, any non-resident individual or legal entity can become a sole owner of an Estonian company. Two forms of ownership are mainly applied in the country:
- OÜ – a Limited Liability Company with a minimum authorized capital of €2,500
- AS – a Joint-Stock Company with a minimum authorized capital of €25,000 and at least one director.
Since 2011 you don’t even need to physically contribute the authorized capital to register an OÜ in the country: it can be contributed later, but it is mandatory to do so before payment of dividends. OÜ registration takes no more than 14 days from the date you submit an application to the country’s Commercial Register.
Estonia is so digitized that any country resident can enter the Commercial Register system without leaving home and register an OÜ in the country within 20 minutes. All reports are submitted in the electronic environment only: there is an electronic state portal, an electronic school register, etc.
Estonia’s Commercial Register is open: you can always see company board members there and receive the annual report of any company registered in the country for the past period by paying a symbolic amount of €2. All the shares emitted by joint-stock companies are registered shares and are recorded in a special securities register.
Accounting reports are mandatory in Estonia. They are submitted:
- to the country’s Tax Department twice a month if the company pays VAT
- to the country’s Statistics Department once a quarter
- to the country’s Commercial register once a year (annual report)
The audit is mandatory for all joint-stock companies and some partnerships in the country that meet a number of requirements in terms of sales turnover, number of employees, and amount of balance.
Since May 1, 2004, Estonia’s foreign trade has been regulated by EU Common Commercial Policy. Foreign trade transactions are completed in accordance with trade agreements between the EU and third countries, and also in accordance with the EU’s obligations in the World Trade Organizations. All import and export customs duties are abolished within the EU.
Estonian laws do not impose any restrictions on international bank payments (providing an agreement to the bank, availability of a transaction passport, etc.), and there is no currency control in the country. Funds can be kept and transferred within the country and beyond in any amount and currency.
However, Estonia, like the European Union, has quite stringent anti-money-laundering regulations in place. The supervisory authorities have the right to block large amounts of money on bank accounts if they were received from an offshore country, for example, until their source is clarified.
Estonia has no thin capitalization rules that regulate the ratio of equity and liabilities, so Estonian companies are successfully used as holding companies. They can grant and receive credits for other companies in the holding system by using the payment of interest under credits and loans instead of dividend payments. For example, in 2010 Statoil relocated its financial center to Estonia.
Estonia is not on OECD or FATF lists. As of April 2023, the country signed 64 double taxation treaties, 62 of which have been ratified.
Real Estate in Estonia
All real estate in Estonia is recorded in the Cadaster. All operations with it must be certified by a notary. The latter’s responsibilities include control of the lawfulness and legal capacity of transaction parties (including whether the seller is a real owner of the alienated property). He or she is also responsible to the parties to the agreement in case of damage that occurred through his or her fault, with the notary’s professional liability being insured.
There is no real estate tax in Estonia. Real estate inheritance is not subject to taxation, either.
If you owned real estate in the country and lived in it for at least 2 years, such property sold by an individual is not subject to income tax.
Advantages for International Business in Estonia
This small country provides good prospects to entrepreneurs and investors thanks to its economy, loyal taxation system, and clear laws.
Here are the most significant advantages for business in Estonia that should be paid attention to.
Simple and Accessible Business Registration
Opening a company in Estonia takes just several days and can be fully done online. This makes the country one of the most attractive jurisdictions for international business.
E-Government and Cybersecurity
Estonia is a leader in the e-government sphere, which makes it an ideal place for business development in the sphere of IT and digital technologies. The country is also well-known for its high cybersecurity standards.
Loyal Taxation System
Estonia offers a fiscal system that provides taxation exclusively on the profit distributed in the form of dividends. It means that companies do not pay a corporate tax on the profit reinvested in the business registered in the country.
Wide Access to Banking Services
Estonia’s banking system is known for its cutting-edge technologies and a wide range of financial services, including electronic banking services, multi-currency accounts, and international transfers.
Stable Economic Position
Estonia is well-known for its stable economy and low unemployment. In addition, the country offers one of the highest levels of economic freedom in the world. According to the Estonian Department of Statistics, the level of participation in the workforce made up 73.3%, the level of employment — 69.2%, and the level of unemployment in the country was 5.6% (in 2022).
Estonian laws are characterized by a high level of transparency and predictability, which makes this country a good choice for investors. The laws are equally applied to local and foreign companies, which provides equal conditions to all market players.
Access to European Markets
Estonia is located at the crossroads of transport and trade routes between Europe and Russia. In addition, the country is an EU member, which ensures free access to European markets and the possibility to expand business to the whole continent.
Estonia has a well-developed infrastructure that includes modern highways, developed telecommunication networks, and a wide network of airports and ports. This fact makes the country attractive for logistic companies and enterprises connected with international trade.
On the whole, Estonia is an attractive place for business thanks to its accessible taxation system, loyal laws, developed infrastructure, and access to European markets. Besides, Estonia has a high level of digital infrastructure and cybersecurity, which makes it a good place for the establishment and development of companies in the field of information and digital technologies.
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