An individual who is a resident of Estonia is liable to tax on worldwide income, irrespective of the origin of the income. Non-residents are taxed on their Estonian-source income. Taxable income includes both active income, such as employment and business income, as well as passive income, such as capital gains, rents and royalties, interest, dividends, certain insurance proceeds, pensions, scholarships, grants, prizes, and lottery winnings, etc. This list is not exhaustive; consequently, any income derived by a resident individual not falling within the above categories is taxable, unless a tax exemption is available.
There are no special taxation rules for expatriates.
Estonia has a proportional (i.e. flat) tax rate of 20%, which applies to all items of income derived by a resident taxpayer. From 2018 onwards, dividends that have been subject to the reduced rate of 14% at the level of the distributing Estonian company will have a WHT of 7% levy. Certain pension payments are subject to a 10% income tax.
There are no local taxes on personal income in Estonia.
In Estonia, all undistributed corporate profits are tax-exempt. This exemption covers both active (e.g. trading) and passive (e.g. dividends, interest, royalties) types of income. It also covers capital gains from the sale of all types of assets, including shares, securities, and immovable property. This tax regime is available to Estonian resident companies and permanent establishments (PEs) of non-resident companies that are registered in Estonia.
The taxation of corporate profits is postponed until the profits are distributed as dividends or deemed to be distributed, such as in the case of transfer pricing adjustments, expenses and payments that do not have a business purpose, fringe benefits, gifts, donations, and representation expenses.
Distributed profits are generally subject to the 20% CIT at 20/80 of the net amount of profit distribution. For example, a company that has profits of 100 euros (EUR) available for distribution can distribute dividends of EUR 80, on which it must pay CIT of EUR 20.
There are no municipal or local income taxes in Estonia.
Foreign businessmen who wish to open a company in Turkey can choose between a limited liability company, joint stock company, limited partnership, or commercial partnership.
The private limited liability company (OÜ – osaühing) is the most common business type e-residents create in Estonia. This is primarily because the Estonian law has been made easy to form, and easy to manage – can be set up within just one business day, the minimum share capital amount is quite low, and can be managed completely remotely – perfect for remote teams and digital nomads. The founders and the shareholders of the corporation will not be personally liable for any damages if they have fully paid their share capital.
In Estonia, the public limited liability company (AS – aktsiaselts) is a business type that can offer shares of stock to the general public and foreign investors. In turn, the buyers of those shares have limited liability. Because of the high entry costs, this is not the most common type of company in Estonia, and typically the AS companies are quite big in size and revenue.
There are two types of partnership companies that one can form in Estonia–a general partnership (TU – täisühing) or a limited partnership (UU – usaldusühing). Both these corporation types are quite uncommon forms of business in Estonia, even though they are quick and easy to form. The difference between the two is the amount of liability one or both owners will have. Both partnership companies, general partnership (TU) and limited partnership (UU), can be founded electronically using your e-Residency card.
A sole proprietorship, also known as FIE (füüsilisest isikust ettevõtja) in Estonia, is the company, which is undoubtedly the easiest to form, as it only needs one person to do so and only a few documents. FIE is the best form of business for individuals, who are doing business on their own (e.g. freelancers), or with their family members (e.g. family-owned restaurant). Because of its low formation costs, it might be an attractive option for freelancers.
In case a foreign company is looking to open a branch office in Estonia to start selling goods or services here, they must register it in the Estonian Business Register. Within the European Union, it is not mandatory to register a branch office in Estonia but is a suggestion as it makes managing them easier. A branch office is not a separate legal entity – the foreign enterprise is responsible for all the liabilities that the Estonian branch has. A foreign enterprise is only allowed to have one branch office in Estonia.
Chandrawat & Partners is a prominent full-service firm dedicated to delivering top-tier professional services to clients both within the domestic and international spheres.
Chandrawat & Partners stands as a dynamic and rapidly expanding full-service firm, specializing in the delivery of exceptional professional and corporate services to a diverse clientele, both foreign and local. We proudly represent companies and individuals across a wide spectrum of sectors through distinct entities established in various countries worldwide.
Chandrawat & Partners stands as a dynamic and rapidly expanding full-service firm, specializing in the delivery of exceptional professional and corporate services to a diverse clientele, both foreign and local. We proudly represent companies and individuals across a wide spectrum of sectors through distinct entities established in various countries worldwide.
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