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Tax System of Estonia in 2018: What Has changed?

In 2018, Estonia’s taxation system has been subjected to a number of changes. Here are the most significant of them:

  • A considerable leap in the registration threshold as a payer of sales tax from EUR 16,000 to EUR 40,000.
  • Reduction of the tax benefit on regularly paid dividends from 20% to 14%. For the first time, a reduced rate can be applied for dividend payments in the next year, taking into account that in 2018, the corresponding tax was levied at a rate of 20%. The benefit does not apply to the dividends received and already taxed. It also does not apply to the loans that are taxed as a hidden profit distribution. In 2019, the dividend amount will be taxed at a reduced rate, corresponding to one third of the dividends paid in the previous year. In 2020, this benefit will be applicable to the amount of dividends corresponding to one third of the dividends paid in 2019-2020, and in 2021 – to the amount equivalent to the average value of the dividends paid for the previous three years.
  • Introduction of new obligations for commercial organizations that issue loans to their stockholder, shareholder or member. We remind you that a commercial association pays income tax from such a loan, if the terms of the transaction indicate a possible hidden distribution of profits. In accordance with the adopted amendments, if the term for the payment of a given loan exceeds 48 months, the taxable person must provide the evidence:
    • intentions of the borrower to pay the loan;
    • the possibility of credit repayment

Confirmations must be submitted within 30 days at the request of the tax administrator.

The obligations extend to the loans, as well as conditions to them, issued/amended, starting on July 1, 2017. At the same time, to date, the law does not provide clear instruction on the implementation of the new rules.

There is also a requirement to provide the tax manager with a complete information on the issuance of loans / credits and their repayments by the 20th day of the month following the reporting quarter.

  • Adoption of 2% contribution rate on compulsory funded pension and the income amount, which is not subject to taxation by the income tax – from 0 to EUR 6 000 (for comparison, in 2017– EUR 2 160).
  • Introduction of the income tax on interest on deposits. At the same time, tax is not levied regarding the interest paid to the residents by the credit institutions – residents of the Member States of the EEC.
  • Increase of a monthly social tax rate from EUR 430 to EUR 470 and minimal social tax per month from EUR 141,90 to EUR 155,10.
  • The members of the governing and supervisory body, policymakers, individual-entrepreneurs, judicial officers, persons of creative industries and others, related to private entrepreneurs, are exempt from unemployment insurance premium.