Estonia’s electronic tax filing system has made the process of filing taxes fast, easy, and accessible to everyone. As the tax declaration submission period started in Estonia last week, the country is once again preparing to show the world its advances in e-government solutions.
Estonia was one of the first countries to launch a fully online e-tax filing system, and the trend has continued since then. The electronic filing system powered by the Estonian Tax and Customs Board (MTA) is available online, and individuals can submit their taxes from anywhere in the world, eliminating the need to physically be in Estonia to take advantage of the tax filing system.
The tax declaration campaign in Estonia starts in mid-February and runs until mid-May every year. “Filing your taxes isn’t popularly known as Estonia’s national pastime for nothing; the e-MTA portal sees the highest number of visitors as soon as the info goes public, meaning the first day returns go live,” said MTA media relations specialist Kertu Laadoga in a comment to ERR.
Why is the process of tax declaration so popular? Estonia’s success in the tax system comes in two parts, as explained by the President of Estonia (2006-2016), Toomas Hendrik Ilves: the adoption of a flat-rate income tax in 1994 and the implementation of a simplified tax system. The latter led to a significant boost in compliance, even with a paper-based system.
Later, digital filing of income tax was offered, turning the process of filing taxes into a 3-5 minute operation since all taxable income, as well as deductions, are pre-filled. In case of any missing information, the individual can add it in just a few clicks from their online bank. This is enabled by Estonia’s secure e-backbone, the X-Road, which makes it easy to submit all the necessary data to the Tax and Customs Board’s server.
As a result, most Estonians have been doing their taxes online since the early 2000s, and for 2021, 99% of all income tax declarations have been submitted digitally. The MTA is expecting to receive some 753,000 tax returns this year. And besides convenience, it bets on another incentive for the taxpayer — the sooner you submit your taxes, the sooner you will be entitled to the refund for the overpaid income tax, which will be usually transferred after 2 weeks.
With all those clever policies and innovations, the country has been repeatedly ranked first in individual tax competitiveness according to the Tax Competitiveness Index.
The world’s best tax system
Estonia’s tax system is business-friendly. Actually the world’s best, according to the Tax Foundation. The country’s tax system allows businesses to pay 0% income tax on all reinvested and retained profits, making it a “no-brainer” to invest in the country. This means that earning profits in itself does not trigger income tax liability. The tax obligation arises only when earnings are distributed to shareholders. It also saves a tremendous amount of time. On average, companies in OECD countries are estimated to spend 44 hours per year figuring out what they owe in taxes, which is unheard of for businesses in Estonia.
Wish to invest in Estonia or do business in the country that has the world’s best tax system? Read more about taxation in Estonia and send us a request for e-Consultingto find out more from one of our advisors.