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What You Should Know About Estonia's Tax System

March 31, 2021
Moving to a different country isn't all fun and games. It may make you feel excited, but there's a lot to do and to face along the way. Just getting a visa to stay in a different country can already be an arduous process. What more when you settle down there? At that point, you should've already known about the country's tax system. In a country like Estonia, for instance, though overall, there are many similarities to how they do taxes here with those in other countries, some details, no matter how minute, can make for a world of difference!
What You Should Know About Estonia's Tax System

The Legal Requirement of Paying Taxes

Just like in their healthcare system, Estonia taxes all the residents living in the country. In fact, just working for an Estonian company can get you required to pay taxes here. Or if you become a tax resident, which is when you stay in the country for around 180 days (approximately six months) per year. Among all the taxes you'll be facing, the main ones are your income tax and social taxes. You're fully required to contribute all of these during your stay here in Estonia. Failure to do so can result in various consequences, ranging from penalty fees to even possible jail time.

Estonia's Income Tax

Speaking of Estonia's income tax, the way they do things here are vastly different from those in other countries. When you go to France or Italy, for instance, the income tax rate you pay depends on how much you earn per year. Here in Estonia, on the other hand, the income tax rate is at a flat 20%. No matter how much you earn per year in the country, the income tax rate remains the same for everyone. And it's automatically deducted from your salary every month. Compared to those in different countries, this form of imposing the income tax rates actually helps you keep larger portions of your salary.

What You Should Know About Estonia's Tax System

Social Taxes in Estonia

What about your social taxes? The ones that help contribute to Estonia's social security system that funds the country's healthcare, education, and the like? Well, that's not exactly your tax to pay, at least, no direction. The way Estonia imposes social taxes, it's your employer who has to contribute to the flat 33% social tax rate. And this comes from the 20% income tax that was deducted from your salary every month. So while social taxes doesn't affect your monthly salary directly, it still comes from your gross income nonetheless. It remains one of the more important taxes in the country too!

Estonia's Corporate Taxation

When you start a company in Estonia, no that there actually are no corporate income tax in the country. When you earn profit from any business, asset, or security in Estonia, it doesn't automatically make you liable for corporate income tax. Only when you distribute your earnings to shareholders will you be required to contribute your fair share. The country doesn't even have a withholding tax on dividends paid to individuals. This is what separates Estonia's tax system from all the others. And it's also the country ranks first in the International Tax Competitiveness Index.

What You Should Know About Estonia's Tax System

Filing Your Taxes in Estonia

Part of why Estonia's tax system is one of the most coveted in the world is that even the process of filing your income tax returns are less of a hassle. This is because the country has adopted an e-Tax system that lets people file online. All one has to do is register into the system, log-in when it's time to file, check all the pre-filled forms, edit when necessary, and approve all declaration forms. For as fast as three-to-five minutes, anyone can file their income tax returns with no problem at all. And this should take place before the deadline on April 30 of every year!

Estonia's VAT

Finally, one last type of tax that everybody, regardless of their legal status, are obliged to pay in Estonia is its Value-Added Tax (VAT). It comes at a flat rate of 20%, though some necessities can get taxed for as low as 9%. Imposed on all goods and services in the country, everyone pays it even without them noticing at all. that's because, more often than not, the tax is already included at the final price on all the goods and services purchased. It's highly possible that, without the VAT, the retail price on said items would be completely different.

What You Should Know About Estonia's Tax System

You have to know about Estonia's tax system before you settle down here. You may think it's similar to those in other countries but there are some fine details that you won't find anywhere else. And they make a world of difference!