2016 /17

Estonia

FOREWORD
A country's tax regime is always a key factor for any business considering moving into new markets.
What is the corporate tax rate? Are there any incentives for overseas businesses? Are there double
tax treaties in place? How will foreign source income be taxed?

Since 1994, the PKF network of independent member firms, administered by PKF International
Limited, has produced the PKF Worldwide Tax Guide (WWTG) to provide international businesses
with the answers to these key tax questions.

As you will appreciate, the production of the WWTG is a huge team effort and we would like to
thank all tax experts within PKF member firms who gave up their time to contribute the vital
information on their country's taxes that forms the heart of this publication.

The PKF Worldwide Tax Guide 2016/17 (WWTG) is an annual publication that provides an overview
of the taxation and business regulation regimes of the world's most significant trading countries. In
compiling this publication, member firms of the PKF network have based their summaries on
information current on 30 April 2016, while also noting imminent changes where necessary.

On a country-by-country basis, each summary such as this one, addresses the major taxes applicable
to business; how taxable income is determined; sundry other related taxation and business issues;
and the country's personal tax regime. The final section of each country summary sets out the
Double Tax Treaty and Non-Treaty rates of tax withholding relating to the payment of dividends,
interest, royalties and other related payments.

While the WWTG should not to be regarded as offering a complete explanation of the taxation
issues in each country, we hope readers will use the publication as their first point of reference and
then use the services of their local PKF member firm to provide specific information and advice.

Services provided by member firms include:

 Assurance & Advisory;

 Financial Planning / Wealth Management;
 Corporate Finance;
 Management Consultancy;
 IT Consultancy;
 Insolvency - Corporate and Personal;
 Taxation;
 Forensic Accounting; and,
 Hotel Consultancy.

In addition to the printed version of the WWTG, individual country taxation guides such as this are
available in PDF format which can be downloaded from the PKF website at www.pkf.com

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IMPORTANT DISCLAIMER
This publication should not be regarded as offering a complete explanation of the taxation matters
that are contained within this publication. This publication has been sold or distributed on the
express terms and understanding that the publishers and the authors are not responsible for the
results of any actions which are undertaken on the basis of the information which is contained
within this publication, nor for any error in, or omission from, this publication.

The publishers and the authors expressly disclaim all and any liability and responsibility to any
person, entity or corporation who acts or fails to act as a consequence of any reliance upon the
whole or any part of the contents of this publication.

Accordingly no person, entity or corporation should act or rely upon any matter or information as
contained or implied within this publication without first obtaining advice from an appropriately
qualified professional person or firm of advisors, and ensuring that such advice specifically relates to
their particular circumstances.

PKF International Limited (PKFI) administers a family of legally independent firms. Neither PKFI nor
the member firms of the network generally accept any responsibility or liability for the actions or
inactions of any individual member or correspondent firm or firms.

PKF INTERNATIONAL LIMITED

JUNE 2016

© PKF INTERNATIONAL LIMITED

All RIGHTS RESERVED
USE APPROVED WITH ATTRIBUTION

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STRUCTURE OF COUNTRY DESCRIPTIONS

A. TAXES PAYABLE

COMPANY TAX
CAPITAL GAINS TAX
BRANCH PROFITS TAX
VALUE ADDED TAX (VAT)
FRINGE BENEFITS TAX
LOCAL TAXES

B. DETERMINATION OF TAXABLE INCOME

C. FOREIGN TAX RELIEF

D. CORPORATE GROUPS

E. RELATED PARTY TRANSACTIONS

F. WITHHOLDING TAX

G. EXCHANGE CONTROL

H. PERSONAL TAX

I. TREATY AND NON-TREATY WITHHOLDING TAX RATES

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MEMBER FIRM
For further advice or information please contact:

City Name Contact Information

Tallinn Rein Ruusalu +372 66 30 829

Rein.Ruusalu@pkf.ee

BASIC FACTS
Full name: Republic of Estonia
Capital: Tallinn
Main languages: Estonian, English, Russian
Population: 1.3 million (2013 PRB)
Major religion: Christianity
Monetary unit: EURO
Internet domain: .ee
Int. dialling code: +372

KEY TAX POINTS

• Estonian resident companies do not pay tax on their profits until they are distributed to
shareholders. The taxable period is the calendar month.
• There is no separate capital gains tax. Gains derived by resident companies or branches of
foreign companies are exempt until a distribution is made.
• Value added tax applies to most goods and services.
• Local taxes are imposed by only a few municipalities.
• Foreign tax is mostly relieved by exemption by virtue of the provisions of the double tax
agreements with most overseas jurisdictions.
• Withholding taxes apply to interest, royalties and dividends paid to non-resident corporate
shareholders. However, withholding tax only applies to interest to the extent that it exceeds the
open market rate.
• Income tax applies to individuals at a single, flat rate.

A. TAXES PAYABLE

COMPANY TAX
Estonian resident companies are liable for corporate income tax on their worldwide income. Corporate
income tax is not levied when the company makes profits but when those profits are distributed to the
company's shareholders. The rate is 20% on the gross profits distributed or 20/80 on the net amount
of the dividend distributed to the shareholders. Although the tax applies like a withholding tax on the
recipient of the dividend it is, strictly speaking, a tax on the company. The taxable period is the
calendar month.

CAPITAL GAINS TAX

There is no separate capital gains tax in Estonia. Gains derived by resident companies or branches of
foreign companies are exempt until a distribution is made.

BRANCH PROFITS TAX

There is no specific branch profits tax in Estonia. Branches of foreign companies are taxed under the
same principles as resident companies, i.e. taxed on the distribution of profits.

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VALUE ADDED TAX (VAT)

The supply of most goods and services is subject to VAT. Some goods and services are exempt from
VAT. The standard VAT rate is 20%. A lower rate of 9% applies to certain items such as books,
medicinal products etc. Exports from Estonia are zero rated.

FRINGE BENEFITS TAX

Fringe benefits are taxed as income. With effect from 1 January 2008, 20% income tax is levied on
the gross value of the benefit plus 33% social security contribution.

LOCAL TAXES
Local government has the right to impose local taxes but presently only a few municipalities do so.

B. DETERMINATION OF TAXABLE INCOME

As the income of Estonian-resident companies is exempt from tax, there is no requirement for
determining trading income for tax purposes. Tax is levied on the payment of dividends and
distributions of profit in other forms such as fringe benefits, gifts and other non-business related
payments.

C. FOREIGN TAX RELIEF

Under Estonia's double tax treaties, foreign tax is mostly relieved by exemption.

D. CORPORATE GROUPS
Corporations are taxed separately in Estonia. There is no concept of consolidated tax returns.

E. RELATED PARTY TRANSACTIONS

Related party transactions may be adjusted for tax purposes if the transactions are not at arm's
length.

F. WITHHOLDING TAX
Withholding taxes must be deducted from interest, royalties and dividends paid to non-resident
corporate shareholders (see table below). Withholding tax applies to the interest payments only if the
interest rate is over the market rate and only to the proportion above the market rate.

G. EXCHANGE CONTROL
There are no exchange controls in Estonia.

H. PERSONAL TAX
There is one income tax rate of 20% and it applies to most income over the annual tax-free threshold
of EUR 2,040. Employers are obliged to withhold income tax from employees' salaries. In addition, the
following social security rates apply:
• Social security tax of 33% of gross salary;
• Unemployment insurance:
- Employer 0.8% of gross salary;

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- Employee 1.6% of gross salary.

Dividends received from resident companies and interest received from EU credit institutions are tax
free.

I. TREATY AND NON-TREATY WITHHOLDING TAX RATES

There is no withholding tax on dividends in Estonia.

Interest1 Royalties2 Royalties3

(%) (%) (%)

Non-treaty countries 20 10 10
Treaty countries:
Albania 5 5 5
Armenia 10 10 10
Azerbaijan 10 10 10
Austria 10 5 10
Bahrain5 0 0 0
Belarus 10 10 10
Belgium 10 5 0
Bulgaria 5 5 5
Canada 10 10 0
China 10 10 10
Croatia 10 10 10
Czech Republic 10 10 10
Cyprus5 0 0 0
Denmark 10 5 0
Finland 10 5 0
France 0 5 0
Georgia 0 0 0
Germany 10 5 10
Greece 10 5 10
Hungary 10 5 0
Iceland 10 5 0
India 10 10 10
Ireland 10 5 0
Isle of Man 0 0 0
Israel 5 0 0
Italy 10 5 0
Jersey 0 0 0
Kazakhstan 10 15 15
Korea 10 5 10

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Interest1 Royalties2 Royalties3

(%) (%) (%)

Latvia 10 5 10
Lithuania 10 10 10
Luxembourg 10 5 10
Macedonia 5 5 5
Malta 10 10 10
Moldova 10 10 10
Netherlands 10 5 0
Norway 10 5 0
Poland 10 10 10
Portugal 10 10 10
Romania 10 10 10
Serbia 10 54 10
Singapore 10 7.5 7.5
Slovak Republic 10 10 10
Slovenia 10 10 10
Spain 0 5 0
Sweden 10 5 0
Switzerland 0 5 0
Thailand5 10 8 10
Turkey 10 5 10
Turkmenistan5 10 10 10
Ukraine 10 10 10
United Arab Emirates 0 0 0
United Kingdom 0 5 0
United Mexican States 4,96/10 10 10
United States 10 5 10
Uzbekistan5 5 10 10

NOTES:
1. Withholding tax applies to the interest payments only if the interest rate is over the market rate
and only to the proportion above the market rate.
2. Generally, rate applicable to royalties for equipment rental (but see additional notes below).
3. Royalties other than in note 2 above.
4. Rate applicable to copyright royalties.
5. In effect from 1 January 2014.
6. The interest paid to banks and pension funds or pension schemes.

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