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Benefit from the Best Taxation System in the World: Welcome to Estonia!

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The taxation system is one of the first aspects taken into account by international investors and entrepreneurs when they decide whether this or that country is worth investing in. Estonia is unique in this respect: for 9 years in succession, it occupied 1st place among 38 OECD countries according to the International Tax Competitiveness Index, which is an astounding success! In this post, we will take a look at the main reasons why Estonia has managed to prove to many analysts that its taxation system is the most efficient on a global scale.

If you need more information about this truly remarkable country, please read a more detailed article on tax advantages in Estonia and find other useful information on local business, banking, e-residency, and so on. There are articles on many other popular jurisdictions that offer good conditions for entrepreneurs and investors, reliable asset protection, excellent banking services, or citizenship-by-investment programs – do not hesitate to explore different sections! Book a free initial session with our expert to discuss your needs and get professional assistance with company/account setup at a reasonable fee.

Five Factors That Make Estonia a Top Choice

No Corporate Income Tax

Under local laws, if you reinvest the income you obtained in the development of your business, you will not be liable for any corporate tax. This motivates the entrepreneurs to keep their money in the country, thus contributing to its economic growth. The exemption covers capital growth from the sale of assets (real estate, securities and so on), active income (generated by a trade or service company, for instance), and passive income (royalty, interest, dividend, and so on). Both resident companies and permanent representative offices of non-resident legal entities incorporated in Estonia can take advantage of this benefit.

The payment of corporate income tax in Estonia is delayed until the following moment:

  • Income is distributed among shareholders (as dividends)
  • The date of actual distribution

E-Residency

If you want to have an opportunity to submit taxes remotely, you can take advantage of the Estonian electronic residence program that makes it possible to create a digital presence in the country (available to individuals and legal entities). This innovation was implemented back in 2014, and it proved to be so convenient that many other countries are now implementing a similar program.

At present, there are about 90,000 e-residents in Estonia, and they help promote the country’s national brand in over 170 countries. Want to join in? Please get in touch with us for details using the above link.

VAT System

The standard VAT rate in Estonia is 20%, but there are goods and services (such as books and drugs) that are taxed at 9%, while some others can benefit from complete exemption. 

VAT is declared and paid electronically, which is one of the country’s unique features. All you need to do as a company is to fill out the forms online once a month or a quarter (depending on the tax amount payable) and transfer the required funds.

The VAT system in Estonia makes it possible for companies to receive cashback from their purchases. As a result, legal entities are not unjustly burdened by VAT and avoid double taxation.

The combination of the convenient electronic document flow and simple and transparent regulations makes the Estonian VAT system one of the best in the world.

The Simplest Taxation System Across the Globe

The income tax rate in Estonia is fixed at 20% for individuals and legal entities, which simplifies understanding of the rules. However, it is not applied to personal dividends as these are taxed at a reduced rate of 7%. 

As for the property tax, it is only applicable to land plots rather than capital or real estate, so you will not have to pay any tax if the right of ownership to real estate switches between legal entities and individuals.

Estonia has a territorial taxation system, which means that the profits generated abroad are not subject to local taxation.

Minimum Red Tape

Business development usually suffers if the amount of red tape is excessive, and Estonia has done its best to eliminate it by simplifying its taxation system. The beneficial environment it has created proved to be attractive for entrepreneurs from different countries.

Governmental services are accessible in one place: you simply use the single window system in the Tax and Customs Department to manage and pay your taxes. There is a single database where all the user data is stored, which helps to automate the submission of declarations. The convenience of this system is proved by statistics: 99% of companies and 96% of individuals pay their taxes using digital services. 

One more thing that seems very attractive is the time you spend on compliance with taxation requirements: this indicator equals 44 hours a year for an average OECD country and only 5 hours for Estonia! You can do a lot in the remaining 39 hours, can’t you?

All of the above aspects make Estonia an excellent country in terms of its taxation system. Many companies that want to enter European markets opt for the country to become their starting ground.

International Tax Competitiveness Index

The Index shows the degree of the country’s taxation system compliance with competitiveness and neutrality as the two main features of the taxation policy, with more than 40 variables being analyzed to provide the final result. These include individual income taxes, compliance with the existing rules, the country’s corporate laws, the level and structure of tax rates, and so on. 

15 Taxation System Competitiveness leaders:

  • Estonia
  • Latvia
  • New Zealand
  • Switzerland
  • Czech Republic
  • Luxembourg
  • Hungary
  • Lithuania
  • Turkey
  • Israel 
  • Australia
  • Sweden
  • Slovakia
  • Netherlands
  • Germany

Estonia has made a real revolution in the world of taxation by reforming the whole system and giving each person a chance to set up a company and fully run it online. There is a huge gap between the countries that have adopted this system and those that still adhere to more traditional ways of conducting business, and it is expected to grow with time.

If you are looking for a good country to establish a company, please follow the above link to discuss the existing opportunities with our professionals!

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