Estonia Investment Tax Planning
When considering property purchase in Estonia, tax planning is an important factor which can greatly affect the success of your investment strategy.
Tax on Rental Income
Non-residents gaining profits through renting out Estonian property are liable to pay income tax at a flat rate of 22%. Married couples are taxed separately but may file their returns jointly.
Foreigners earning income in Estonia are taxed at a rate of 21% and this amount is expected to fall to 20% in 2009. No deductions or personal allowances are given to non-resident taxpayers; however other EU state residents are granted the same deductions as Estonia offers to its residents, provided they received at least 75% of their taxable income from Estonia and that they file tax returns.
Income tax must be paid over the amount of net profit in the case of the sale of an improved property, unless it is the registered address of the owner (in principle it is possible to be registered at multiple addresses).
Capital Gains Tax
Capital gains are regarded as taxable income, and no special rate is applied. Instead, the standard rate of 21% is imposed.
Income to non-residents from the sale of property is subject to income tax by way of assessment. Taxable capital gains are generally calculated by the gross selling price less the acquisition costs. Gains from the sale of summer cottages or garden houses are exempt if owned for more than 2 years.
Inheritance and tax do not exist in Estonia.
Estonia has a simple tax system regarding real estate and taxes are relatively low.
Property tax is levied by the local government on the assessed value of all land and is generally referred to as Land Tax. This is the only recurring tax levied on property.
With relation to a property purchase/sale, expect the following in Estonia:
The notary fee depends entirely on the value of the transaction. It is based on a table of fixed fees and payable when signing the deed.
Below a few samples for some transactions, the full updated list of notary fees can be found at Notar.ee
||Notary fee (rounded)
| € 32,000.00
|| € 55.00
| € 640,000.00
|| € 960.00
VAT is added to the notary fee
Upon transfer of the property the State Fee (stamp duty) has to be paid within 24 hours through a commercial bank.
The notary will supply information on the sum to be paid and the reference to be mentioned with the payment.
As with the notary’s fee, the state fee is also based on a table of fixed fees and regulated by law, the articles and table can be viewed at Riigiteataja.ee (in Estonian local currency only).
Below a few samples of the State fees charged.
| € 12,782.00
|| € 16.62
| € 63,912.00
|| € 63.92
| € 319,558.00
|| € 370.70
| € 639,117.00
|| € 1,022.60
Value Added Tax
VAT is always deemed to be inclusive of the price mentioned in the agreement of an improved property.
A company selling an improved property would have to pay VAT.
A private person selling an improved property person would not pay VAT, but might have to pay income tax.
VAT is currently 18% (June 2008).
Land tax is charged by the local government; it can differ between municipalities and varies from 0.1 to 2.5% of the assessed value of the land (not on buildings or other improvements) depending on the use of the land.
Residential land is at present charged at 1% land tax (June 2008).
This tax is charged annually and payments can be spread over three (fixed) installments.
An unimproved residential plot of land measuring 1500 m² just outside the Tallinn City border near the airport would cost the owner € 25,90 per year in Land tax.
An improved residential plot of land measuring 1825 m² just outside the Tallinn City border on the popular Viimsi Peninsula would cost the owner € 189,60 per year in Land tax.
The Estonian tax system consists of national taxes and local taxes collected by local governments in each jurisdiction.
National taxes include: income tax, social tax, land tax, gambling tax, value-added tax, duty and excise taxes and heavy goods vehicle tax.
Local taxes include: sales tax, boat tax, advertisement tax, tax for the temporary closing of streets, motor vehicle tax, tax on keeping domestic animals, amusement tax, and parking fees.
Other Useful Information
Non-distributed (ie: re-invested) profits are not taxed in Estonia.
Distributed profits (dividends) are taxed as income at a flat rate (21% June 2008).
Estonia is signatory to “double taxation” treaties with many countries. Check in the country of your origin if such a treaty is in place.
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