The Estonian tax system is often described in a single phrase: ‘zero tax on reinvested profits’. This is true, and that is precisely why it is misleading: the rate itself is simple, but the complexity has shifted elsewhere – to the point at which profits are distributed. In the classification of payments to the owner. In the place of supply of services for VAT purposes. In the question of where your company is actually managed and whether it has established a permanent establishment in another country.
You need tax advice not when you receive a letter from the tax authorities, but when you make a decision whose consequences will become apparent in a year or two. How to withdraw money from the company. How to organise intra-group settlements. Whether it is worth registering as a VAT payer. What will happen if the founder moves to another country.
Our partners analyse these issues using your specific figures, provide a written opinion with supporting reasoning and, should the matter progress to an enquiry or audit, present your position to the Tax and Customs Department.
| Topic | Practical guidance |
|---|---|
| Income tax | 0% on undistributed profits; 22/78 when dividends are distributed |
| ‘Defence’ tax: 2% | Suspended until it comes into force — there is no additional tax rate on company profits |
| VAT, standard rate | 24% |
| VAT registration threshold | €40,000 of Estonian taxable supplies per calendar year |
| Personal income tax | 22 |
| Special allowances | Taxed at company level — a common reason for additional tax assessments |
| Payments to a board member | Taxed in Estonia regardless of the recipient’s place of residence |
| Withholding tax on dividends | 0% |
| Double taxation agreements | Around 60 agreements in force |
| Interest on late payments | 0.06% per day, charged automatically from the first day |
| Advance ruling | It is possible to request a binding advance ruling from the EMTA regarding a planned transaction |
| Reporting on crypto-assets | A new data reporting obligation comes into force in 2026 |
If you have any questions, our managers are always on hand and ready to help! If you’re not sure whether your query is about tax or accounting, just describe the situation and we’ll tell you which area it falls under, free of charge.
The traditional tax system taxes the profit for the year. The Estonian system taxes the moment the money leaves the company. This changes the very logic of tax planning — and creates risks where they are least expected.
Practical conclusion: you should plan not just for ‘annual tax’, but for the timing and form of payments. The difference between two ways of receiving the same amount is often measured in tens of per cent.
An Estonian company is straightforward in itself. Problems arise at the interface with other countries, and almost always follow one of four scenarios.
We are responsible for the Estonian aspect and clearly outline our scope: the implications in your country of residence are confirmed by a local adviser. A provider that claims to be responsible for tax law across all countries at once is usually not responsible for any of them.
Estonian tax law allows a party to request a preliminary ruling from the Tax and Customs Board regarding the taxation of a planned transaction. The Board provides a written response, and provided that the transaction is carried out exactly as described, this response is binding on the tax authorities in the future.
When is this justified:
When it is not justified: standard issues with established practice, as well as situations where the transaction has already been completed — a preliminary ruling relates to planned transactions, not those that have already taken place. The procedure is subject to a fee, requires time and a detailed description, and the answer will relate precisely to what you have described. We assess whether it is worthwhile in your case and prepare the enquiry in such a way that the wording of the question does not limit the usefulness of the answer.
A company’s tax position is determined by the documents prepared by a lawyer and the records kept by an accountant. When all three functions are provided by a single provider, the adviser sees not only the issue at hand, but also the evidence supporting it — and this is precisely the difference between an opinion and a defensible position.
| Method | Taxation in Estonia | What to bear in mind |
|---|---|---|
| Dividends | 22/78 upon payment | Requires a profit as per the financial statements and a resolution by the shareholders; must not be used to disguise salary payments |
| Remuneration of a board member | Income tax and social security contributions | Taxable regardless of the recipient’s place of residence |
| Salary under an employment contract | Depends on the place of actual work | For employees outside Estonia, taxation is usually handled by their home country |
| Expense and travel allowances | Not subject to tax if correctly documented | Proof of a link to business activities is required |
| Loan to a shareholder | May be reclassified | Market terms, a fixed term and actual repayment are required |
There is no one-size-fits-all ‘most advantageous’ method: the answer depends on your residency, the existence of a double taxation agreement and social security arrangements. We calculate the combination based on specific figures.
Three mistakes account for the lion’s share of additional tax assessments. The first is applying the reverse charge mechanism without checking the counterparty’s number in VIES: if the number is invalid, the obligation to charge 24 per cent remains with you, and it is no longer possible to recover this from the client retrospectively. The second is the assumption that registration is not required below the €40,000 threshold: when purchasing services from foreign suppliers, the obligation to register arises regardless of the threshold. The third is the mixing of exempt and taxable transactions without a proportional deduction of input VAT.
Transactions between related parties must be in line with market conditions. In practice, for small groups, this does not mean a lengthy report, but rather the ability to explain: why a management service costs exactly that amount, what the royalty rate is based on, and on what terms an intra-group loan was granted. It makes sense to prepare the documentation at the time of the transaction – it is virtually impossible to reconstruct the rationale three years later, and the burden of proof lies with the company.
Usually, it all begins not with an audit, but with a request for clarification regarding a specific transaction. The rules of conduct are simple: respond on time; do not provide more information than is requested; do not accept a classification with which you disagree ‘just to avoid an argument’; check which regulation the authority’s position is based on; set out your position in writing, clearly and precisely. Automatic interest continues to accrue during the dispute, so the question of partial payment is sometimes best resolved separately from the question of who is in the right.
From 2026, a new obligation to collect and submit information on users of crypto services will come into force. For companies holding crypto-assets on their balance sheets, the key issues remain the same: the classification of assets, the timing of recognising a disposal when exchanging one asset for another, the distinction between VAT-exempt and taxable transactions, and documentary evidence of the exchange rate on the date of the transaction.
Please let us know what you’re planning or what has already happened, and whether there’s a deadline. We’ll get back to you within one working day with an estimate: how much work will be required, what format the deliverable will be in, and what the price will be.
Order