- Taxation of corporate income
- Amount of income tax and payment term
- Taxation of sole proprietor (FIE) income
- Taxation of employees’ income
There are two kinds of income tax – personal income tax and corporate income tax (income tax of a legal person is also paid by all employers who have non-resident permanent places of activity and offer fringe benefits). Besides paying corporate income tax, you are required as an employer to withhold and pay employees’ income tax to the Tax and Customs Board.
Taxation of corporate income
A special feature of corporate income tax in Estonia is the fact that only dividends are taxed. Earnings are not taxed as long as they are reinvested in the company.
Income tax must be paid on distributed earnings, expenses and payments not related to enterprise and on gifts, donations, costs of entertaining guests and fringe benefits granted to employees.
Also subject to income tax are reduction of corporate capital, repurchases of shares and disbursement of liquidation proceeds exceeding the monetary and non-monetary contributions to the company’s equity.
Amount of income tax and payment term
The corporate income tax rate in 2018 is 20/80. The taxation period is a calendar month and the income tax declaration must be submitted to the Tax and Customs Board by the 10th of the subsequent month. You can do that electronically at e-Tax and Customs Board/e-Customs or by contacting the Tax and Customs Board’s regional tax centre.
Annual basic exemption (non-taxable amount) per year is:
Income of the year 2018 – up to 500 EUR in a month and up to 6000 EUR in the year, but decreasing depending on the total income amount.
If total amount of all income is 25 200 EUR in a year or more, there is no right to basic excemption at all.
Taxation of sole proprietor (FIE) income
If you are engaged in enterprise as a sole proprietor (FIE), business income will be subject to income tax, less deductions for business expenses. The FIE tax rate is 20%.
The taxation period is a calendar year and as a FIE, you will have to declare income once a year on your income tax return. Income tax return must be submitted by 31 March of the year following the taxation period. If you earned taxable income in the previous period, you must make advance payments of income tax by 15 June, 15 September and 15 December. The advance payment must be 25% of the total income tax assessed on business income in the previous taxation period.
Taxation of employees’ income
Personal income earned by employees is also subject to income tax and you must withhold and pay income tax on gross wages earned, extra payments, bonus pay, holiday pays and other payments that are regarded as wages.
The natural person income tax rate in 2018 is 20%. If an employee has filed an application to the person making the payments (employer) concerning the implementation of tax-free income, you can deduct the amount of tax-free income permitted per month when calculating the amount of income tax to be withheld.
In addition to income tax, you must withhold from the employee´s income the mandatory funded pension payment and unemployment insurance payment. Besides, social tax should be paid from gross wages of an employee.