Taxation, Uneployment and Pensions in Estonia

Working in Europe | Taxation/salaries, Unemployment | Estonia

Taxation

Estonian taxation system is considered to be simple and liberal. Compared to most European countries, the major difference is that income tax has only one general flat rate.

Direct taxes are withheld from the salary automatically by the employer. Direct taxes are income tax, unemployment insurance and the funded pension payment.

As of January 2015, income tax is 20%, and there is a monthly unemployment insurance tax of 1,6%, which is deducted from your salary by your employer.

A funded pension payment is withheld from your salary at a rate of 2%, if you have joined the optional funded pension system. You can read more about it in the Pensions section.

As of January 2017, the sum of 180 euros from the monthly salary is income tax free for Estonian residents. As of January 2018, the sum of 500 euros from the monthly salary will be income tax free. You must ask your employer to take the income tax free sum into account monthly for salary payments. Income tax is not charged on compensation for official travel, accommodation and daily allowances, if these are within the limits established by the law.

Social tax is paid by employers at a rate of 33% on all payments made to employees for salaried work performed, as well as an extra 0,8% unemployment insurance. Social tax is not part of the salary number; it is calculated on the basis of the agreed (gross) salary. 13% of the social tax goes to the Health Insurance Fund and 20% goes to pension insurance.

Estonia has agreements to avoid double taxation with many countries, incl. all EU member states. Some of these agreements have more favorable conditions for researchers or professors so check the agreement with your home country.

Income tax returns of 2018 must be presented to the Estonian Tax and Customs Board by 31st of March 2018. See other important dates for persons submitting income tax returns here. See more info in Income tax returns tab below.

There is also a land tax for landowners. The land tax varies in different towns and counties and must be paid by the landowner according to the tax announcement that he/she receives from the Estonian Tax and Customs Board.

The most important of the indirect taxes is the value-added tax (VAT), which is 20% (from 1 July 2009) for most goods. The VAT for some goods, such as books, medicines etc., is 9%. There are also more indirect taxes for gambling, tobacco products and alcohol.

 

Determination of the country of residence

A key element for all your taxation issues is to work out whether you are an Estonian resident or non-resident for tax purposes. Residency rules can be quite complicated so please read with care. Before coming to Estonia, we advise to ask from your local tax authority a certificate proving your previous status as tax payer. This comes handy especially in case your home country has a bilateral tax treaty with Estonia and you are subject to certain benefits.

 

It is important to remember that your status of residence must be certified by the Estonian Tax and Customs Board. The decision will be made upon your application that you should file after arriving Estonia.

Determining the place of residence is based on a number of conditions.

Firstly, it is of importance, whether your home country has an effective bilateral tax treaty with Estonia. If yes, then it is considered whether:

  1. You stay in Estonia less than 183 days within 12 month period; and
  2. You receive income from sources outside of Estonia; and
  3. Your employer does not have a permanent establishment here to conduct business in Estonia

If the answer to these questions is yes, then you will probably be considered resident of the other contracting country, your income will be taxable only in you home country and you do not have to pay taxes in Estonia. Treaties may also prescribe other conditions for the determination of residency. To prove that prior to arriving in Estonia you have been a tax resident of the other contracting country, you need a certificate issued by your local tax authority.

 

Even if one condition is not fulfilled – for example, if you are employed by an Estonian organisation Estonia has the right to tax your income. Usually the employer withholds income tax according to Estonian legislation already while making payments. In case the employer does not withhold income tax, it is your obligation to declare your income.

 

In the event that your home country does not have an effective bilateral tax treaty with Estonia, the decision concerning your residency is based upon the number of days spent (or planned to be spent) in Estonia.

If you stay in Estonia less than 183 days within 12-month period and the income is paid by Estonian state, local government, resident, non-resident employer in Estonia or permanent establishment of non-resident legal person registered in Estonia, you are considered a non-resident of Estonia and Estonia has the right to tax your income arising from Estonia.

 

If you stay in Estonia for more than 183 days within 12-month period you will become an Estonian resident and you are obliged to declare your worldwide income (wherever arising). Estonia has the right to tax all your income wherever arising and you will be treated as Estonian resident for tax purposes.

© Estonian Tax and Customs Board / http://www.emta.ee/index.php?id=30746

© Estonian Tax and Customs Board / http://www.emta.ee/index.php?id=30746

Estonian Tax and Customs Board. Agreements to avoid double taxation

Estonian Tax and Customs Board. Refund of the overpaid income tax in Estonia

 
 

 

 

by Tõnu Runnel

Unemployment

Unemployment insurance benefits are paid to legal residents of the EU. To receive an unemployment insurance benefit, unemployment insurance contributions must have been paid for at least 12 months of the previous 36 months. Read more...

 

 

Pensions

Pensions

Estonia contributes to pensions of foreigners for the time worked in Estonia.The retirement age in Estonia is currently 63 years for men and women. Read more...

 

 

See also:

Estonian taxes and tax system (presentation by the Ministry of Finance)

Estonian Tax and Customs Board. Information for private client

Estonian Tax and Customs Board. Income Tax

Estonian Ministry of Finance. Agreements to avoid double taxation

Estonian Tax and Customs Board. Refund of the overpaid income tax in Estonia

Estonian Tax and Customs Board. Foreigners coming to work to Estonia – taxation checklist (PDF)

Income Tax Act

Salary/Wage and Tax Calculator (unofficial website)