Taxation & incentives - Invest in Estonia (2024)

There is no corporate income tax on retained and reinvested profits.

This means that Estonian resident companies and the permanent establishments of foreign entities (including branches) are subject to 0% income tax for all reinvested and retained profits and a 20% income tax only for all distributed profits (both actual and deemed).

Distributed profits include:

• corporate profits distributed in the tax period;
• gifts, donations, and representation expenses;
• expenses and payments not related to business;
• transfer of the assets of the permanent establishment to its head office or other companies.

Starting from January 1, 2018 – the corporate income tax rate on regular profit distributions was lowered from 20% to 14%, but only in cases where dividends are paid to legal persons.

Fringe benefits are taxable at the level of the employer. The employer pays income tax and social tax on fringe benefits.

Dividends paid to non-residents are no longer subject to withholding tax, irrespective of participation in the share capital of the distributing Estonian company. However, various withholding taxes may still apply to other payments to non-residents if they do not have a permanent establishment in Estonia or unless the tax treaties otherwise provide.

As of 2019, the tax period for corporate entities is a month, income tax must be returned and paid monthly by the 10th day of the following month. You can read more about accounting requirements here.

Use our unique location attractiveness comparison tool to compare Estonia’s investment attractiveness to that of other European countries.

The rate of social tax is 33% (20% for social security and 13% for health insurance). Besides the social tax, unemployment insurance tax at a rate of 0.8% must be paid on the gross salary (an additional 1.6% is withheld from the employees’ salary).

Employers registered in Estonia (including the permanent establishments of foreign entities) must pay social tax on all payments made to employees, except on those specifically exempted by law. Fringe benefits and the income tax thereof are also included in the taxable base. The annual cost per employee can be calculated here.

Information about using the electronic tax system can be found here.

VAT is charged on the supply of goods and services in the course of business activities and the self-supply of goods and services. A taxable person is an individual engaged in business and registered as a taxable person. The threshold for obligatory registration is 40,000 EUR. The threshold for a taxable person with limited liability in the case of the acquisition of goods is 10,000 EUR. There is no threshold in the case of the acquisition of services.

The taxable period is one calendar month, and VAT returns must be submitted to the tax authority by the 20th day of the month following the taxable period.

The Estonian standard VAT rate is 22%, but there is also a reduced 9% rate that applies to certain goods and services including books, teaching/learning materials, newspapers and magazines (also online editions), accommodation services, medicines, and medical equipment, sanitary and toiletry products. The VAT rate for both physical and electronic press publications is5%(from 1 August 2022).

The list of goods and services subject to a VAT rate of0% can be found in the Value-Added Tax Act.

Overview of charging value-added tax.
Information about using the electronic tax system can be found here.

Residents pay taxes on their worldwide income. Taxable income includes, in particular, income from employment (salaries, wages, bonuses, and other remuneration); business income; interest, royalties, rental income; capital gains; pensions and scholarships (except scholarships financed from the state budget or paid based on law). Taxable income does not include dividends paid by Estonian or foreign companies when the underlying profits have already been taxed.

The amount of annual tax-free income can be calculated using the calculator.

The personal income tax is withheld from the employees’ gross salary every month and paid by the employer.

Non-residents pay personal income tax only on their income received from Estonian sources. Taxable income in Estonia includes:

• income from work under a labour contract or contractor’s agreement in Estonia;
• income from a business carried out in Estonia;
• interest income received from Estonia (only if it is substantially higher than that of similar debt claims)
• royalties;
• income from the lease of assets located in Estonia;
• gains from the disposal of assets located in Estonia;
• directors’ fees paid by Estonian enterprises;
• income of a sportsman or an artist from his or her activities in Estonia;
• pensions and scholarships.

Personal income tax declarations need to be filed once a year. Using a secure ID, a taxpayer logs onto the e-Tax system,reviews the data in pre-filled forms, makes any necessary changes, and approves the declaration form. The process typically takes three to five minutes. Even one-click tax returns are possible.

e-Tax is an electronic tax filing system set up by the Estonian Tax and Customs Board. Each year, around 98% of all tax declarations in Estonia are filed electronically.

The system enables you to:

• file an enterprise’s declarations for income tax, social tax, unemployment insurance and contributions to the mandatory pension fund;
• request value-added tax returns;
• request alcohol excise, tobacco excise, fuel excise and packaging excise duty returns;
• file customs declarations;
• file personal income tax declarations.

Non-residents can choose a tax representative. The tax representative of a non-resident is a person to whom the Tax and Customs Board has issued a corresponding activity license authorised to represent the non-resident for the performance of obligations arising in Estonia. You can read more about accounting requirements here.

A wide range of grants and consultation services to help develop and expand your business activity in Estonia are offered, covering different fields and target groups. The selection below is a short overview focused on foreign investors. For more detailed information, please use our e-Consulting service.

Large investor support scheme

Grant amount: up to 3M EUR and above if a strategic project for the government.
Grant purpose: for industrial companies with 50M+ EUR turnover to start new manufacturing operations or expand manufacturing operations with new product lines.
According to the previously approved annual report, the company can apply for support if the parent company or the group to which the company belongs has a consolidated turnover of at least 50M EUR.
Expected result: within a 36-month project period at least 6,7M EUR investment (including the grant) is carried out.
Grant rate: up to 15%.
Supported costs: building and renovation cost; fixed assets; renting, configuration, transportation, and insurance cost of fixed assets; intangible assets.

Support for the digital transformation of companies

Grant amount: up to 300,000 EUR.
Grant purpose: the aim is to support automation and the adoption of digital technologies and robots.
Requirements: for private legal entities registered in the Estonian business register, whose average sales revenue for the 2 financial years preceding the submission of the application, according to the annual reports submitted to the business register, must be at least 200,000 EUR in the applicant’s main field of activity in Estonia.
Expected result: the maximum project period is 18 months (not later than 31.12.2025). The company’s technological intensity, productivity, sustainability and international competitiveness increase.
Grant rate: A more detailed breakdown of the total budget – manufacturing industry and mining industry 51.5 MEUR, other sectors 5 MEUR (total 56 MEUR+). Self-financing up to 50%.
Supported costs: fixed assets when integrated with software systems or machine learning systems, contractual R&D services, staff training, recruitment costs, consulting services, patent costs, etc.

Support for changing the business model of a manufacturing company

Grant amount: green audit up to 10,000 EUR and road map development implementation up to 200,000 EUR.
Grant purpose: In order for “green” to become an integral part of business operations, an industrial entrepreneur can use an external consultant to find out the company’s current green capabilities and discover and implement effective ways to ensure the continuity of production with a focus on sustainable development.
Target group: Companies registered in the Estonian Business Register as industrial entrepreneurs (EMTAK B, C), with the exception of stone and lignite mining (section B, subsection 05), oil and natural gas production and activities supporting production (section B, subsection 06 and 091) and the manufacture of tobacco products (section C, subpart 12).
Grant rate: 50% (self-financing 50%)
Implementation: This support is financed from the resources of the European Union’s NextGenerationEU recovery fund. Therefore, the recipient of the grant is obliged to inform the public about the use of the grant.

Passing preliminary counselling is not mandatory.

Product development program

Grant amount: up to 500,000 EUR.
Grant purpose: R&D support for companies (3+ years of operations in Estonia and 8+ FTE) aiming to develop and launch new products or services.
Expected result: increase the annual sales revenue and added value per employee.
Grant rate: (up to) 45% for micro; 35% for medium size; 25% for large businesses.
Supported costs: fixed assets, renovation cost, recruitment cost, staff training; salary cost of new staff during the project period.

Enterprise development program

Grant amount: up to 500,000 EUR.
Grant purpose: industrial enterprises that have been operating for at least 3 years with a minimum of 8 employees and aiming to develop and launch new products or services.
Expected result: As of the third year of the development plan and up to two financial years after the completion of the development plan, the recipient of the grant is required to increase the annual sales revenue of the enterprise by 10% more than the sales revenue of the relevant sector and added value per employee 10% more than the average added value per employee in the relevant sector.
Grant rate: (up to) 45% for micro businesses; 35% for medium size businesses; 25% for large businesses.
Supported costs: fixed assets, renovation cost, recruitment cost, staff training; salary cost of new staff during the project period.

Support for investments in Ida-Viru business

Total grant amount: 153,000,000 EUR
Maximum grant: depends on the size of the investment, the minimum amount of support is 500 000 EUR
Grant purpose: In Estonia, transitioning to a climate-neutral economy will impact Ida-Viru County most. We encourage companies to diversify their business. The support will make it possible to make investments that create new jobs.
Grant rate: self-financing at least 35%
Grant regulation: here

Companies entered in the Estonian Commercial Register whose area of activity is among the following areas can apply for the grant:

• mining
• manufacturing
• supply of power, gas, steam and conditioned air
• information and communication
• professional, scientific and technical activities
• The applicant must pass the mandatory preliminary consultation before submitting an application.

Eurostars product development

Grant amount: up to 300,000 EUR.
Grant purpose: for SMEs to initiate innovative products or services R&D.
Expected result: within a 36-month project period new product or service must be launched after 2 years from the project completion.
Grant rate: up to 60% for micro and small businesses and up to 50% for medium-sized businesses.
Supported costs: salary of staff and R&D services cost during the project period; business trip costs; the cost of non-fixed assets and depreciation cost of fixed assets that support the undertaken R&D.