Estonian Income Tax

Individuals who have a permanent place of residence in Estonia or who remain in Estonia for 183 days or more during a 12 months period are considered to be resident for tax purposes and are subject to tax on their worldwide income. Non-residents are subject to tax on their Estonian source income only. They cannot claim the deductions and allowances available for tax residents. This is not valid, though, for residents of other EU Member States who receive at least 75% of their income from Estonia. They can still claim the deductions and allowances like tax residents.

Employment income is taxable income. Benefits in kind like accommodation, a company car, lunch vouchers or similar items are not considered taxable income for the employee. Instead, taxes for fringe benefits are paid by the company. The following deductions from taxable income are available: donations to registered non-profit organizations and admission and membership fees paid to trade unions. The latter may not exceed 2% of the taxpayer’s income, the two together may not exceed 5% of the taxpayer’s income after deduction of other allowable expenses. The taxpayer may deduct interest payments for loans for the acquisition or reconstruction of his house or apartment. He can also deduct educational expenses for himself or his dependents under 26 years. The total deductions for donations, trade union fees, mortgage payments and educational expenses may not exceed EEK 50’000 or 50% of the taxable income, whichever is lower. Alimony and maintenance payments are fully deductible. Premiums paid to qualifying pension schemes and funds are deductible up to 15% of the individual’s income. Finally, there is a personal allowance of EEK 27’000 (for 2008; in 2009 it will be EEK 30’000) and an additional allowance of the same amount per child under 18 years old. The employer deducts tax at source from the gross salary. He applies 1/12 of the personal allowance per month. The flat tax rate for 2008 is 21%. It will be 20% in 2009. An individual whose only income is a salary from one employer and for whom tax at source has been withheld, is not obliged to file a tax return. Others have to file a return by 31 March the year following the tax year. Married couples usually file a joint return.