Taxation in Tartu, Estonia
What are the tax rates in Tartu, Estonia? How are corporations taxed? Here’s Teleports overview of personal, corporate and other taxation topics in Tartu, Estonia.
Personal taxation in Tartu
Effective personal income tax rate
| Annual income | $25,000 | $40,000 | $80,000 | $125,000 | $200,000 |
|---|---|---|---|---|---|
| Rate | 20% | 20% | 20% | 20% | 20% |
Teleport city rankings for personal income tax
Personal taxation puts Tartu in position 40 of all Teleport Cities.
Social security
Social security is an employer-borne cost, except for the self-employed. The combined social and health insurance rate paid by the employer on cash and in kind (fringe benefits) employee remuneration is 33%. Employees, however, must make unemployment insurance contributions at 1.6% of taxable remuneration (i.e. any monetary employment income).
Basis
Residents are taxed on their worldwide income. Nonresidents are taxed only on income received from Estonian sources.
Filing status
Joint filing is permitted if both spouses are residents or, subject to certain conditions, if at least one spouse is a resident of another EU member state.
Rates
A flat 20% rate applies. Other taxes on individuals:
Deductions and allowances
The first EUR 2,040 annually is exempt. Deductions include mortgage interest on a residence, training expenses (including those of dependents), except adults driving school and hobby school expenses, donations to nonprofit associations (up to 50% of taxable income and limited to EUR 1,200). Voluntary pension insurance payments may be deducted up to 15% of taxable income and not exceeding the total of EUR 6,000.
Real property tax
An annual land tax is imposed on the assessed value of land and is paid by the owner or user of land at rates ranging from 0.1% to 2.5%. Local municipalities may grant certain exemptions to individuals. In addition, individuals are exempt from the land tax on residential land subject to limits and conditions.
Taxable income
Residents are subject to tax on items including: employment income; business income; gains from the transfer of property; dividends, interest, rent and royalties; pensions, scholarships, grants, benefits, certain awards and lottery prizes; insurance indemnities and payments from pension funds; and income of a legal person located in a low-tax jurisdiction (i.e. income inclusions from CFCs). A limited list of taxable items applies to nonresidents: income from work under a labor contract or contractor's agreement in Estonia; income from a business carried on in Estonia; royalties; income from the lease of assets located in Estonia; gains from the disposal of assets located in Estonia; directors' fees paid by Estonian enterprises or nonresidents; income of a sportsman or an artist from his activities in Estonia; and pensions and scholarships.
Capital gains
Capital gains are treated as ordinary income.
Compliance for individuals
Penalties
A penalty is levied on late tax payments at a rate of 0.06% per day.
Filing and payment
Tax on employment income is withheld by the employer and remitted to the tax authorities. The tax return must be submitted by 31 March and tax paid by 1 July of the following year. If a person has declared capital gains, the deadline for any additional income tax payable is 1 October instead of 1 July.
Corporate taxation in Tartu
Teleport city rankings for corporate income tax
Corporate taxation puts Tartu in position 186 of all Teleport Cities.
Basis
Residents are taxed on worldwide income. Nonresidents are taxed only on income derived from Estonian sources. This rule applies both to Estonian resident companies and to permanent establishments (PE) of foreign companies.
Taxation of dividends
The corporate income tax applies to dividends and is paid by the resident legal person making the distribution. A similar regime applies to an Estonian PE of a nonresident. There is no separate dividend withholding tax.
Residence
A legal person is resident if it is established pursuant to Estonian law. European public limited companies and European associations with their registered seat in Estonia also are deemed to be resident.
Losses
Not applicable (as corporate income tax applies only to distributed profits).
Rate
The corporate income tax is levied at a rate of 20/80 of the net amount (20% of the gross amount) of the profit distribution.
Participation exemption
The corporate income tax will not be charged on a redistribution of dividends if the underlying dividends are received from a subsidiary that is tax resident in an EEA member state or Switzerland and the Estonian parent holds at least 10% of the shares or votes of the payer company. The participation exemption also applies to dividends received from other countries if the Estonian company holds at least 10% of the shares or votes and income tax has been paid on the underlying share of profit, or income tax on the dividends has been withheld in a foreign jurisdiction.
Foreign tax credit
A foreign tax credit is available for all types of foreign-source income unless the Estonian participation exemption applies.
Taxable income
Estonia levies a corporate income tax on a company's distributed profits (in lieu of an annual corporate tax). Retained earnings are not taxed until profit distributions are made. Profit distributions may be specific (i.e. dividends, share buybacks or profit distributions via capital reductions) or deemed (which include expenditure and payments unrelated to business activities, as well as gifts and donations).
Capital gains
Capital gains are treated as ordinary income of Estonian resident companies, but they are taxed only where there is a profit distribution.
Other taxes on corporations
Real property tax
An annual land tax is imposed on the assessed value of land and is paid by the owner or user of the land at rates ranging from 0.1%-2.5%.
Social security
The combined social and health insurance rate paid by the employer on cash and in kind (fringe benefits) employee remuneration is 33%.
Other
Excise duties are levied, inter alia, on fuel, motor vehicles, packaging, alcohol, tobacco and electricity.
Payroll tax
There is no payroll tax, but unemployment insurance contributions must be paid by the employer and the employee on the employee’s monetary employment income. The employer’s contribution is levied at a rate of 0.8%.
Compliance for corporations
Consolidated returns
Consolidated returns are not permitted; each company must file a separate return.
Penalties
A penalty is levied on late tax payments at a rate of 0.06% per day.
Rulings
Advance rulings are available and are binding on the tax authorities for non-transfer pricing issues.
Tax year
Given the nature of the corporate income tax, the relevant taxable period is the calendar month.
Filing requirements
Filing and payment must be made on a monthly basis by the 10th day of the calendar month following the month of taxation. For non-VAT registered taxpayers, filing is required only if taxes on profit distribution and payroll are due for the period.
Other taxation in Tartu
Value added tax
Filing and payment
Filing and payment is made on a monthly basis by the 20th day of the following month. EC Sales Lists also must be submitted on a monthly basis by the 20th day of the following month.
Rates
The standard VAT rate is 20%. A reduced rate of 9% is available on items such as books, newspapers, medicines and accommodation. Zero-rated items include exports, intra-Community supply of goods, the sale of certain services to foreign persons and goods supplied on vessels and aircraft. Exemptions are provided for postal, health, social and insurance services, as well as services for the protection of children and young persons; the supply, letting and leasing of immovable property; and transportation of sick, injured or disabled persons.
Taxable transactions
VAT is levied on the sale of goods and the provision of services within Estonia, intra-Community acquisitions of goods, the import of goods and the provision of services that are taxable in Estonia and supplied by a foreign taxable person.
Registration
A person whose taxable supplies (excluding imports) exceed EUR 16,000 in a calendar year is required to register for VAT. For a foreign person engaged in business in Estonia, the obligation to register arises from the date the first taxable supply occurs.
Anti-avoidance rules
Transfer pricing
If the value of a transaction conducted between a resident legal person and a person associated with that person differs from the value of similar transactions conducted between nonassociated persons, the tax authorities may, upon determining the income (i.e. distribution) tax, use the value of transactions applied by unrelated independent persons under similar conditions. Income tax is charged either on the income the taxpayer would have derived or the expense the taxpayer would not have incurred had the transaction been conducted with unrelated persons under similar conditions.
Other
A general anti-avoidance rule allows the tax authorities to apply what is, in effect, an economic substance rule and special scrutiny is given to payments and fees to low-tax jurisdictions.
Investment basics
Accounting principles/financial statements
IFRS applies, along with the local Accounting Act. Financial statements must be submitted annually.
Principal business entities
These are the private/public limited company, limited partnership, unlimited partnership, commercial association and branch of a foreign corporation.
Withholding tax
Dividends
Estonia does not levy withholding tax on dividends.
Technical service fees
A 10% withholding tax applies if technical services are rendered in Estonia. Withholding tax is not applicable if the services are performed outside Estonia or if there is a tax treaty between Estonia and the service provider’s country of tax residence that provides for an exemption.
Interest
Estonia does not levy withholding tax on interest other than interest derived by a nonresident investor from an Estonian contractual fund or other pools of assets. This exception applies to contractual funds or other pools of assets if more than 50% of the assets at the time the interest is paid or at any time during the previous two years, consist, directly or indirectly, of Estonian-situs real property and the nonresident held at least 10% in the fund/pool at the time of payment.
Royalties
A 10% withholding tax applies to royalties paid to nonresidents. Royalty payments to qualifying EU or Swiss-resident companies may be exempt if they meet the requirements for application of the EU interest and royalties directive. The withholding tax exemption will not apply to any part of the royalties that exceeds the value of similar transactions carried out between unrelated persons.
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