The taxation system in Estonia

Taxes? You mean, e-Taxes

Estonia takes great pride in being able to offer e-tax, a completely electronic, tax filing system, that takes around three minutes to complete, created by the Estonian Tax and Customs Board. By using a secure ID, you can log into the system, inspect the data (provided by your employer to the state) that appear on your pre-filled tax form, make any changes, if necessary, approve and submit. Since 2015, there's also the option of 'one-click tax returns' that takes less than a minute -- your data is already in the system, along with the calculated result, and all you have to do is hit the confirmation button. It's no wonder, then, that about 95% of all tax declarations annually are being filed electronically.

And it's not just your individual income tax claims that you can handle through the system. You can also use it for INF declarations, customs declarations, excise on goods (such as alcohol, tobacco, and fuel) and packaging excise duty returns, value-added tax returns, and anything related to your company or enterprise (social tax, unemployment insurance, pension fund contributions, etc.).

So what exactly do you pay and when?

First things first. To be considered a tax resident, you need to have a permanent home in Estonia, stay in the country for more than 183 days in any calendar year, or be an e-resident.

Although the process may slightly vary for e-residents, where their country of residence might affect their overall taxation responsibilities if you are a physical tax resident in Estonia things are super simple and straightforward.

Every month, taxes are withheld from your gross salary by your employer, without you having to make any additional payments or file monthly tax returns. The amount that is withheld is a 20% income tax for everyone. Your employer is also paying a social tax (33% of your gross salary), which makes you automatically eligible for Estonian social and health insurance. The 20% tax rate also applies to the value-added tax for goods and services (although some goods have a reduced VAT of 9%).

The country does not impose gift, inheritance, or estate taxes and there are also deductible expenses such as pensions and unemployment insurance contributions, deductions for children, donations, training expenses, etc..

Good to know: You are allowed to postpone taxation on investment income by using an investment account.

At the beginning of each year and no later than March 31, you should file in the annual personal income tax return to report your previous year's income (which, as mentioned before, is already in pre-filled forms and takes a couple of minutes to approve and submit).

Important: If you didn't use any of the deductions, and only have income from your regular employment, you don't have to file a return at all.

Useful links
Estonian e-Tax and Customs board
How e-residents pay taxes