Taxation, Uneployment and Pensions in Estonia

Working in Europe | Taxation/salaries, Unemployment | Estonia

Income tax returns 2018

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.

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.

Unemployment insurance

A monthly unemployment insurance tax of 1,6% is deducted from your salary by your employer.

Funded pension payment

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.

Income tax

As of January 2015, income tax is 20%. 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

Social tax is paid by employers at a rate of 33% on all payments made to employees for salaried work performed. There is 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.

Exemption for social security contributions

Social security contributions (social tax, unemployment insurance premium and funded pension payment) will not be paid or withheld in Estonia if the employee has a ceritificate of a posted employee (E101, A1) issued by the authorities of an EU country, or a country with which Estonia has a social security agreement (Canada, Ukraine). To which country should your employer pay your social security contributions? Read more about social security on our Health & Social Security in Estonia page.

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.

Other taxes

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.

Examples of tax calculations for payments made from 1 January 2017

In case an employee is a resident

A gross payment of 1000 EUR is agreed upon

- an unemployment insurance premium of 8 EUR is to be paid by the employer (0,8%)

- the amount of social tax of 330 EUR (33%) is to be paid by employer

a total cost to employer is 1338 EUR

- an unemployment insurance premium of 16 EUR is withheld (1,6%)

- the amount of a funded pension payment withheld 20 EUR (2% of 1000 EUR)

- an income tax of 156.80 EUR is withheld, calculated as 20% x (1000 – 180 – 16 – 20)

- 180 EUR is 1/12 of the annual basic exemption 2 160 EUR of income tax since 2017

a total net result received by the employee is

805.20 EUR, calculated as 1000 – 156.80 – 16 – 20 = 807.20

 

In case an employee is a non-resident

A gross payment of 1000 EUR is agreed upon

- an unemployment insurance premium of 8 EUR (0,8%) is to be paid by the employer

- the amount of social tax of 330 EUR (33%) is to be paid by employer

a total cost to employer is 1338 EUR

- an unemployment insurance premium of 16 EUR (1,6%) is withheld

- an income tax of 196.80 EUR is withheld, calculated as 20% x (1000 – 16) = 196.80

a total net result received by the employee is 787.20 EUR, calculated as 1000 – 16 – 196.80 = 787.20

 

Taxation of non-residents

A non-resident is someone whose place of residence is not Estonia and who stays in Estonia for less than 183 days in a period of 12 months. The residency is decided, taking into account all of the days that were physically spent in Estonia.

Non-residents have a limited tax liability in Estonia, and only the Estonian-source income is taxed in Estonia. Non-residents can claim deductions and allowances available to residents if they are residents of another EU country and have received at least 75% of their income from Estonia.

If the international agreement for the avoidance of double taxation prescribes more favourable conditions for the taxation of the income of non-residents than those provided by law, the provisions of the international treaty apply. You can apply for the tax incentives or exemptions arising from these tax treaties if you have certified your residence status to the tax authority, which can be done using Form TM3 (available on the website of the Estonian Tax and Customs Board). It is not necessary to submit the document if data on you and your residency have been entered in the register of taxable persons. In the event that your income tax has been withheld at a higher rate than prescribed in the tax treaty, you may apply to the Estonian tax authority within three years from the deadline for the payment of the tax for a refund of the overpaid tax amount.

A non-resident is obliged to submit a tax return if he/she has received taxable income that is subject to taxation in Estonia, but on which no income tax has been withheld upon payment.

There are generally no differences for the taxation of residents and non-residents in the case of social tax.

For further information on taxation issues and in the event of difficulties determining your country of residency, see the website of the Estonian Tax and Customs Board or contact the ETCB directly.

See also:

Estonian Tax and Customs Board. Income tax

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

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)