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Taxation & incentives

There is no corporate income tax on retained and reinvested profits, 14-20% tax on distributed profits. Taxes can be declared fully online. Several useful grants and incentives available for foreign investors.

  • 0% tax on retained and reinvested profits
  • 14-20% the tax rate on distributed profits
  • 98% of taxes are declared electronically
  • 3 min to file a personal tax declaration

Corporate income tax

0%tax on retained and reinvested profits

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.

14-20 %tax on distributed profits

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.

Labour taxes

33%social tax

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.

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

Value added tax (VAT)

Standard VAT rate20%

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 20%, but there is also a reduced 9% rate that applies to certain goods and services that includes books, teaching/learning materials, newspapers and magazines (also online editions), accommodation services, medicines, and medical equipment, sanitary and toiletry products.

The zero VAT rate applies to exports, the intra-community supply of goods, international passenger services, goods, and services supplied onboard ships and airplane, delivery of goods, services for diplomatic and consular missions, international organisations, institutions of the European Union and NATO, goods located in free zones, services supplied to other countries, cross-border services. There are also goods and services exempted from VAT payment like transactions of securities and financial services, insurances, postal, health, and social services.

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

Personal income tax

20%personal income tax rate for 2021

Residents pay tax 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 for 2021 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 system

98%of taxes are declared online

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.

Grants available to
foreign investors

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.

Investment aid to shared service and R&D centers

Grant amount: up to 200,000 EUR.
Grant purpose: for companies with 25M+ EUR turnover starting new SSC/BPO/R&D centers in the areas of accounting, finance, HR, procurement, technical services, and other support services as well as in any R&D activities.
Expected result: within an 18-month project period at least 5 new full-time jobs are created with at least 1,25 times the monthly gross salary of the county average monthly salary where the job is located.
Grant rate: up to 35% if located in Tallinn and up to 65% if located outside of Tallinn and its surrounding municipalities.
Supported costs: fixed assets; renovation cost; recruitment cost; staff training; salary cost of new staff during the project period.

Large investor support scheme

Grant amount: up to 3,000,000 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.
Expected result: within an 18-month project period at least 10,000,000 EUR investment is carried out.
Grant rate: up to 10%.
Supported costs: building and renovation cost; fixed assets; renting, configuration, transportation, and insurance cost of fixed assets; intangible assets.

Ida-Virumaa industrial investments scheme

Grant amount: up to 990,000 EUR (up to 30,000 EUR per new full-time job creation).
Grant purpose: increase the number of jobs in the industrial sector in Ida-Virumaa through expansions and new undertakings that generate new full-time jobs with salary levels higher than the county average in the manufacturing industry.
Expected result: given the minimum aid amount of 150 000 EUR, each project must result in at least five new jobs in Ida-Viru County.
Grant rate: up to 45% for small, 35% for medium, 25 % for large enterprises.
Supported costs: building and renovation cost; fixed assets; renting, configuration, transportation, and insurance cost of fixed assets; intangible assets; subscription to networks (power, water, and sewerage, etc.).

Applied research program

Grant amount: 100,000 – 3,000,000 EUR.
Grant purpose: for SMEs and large corporates undertaking applied research and experimental development for new products and services in smart specialization areas. Required technology readiness levels (TRL) 3-8 with significant technology, process, product, or service improvement.
Expected result: at least one applied research and experimental development of a new product or service.
Grant rate: Feasibility study – 70% for small, 60% for medium, 50% for large enterprises.
Applied research activities – 70-80% for small, 60-75% for medium, 50-65% for large enterprises.
Product development – 45-60% for small, 35-50% for medium, 25-40% for large enterprises.
Supported costs: staff and R&D partners training and development cost; salary of permanent or temporary staff, market research, feasibility studies, testing, and other R&D related services cost during the project period; initial IP protection costs.

Digitalisation roadmap program

Grant amount: up to 15,000 EUR.
Grant purpose: support the preparation of diagnostics for the digitalisation and automation of manufacturing operations of SMEs and large enterprises with at least 200,000 EUR turnover.
Expected result: outsourced digital diagnostics report containing an overview of business model, supply chain, production or service process; evaluation of bottlenecks that can be resolved with digital solutions; impact to business model and return on investment from tackling those bottlenecks with digital solutions; at least one digitalisation terms of reference proposal completed.
Grant rate: up to 70% (up to 50% in Tallinn and Tartu).
Supported costs: outsourced digitalisation roadmap.

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 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 microbusiness; 35% for medium size business; 25% for large business.
Supported costs: fixed assets; renovation cost; recruitment cost; staff training; salary cost of new staff during the project period.

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.

Horizon 2020 product development

Grant amount: various amounts reaching up to millions of euros.
Grant purpose: for SMEs and large corporates undertaking R&D activities towards new products and services in various areas of life (health, digital, industry, space, climate, energy, mobility, food, bioeconomy, natural resources). The project must include a minimum of 3 beneficiaries from 3 different EU Member States or H2020. associated countries.
Expected result: various R&D outcomes depending on the nature of the individual project call.
Grant rate: up to 100% depending on the nature and priority of the R&D project.
Supported costs: various depending on the nature of the individual project call. Can be anything from the salary of staff and R&D services cost during the project period to purchasing assets.

Taxation & incentives

Here are some useful links regarding taxation:

You are also welcome to send us an enquiry for more specific information.

Doing business in Estonia

News & events

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What is it like to run a business in Estonia? How to benefit from the e-solutions and the efficiency of our business culture? What are the opportunities in specific sectors? Who to partner up with?

The Estonian Investment Agency’s team is happy to help you via its complimentary e-Consulting service, organize online or offline follow-up events such as virtual investment visits and guide you through the fairly simple process of investing in Estonia.

Request e-consulting