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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 July 2009, income tax is 21%, and there is a monthly unemployment insurance tax of 2.8%, 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. However, currently, the pension payments have been stopped until the end of 2010. You can read more about it in the Jobs -> Pensions section.
As of January 2009, the sum of 2250 kroons from the monthly salary is income tax free for Estonian residents. 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 1% 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.
An example.
If your salary is 10 000 EEK according to your employment contract, then:
Firstly, 2.8%, i.e. 280.-, would be withheld from your salary for unemployment insurance unless you have reached retirement age.
Then, of the remaining 9720 kroons, 2250 is income tax free, and 21% income tax (1568,70 EEK) would be withheld from the rest.
Thus, your net salary would be 8151,30 kroons.
Your employer would pay an additional 3300.– social tax and 30.– unemployment insurance.
Estonia has agreements with a number of countries to avoid double taxation.
In Estonia income tax returns must be presented by the 31st of March. If you have only received income from employment in one organisation, and no other income besides that, you do not have to present a declaration of income, but you can still do so, as you may get some refunds. Income tax returns can also be filed electronically through the E-Tax Board (E-maksuamet, available in Estonian), which can be entered from the Estonian Tax and the Customs Board’s homepage with your ID card, or through Internet banking.
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, for example books, medicines etc., is as of January 2009 9%. There are also additional indirect taxes for gambling, tobacco products and alcohol.
Ministry of Finance. Summary of the tax system
Estonian Tax and Customs Board. Taxes
Estonian Tax and Customs Board. Income Tax
Estonian Tax and Customs Board. 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
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