Value-added tax (VAT)
The following transactions are subject to Estonian VAT:
- Taxable supplies of goods and services (the place of supply of which is Estonia).
- Taxable imports of goods.
- Taxable intra-Community acquisitions of goods.
The standard VAT rate is 20%. A reduced rate of 9% is applied to books, periodicals (with few exceptions), hotel accommodation services, and listed pharmaceuticals.
The VAT rate on the export of goods and certain services is 0% (i.e. exempt with credit). Some services, such as health care, insurance, certain financial, and transactions with securities, are exempt (i.e. exempt without credit).
Transactions in real estate are generally exempt from VAT, but there are certain significant exceptions (e.g. transactions in new and significantly renovated buildings). Taxpayers can elect to add VAT to real estate transactions if certain conditions are met.
The reverse-charge mechanism applies to the supply of gold, waste metal, and real estate, under which VAT is accounted for by the VAT liable purchaser and not by the supplier. For real estate and investment gold, the reverse charge applies only when the seller has opted for taxation.
If the taxable supplies of Estonian resident businesses or a PE of a non-resident business in Estonia exceed EUR 40,000 in a calendar year, VAT registration is required. Voluntary registration is also possible. Certain transactions of non-resident businesses require Estonian VAT registration without any threshold.
The VAT accounting period is generally a calendar month, and VAT should be declared and paid on or before the 20th day of the following month.
Under certain conditions, an EU taxable person that is not registered for VAT in Estonia will be entitled to a refund of input VAT paid in Estonia. Non-EU taxable persons are entitled to claim VAT refunds based on reciprocity.
Estonia has implemented a system that allows, under certain conditions, a company to account for VAT on imports on the VAT return without paying VAT to the customs authority.
After becoming a member of the European Union, Estonia also became a member of the Customs Union. The Community Customs Code and related implementation regulations apply, meaning that:
- trade between Estonia and other EU countries is customs-free
- imports from non-EU countries are subject to EU customs tariffs, and
- numerous free trade agreements concluded between EU and non-EU countries apply to Estonia.
Excise taxes are levied on tobacco, alcohol, electricity, some packaging materials, and motor fuel.
Land and property taxes
Land is subject to an annual land tax, which is calculated on the assessed value of land at rates between 0.1% and 2.5%, depending on the municipality. The tax is paid by the owners of land, or sometimes by the users of land, in two instalments, by 31 March and 1 October (amounts not exceeding EUR 64 are paid in one instalment by 31 March). The land under a home is generally exempted from land tax.
There is no property tax (i.e. tax on the value of buildings).
Property transfers are generally subject to state and notary fees.
There are no transfer taxes in Estonia.
Certain transactions may be subject to insignificant stamp taxes (i.e. state fees).
In addition to payment of the social tax, unemployment insurance contributions, and compulsory accumulative pension scheme contributions (see below), employers should withhold personal income tax (PIT) at the flat rate of 20% after deduction of the employee’s contribution to unemployment insurance scheme, compulsory accumulative pension scheme, and, if relevant, personal deduction, which may be up to EUR 654 per month.
Social tax and unemployment insurance
Employers operating in Estonia (including non-residents with a PE or employees in Estonia) must pay social tax on certain payments to individuals at the rate of 33% (where 20% is used for financing public pension insurance and 13% is used for financing public health insurance). Social tax paid by employers is not capped and mainly applies to salaries, directors’ fees, and service fees paid and fringe benefits granted to individuals.
In addition to social tax, employers are also required to pay and withhold unemployment insurance contributions. Employers must pay 0.8% and employees must pay 1.6% (collected by employers through payroll withholding). The contributions mainly apply to salaries and service fees paid to individuals.
Compulsory accumulative pension scheme
Employers’ payroll withholding includes 2% contributions to the compulsory accumulative pension scheme if the employee has joined that pension scheme. Under the compulsory accumulative pension scheme, resident employees born after 31 December 1982 are obligated to join the compulsory accumulative pension scheme and make contributions at 2% from gross salary. For resident employees born before 1983, joining the compulsory accumulative pension scheme is voluntary, but, after joining, it becomes compulsory and employees may not subsequently leave the scheme.
Heavy goods vehicle tax
The heavy goods vehicle tax is paid for the following classes of vehicles that are registered with the Estonian National Motor Vehicle Register and are intended for the carriage of goods:
- Lorries with a maximum authorised weight or gross laden weight of not less than 12 tons.
- Road trains composed of trucks and trailers with a maximum authorised weight or gross laden weight of not less than 12 tons.
The tax is paid by the owners or users of the vehicles. The quarterly tax rates range from EUR 0 to EUR 232.60 per heavy goods vehicle.
Gambling tax is imposed on amounts received from operating games of skill, totalisator, betting, lotteries, and promotional lotteries. Tax is also charged on gambling tables and machines used for games of chance located in licensed premises. The tax is paid monthly by authorised operators.
Local taxes can be imposed by rural municipalities or city councils; however, the fiscal significance of local taxes is almost non-existent. Local taxes include advertisement tax, road and street closure tax, motor vehicle tax, tax on keeping animals, entertainment tax, and parking charges.