The system of corporate earnings taxation in force currently in Estonia is a unique system, which shifts the moment of corporate taxation from the moment of earning the profits to the moment of their distribution. There are two types of profit distribution possible – an implicit and an explicit way. The explicit way stands for dividends and other profit distributions. The implicit way to distribute profits is to do that through fringe benefits, gifts and donations, as well as expenditures and payments unrelated to business activity. All of these profit distributions are taxed at a rate of 20/80.
For example if you pay dividends 1000 euros, income tax 20/80 applies, which is 25%. That is you have to pay 250 euros income tax from 1000 euros.
You do not have to pay taxes from the company’s profit, if you do not withdraw it.
Value added tax
You have to register your company as a liable to value added tax if your annual income is more than 16 000€. The rate of value added tax shall be 20 per cent of the taxable value.
When you issue invoices between EU companies and both are partyes liable to account for VAT, the tax rate is 0%.
If you have employees, you must pay the income tax which is withheld monthly by the employer at a rate of 20% of the gross salary of the employee (non-taxable amount per month is 180€). A rate of a funded pension payment is 2% of the gross salary of a resident employee. An unemployment insurance premium withheld is 1,6% of the gross salary of an employee. In addition to this, employers pay the unemployment insurance premium at a rate of 0,8% of the amount of gross salaries monthly and social social tax shall be paid at a rate of 33%
Monthly rate of the social tax is 430 euros (gross sum).
The minimum monthly salary for full-time work is 470 euros (2,78 euros per hour) (gross wages).
Employers shall pay the full amount of income and social tax calculated on granted fringe benefits. The rate of income tax on fringe benefits granted to a natural person is 20/80 of the taxable amount. The social tax shall be paid at a rate of 33% on fringe benefits and also on income tax calculated on fringe benefits.
The limit on the costs of entertaining guests, which are exempt from tax, are 32 euros + 2% of the gross wages the company pays. The 32 euros of costs of entertaining guests that is exempt from tax is cumulative, that is if you did not use the 32 euros last month, it will be 64 euros the next month etc. In case the costs exceed 32 euros, the income tax rate 20/80 applies.
You can pay compensation for the use of a private car at the amount not exceeding 355€ per month (0,30 € per km) if there is a written calculation about the journey, without paying any taxes.
The fringe benefit price rate for an official car is 256 euros, from which you have to pay income tax 64 euros and social tax 105.60 euros.
Deadlines Value added tax is payable by the 20th of the month following the period of taxation. Income tax, social tax, unemployment insurance premiums and funded pension payments have to be withheld and paid and declared (form TSD) and transferred to the Estonian Tax and Customs Board by the 10th of every month, following the month of payment.
The limit on the daily allowance for an assigment abroad, which is exempt from tax, is up to 50 euros for the first 15 days, with a maximum of 15 days in a calendar month, and 32 euros for every following day. All accommodation and transportation costs are exempt from tax.