Taxation in Estonia

Taxation in Estonia consists of state and local taxes. A relatively high proportion of government revenue comes from consumption taxes whilst revenue from capital taxes is one of the lowest in the European Union.

Estonia levies a Land Value Tax which is used to fund local municipalities. It is a state level tax, but 100% of the revenue is used to fund Local Councils. The rate is set by the Local Council within the limits of 0.1-2.5%. It is one of the most important sources of funding for municipalities.

The Land Value Tax is levied on the value of the land only, improvements are not considered. Very few exemptions are considered on the land tax and even public institutions are subject to the land value tax. Land that is the site of a church is exempt, but other land held by religious institutions is not exempt.

The tax has contributed to a high rate (~90%) of owner-occupied residences within Estonia, compared to a rate of 67.4% in the United States.

Estonia natural person income tax is considered to be proportional, but, due to basic exemption, it is actually progressive. Standard rate for natural persons in year 2015 is 20% (down from 21% in 2014). A basic exemption is granted, which is increased upon provision of maintenance to a child, in event of pensions, in event of compensation for accident at work or occupational disease. Additionally a number of expenses are deductible: housing loan interests, training expenses, gifts, donations, contributions to a voluntary/mandatory funded pension and unemployment insurance, social security payments mandatory in a foreign state. Amount of deductible housing loan interest, training expenses, gifts and donations is limited – in 2011 the limit was 3196 euros but no more than 50% of the taxpayer's income during the same period of taxation.

There is no capital gains tax but gains from transfer of securities or other financial assets are subject to standard income tax. Since 2011 a new system has been in place, which allows natural persons to defer the tax liability created on income received from financial assets until the time of taking the income into use, by using an investment account for this purpose. An investment account is just an ordinary monetary account with an obligation to record all money transfers. For attaining an objective by means of an investment account income received from the financial assets must be transferred to an investment account without delay. A taxable amount shall be created when the disbursements made from all investment accounts exceed the balance of contributions in all investment accounts after the disbursement.

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Wikipedia