Post on 18-May-2015
1
Estonian Taxes and Tax Structure
Tax Policy DepartmentMinistry of Finance
Revised in 2011
2
General Data
Population (01.01.2011) 1,340,194
Total area 45,227 km2
Average salary (2010) 792 EUR
Currency EUR
GDP (2010) 14,305 mill EUR
Economic growth (forecast for 2011) 7.5%
(forecast for 2012) 3.0%
GDP per capita (2010) 10,674 EUR
Inflation (forecast for 2011) 4.9%
3
Outline of the presentation
■ The main principles of the Estonian tax system, the current tax structure
■ Taxation Act ■ Direct Taxes
Reasons for introduction of the flat rate in Estonia The outcome of the reform Personal Income Tax Corporate Income Tax Social Tax
■ Indirect taxes VAT Excise duties
■ Plans for the future
4
Estonian Tax System
The main principles of Estonian tax policy:■ simple tax system■ broad tax base, low rates
Estonia is a European pioneer in income taxation:
■ Flat income tax rate since 1994 (followed by Lithuania, Latvia, Russia, Ukraine, Serbia, Slovakia, Georgia, Romania, ..)
■ Unique corporate tax system since 2000
5
Taxation Act
6
Estonian Tax System
■ To achieve sustainable, socially and regionally balanced economic growth Estonian tax system consists of state taxes provided and imposed by tax acts and local taxes imposed by a rural municipality or city council in its administrative territory pursuant to law
7
State taxes
1) excise duties;
2) income taxes;3) gambling tax;4) value added tax;5) land tax;6) social tax;7) customs duty;8) heavy goods vehicle tax
8
Local taxes
1) sales tax;
2) boat tax;3) advertisement tax;4) road and street closure tax;5) motor vehicle tax;6) animal tax;7) entertainment tax;8) parking charge.
9
Taxation Act
■ Taxation act specifies Estonian tax system main definitions used in all tax acts requirements for tax acts rights, duties and liability of taxpayers,
withholding agents, guarantors and tax authorities
regulations of the tax procedure and procedure for resolution of tax disputes
penalty interest rate 0,06% per day
10
Taxation Act
“Tax” is ■ a single or periodical financial obligation ■ imposed by an Act or by a local government
council regulation according to Local Taxes Act
■ for the performance of the public law functions or to obtain revenue to perform these functions
■ subject to performance pursuant to the procedure, in the amount and on the due dates prescribed by an Act
■ collected without direct compensation therefore.
11
Taxation Act
Requirements for Act concerning tax1) name of the tax;2) object of taxation;3) tax rate;4) taxpayer;5) recipient of or place of receipt of the tax; 6) due date or term for payment of the tax;7) procedure for payment of the tax;8) procedure for implementation of the Act
concerning a tax;9) possible tax incentives.
12
Tax authority
■ The tax authority for state taxes is the Tax and Customs Board with its regional offices. The tax authority operates within the area of government of the Ministry of Finance.
■ Tax authority verifies the correctness of tax payments, assesses amounts of tax and interest due in the cases provided by law, collects tax arrears and implements sanctions against persons who violate tax Acts.
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■ Corporate income tax – 21% on distributed profit■ Personal income tax – 21%■ Social tax – 33% (payable by employer)■ Unemployment insurance payment – 2,8 %
payable by employee and 1,4% payable by employer
■ Contribution to the mandatory funded pension system - 2% (payable by employee)
■ Value added tax - 20% (standard rate), 9% (reduced rate)
Main tax rates
14
Tax Structure
15
0
5
10
15
20
25
30
35
40
2000 2002 2004 2006 2008 2010 2012* 2014*
Direct taxes Indirect taxes Social security contributions
Structure of tax burden (% of GDP)
Source: Statistical Office of Estonia, Ministry of Finance
16
Structure of general government tax revenue
Source: Statistical Office of Estonia, Ministry of Finance
0%
20%
40%
60%
80%
100%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011*
2012*
2013*
2014*
2015*
Social contributions VAT Personal income taxExice duties Corporate income tax Other state taxesLocal taxes
17
Tax burden ( % of GDP)
Source: Statistical Office of Estonia, Ministry of Finance
30,7
30,6
30,6
31,731,431,0 30,8
35,7
34,2
32,7 32,632,532,1
31,931,0
30,2
29
30
31
32
33
34
35
36
37
2000 2002 2004 2006 2008 2010 2012* 2014*
18
State Budget Tax Revenue 2010
Total tax revenue 4 045,6 million EUR Total revenue 5 516,1 million EUR
4,7% 4,8%
30,8%
16,5%
41,9%
0,6%
0,1%0,6%
Personal income tax Corporate income tax VATExcise duties Heavy vechile tax Customs dutySocial tax Gambling tax
Source: Ministry of Finance
19
Tax Revenue 2010, million € (collected)
* - The amount received by the state + local governments
State taxes 4 045,6 Direct taxes 2 898,0
Personal income tax* 776,4 Corporate income tax 193,8 Social tax 1 697,6 Unemployment insurance 178,9 Land tax 51,3 Indirect taxes 1 962,4
VAT 1 248,2 Excise duties 666,3 Heavy vehicle tax 3,5 Customs tax 23,8 Gambling tax 20,6 Local taxes 14,2
Source: Ministry of Finance
20
Direct taxes
21
■ Personal income tax■ Corporate income tax■ Social tax■ Land tax■ Heavy goods vehicle tax■ Gambling tax
Direct taxes
22
Reasons for introducing flat rate in Estonia
23
Reasons for introducing flat rate in Estonia
■ High inflation rate - in case of flat rate there is no need of frequent adjustment of tax brackets
■ Flat rate system is easier to administer (for both taxpayers and tax administrators)
■ More transparency
The new law entered into force on January 1st 1994.
24
The outcome…
25
Personal income tax revenue 1994-2015million €
0
200
400
600
800
1 000
1 200
1 400
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012* 2014*
Local government StateSource: Statistical Office of Estonia, Ministry of Finance
26
Corporate income tax revenue
0
50
100
150
200
250
300
1997 1999 2001 2003 2005 2007 2009 2011* 2013* 2015*
78,5
122,3
104,5
54,6 47,8
86,2
137,8
161,2 159,5
199,6
261,0266,3
256,3
193,8207,0
220,6207,0
216,0227,0
* - includes revenue under the prior Income Tax Act (taxable period 1999)
million €
27
The outcome
■ The same tax rate both for individuals and legal
persons.
■ Most of Estonian people like flat rate.
■ Almost all political parties are in favour of flat
rate. Reintroduction of progressive rates is very
unlikely.
28
Personal Income Tax
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Personal income tax
■ Residents pay tax on their total worldwide income.
■ Non-residents pay tax only on their income received from Estonian sources.
■ Individuals are Estonian residents if they:
■ have a permanent home in Estonia, or ■ stay in Estonia 183 days or more during any 12-month period.
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Income Tax Act
Period of taxation: a calendar year
Tax rate: 21% (separate tax rate 10% for certain pensions and payments to non-residents)
Decrease of the income tax rate (both for individuals and legal persons):
■ Until the year 2004 – 26%■ Income of the year 2005 – 24%■ Income of the year 2006 – 23%■ Income of the year 2007 – 22%■ Since 2008 – 21%
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Income Tax Act
■ Non-taxable minimum (annual basic exemption): 1728 EUR
Additional exemption for state pensions: 2304 EUR for calendar year
Increase of the non-taxable minimum (per year): Income of the year 2003 – 12 000 EEK (767 EUR) Income of the year 2004 – 16 800 EEK (1074 EUR) Income of the year 2005 – 20 400 EEK (1304 EUR) Income of the years 2006- 2007 – 24 000 EEK (1534
EUR) Income of the years 2008- 2010 – 27 000 EEK (1726
EUR) Since 2011 - 1728 EUR
32
20
21
26
24
2322
51
3219
144128
109
90
64
18
20
22
24
26
28
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
%
0
20
40
60
80
100
120
140
160
Income tax rate (left scale) Monthly tax threshold (€, right scale)
Income tax reduction
33
Personal income tax
For non-residents there is a limited list of taxable income in the Income Tax Act:
■ income from work under a labour contract or contractor's agreement in Estonia;
■ income from a business carried on in Estonia;■ interest income received from Estonia (only if it
is substantially higher than that on similar debt claims);
■ royalties;■ income from the lease of assets located in
Estonia;■ gains from disposal of assets located in Estonia; ■ directors' fees paid by Estonian enterprises; ■ income of a sportsman or an artist from his
activities in Estonia■ pensions and scholarships.
34
Personal income tax
For non-resident natural persons■ Period of taxation is a calendar year■ Tax rates: 21% and 10%
■ Estonia has 47 treaties for the avoidance of double taxation (income tax and capital taxes) in force
35
Personal income tax
Tax allocation of personal income tax paid by residents
■The amount received by local governments is 11.4 % of taxable income (deductions are not taken into account), the excess amount is received by the state
■Income tax paid on pensions and capital gain is received by the state
Non-residents:income tax is received by the state
36
Personal income taxAvoidance of double taxation
Natural persons
■ Exemption method for foreign dividends and certain salary income
■ Credit method for all other types of foreign income
37
Corporate Income Tax
38
Corporate income tax
■ Corporate tax reform in year 2000
■ The ultimate goal of the reform was promotion of business and acceleration of economic growth by making additional funds available for investment
39
Corporate income tax
Eliminationof technical
shortcomings
Additionalfunds availablefor investment
Stricter regulationof transfer
pricing
AccelerationAccelerationof economicof economic
growthgrowthIntroduction of the CFC
rules
Transparencyand exchangeof information
40
Corporate income tax
The moment of taxation of corporate income is postponed until the distribution of the profits
■ The system applies to: ■ Estonian resident companies
legal persons that are established pursuant to Estonian law
■ permanent establishments (PE) of non-resident companies PE is an entity through which the business of a non-resident is carried on in Estonia
41
Tax rate 26 % (on
gross profit)
Corporate income tax
Income tax
26 EEK
Dividend payment74 EEK
Profit earned 100 EEK
Time
The taxation of profit until 1999
42
Corporate income tax
Income tax
26 EEK
Dividend payment74 EEK
Profit earned 100 EEK
Tax rate 26/74 (on net
amount, equals to
26% of gross profit)
No tax
Time
The timing of tax payment under the new system (since 2000)*The tax rate has been decreased since 2005; see next slide
43
Corporate income tax
■ Tax rate in 2011: 21% (21/79 of the net
amount)
■ Period of taxation: a calendar month
44
Corporate income tax■ Tax base
corporate profits distributed in the tax period; dividends and other profit distributions, incl. liquidation proceeds and payments made on reduction of company’s equity or redemption or return of shares
taxable gifts, donations and representation expenses; expenses and payments unrelated to business.
Fringe benefits are taxable at the level of employer.
■ Losses – taken into account (the Estonian Commercial Code does not allow to distribute profits if the company has losses from previous years)
45
Corporate income tax
+ qualified dividends received
100 EUR
+ foreign interest
received 100 EUR
(source state WHT
10)
Donations 200 EUR
Expenses unrelated
to business
300 EUR
Gifts 100 EUR
14
00
EU
R p
ote
nti
all
y ta
xab
le
incom
e
Tax l
iab
ilit
y d
efe
rred
Profit earned in
2009
200 EUR +
Profit earned on
2010
1000 EURDividend
/ liquidatio
n 640 EUR
Exemption method
Taxable amount
640 – 100 = 540
CIT (21/79) 27
CIT (21/79) 80
CIT (21/79) 53
CIT (21/79) 144
Credit method
144 – 10 = 134
Total CIT liability 294
Time
46
Corporate income tax
There are 3 main methods introduced in the Estonian Income Tax Act, the goal of which is to minimize the possibilities for tax fraud and evasion
CFC (Controlled Foreign Corporation) rules: residents have to declare and pay tax on the income of off-shore companies under their control
Stricter regulations for minimising the use of transfer-pricing schemes
Withholding tax of 21% on all payments to so-called off-shore companies for services
47
Corporate income tax
Avoidance of double taxation
Companies and non-resident’s PEs
■ Exemption method for qualified (threshold 10%) profit distributionsthe income tax will not be charged on dividends or on payments upon reduction of share capital or contributions, redemption of shares or liquidation of a legal person on certain conditions.
■ Credit method for all other types of foreign income
48
Structure of declared corporate income tax 2003-2015
million €
0
100
200
300
2003 2004 2005 2006 2007 2008 2009 2010 2011* 2012* 2013* 2014* 2015*
Payments to non-resident legal personsNon-business expensesCharitable gifts and donations exceeding non-taxable amountFringe benfitsDistributed profit (dividends paid out)
Source: Statistical Office of Estonia, Ministry of Finance
49
Social Tax
50
Social tax
Tax Base Employers' payments to natural persons (wage
income) – tax payable by employers in cash in kind (fringe benefits)
Business income of sole proprietors – tax payable by self employed persons
51
Social tax
Period of taxation
■ Calendar month for wage income■ Calendar year for business income of sole
proprietors
52
Social tax
■ Tax rate is 33 % of the taxable amount
■ Social tax payable is personificated and in making pension payments will be taken into account.
53
■ Tax allocation IF the person has joined the II pension pillar (compulsory for the persons who have born in 1983 or later; voluntary for older people)
Social tax
Social tax, rate 33% (payable by employer
or self employed person)
State health insurance
system
13% 16%
State pension insurance system (I pillar)
Personal pension account of the
person (II pillar) 2% + 4%= 6%
4%
Contribution to the II pillar (made by employee)
2%
54
Social tax revenue 1994-2015million €
0
500
1 000
1 500
2 000
2 500
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012* 2014*Source: Ministry
of Finance
55
Structure of declared social tax 2003-2015million €
0
1 000
2 000
3 000
2003 2004 2005 2006 2007 2008 2009 2010 2011* 2012* 2013* 2014* 2015*
Employers' payments to natural persons Fringe benefits
State (according to social tax law §6) Business income of sole proprietors
Source: Statistical Office of Estonia, Ministry of Finance
56
Indirect taxes
Ministry of Finance of Estonia
57
■ Value added tax■ Alcohol excise duty■ Tobacco excise duty■ Energy products excise duty■ Packaging excise duty (budget revenues
insignificant) ■ Gambling Tax
Indirect taxes
58
Value-added Tax (VAT)
59
Taxable person
■ Person whose taxable supply (excluding import) exceeds 16 000 EUR in a calendar year
■ Voluntary compliance possible for anyone, who carries out economic activity in Estonia
VAT
60
Tax base
VAT is charged on:■transactions of goods and services within Estonia■ intra-Community acquisitions of goods and services■ importation of goods and services■ provision of services which are taxable in Estonia, supplied by the foreign taxable person
VAT
61
Tax rates ■ Standard rate is 20%.■ Reduced rate is 9% (books, newspapers,
medicines, accommodation).■ Zero rated: export; intra-Community supply;
vessels and aircrafts used on international routes, including equipment and fuel; goods and services for consumption supplied on board of vessels and aircrafts.
VAT
62
Exempted goods and services are: ■ postal services ■ health services ■ social services ■ insurance services ■ services for the protection of children ■ transportation of sick, injured or disabled
persons■ supply of immovables■ the leasing and letting of immovables, etc.
VAT
63
VAT revenue 1994-2015million €
0
200
400
600
800
1 000
1 200
1 400
1 600
1 800
2 000
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012* 2014*Source: Statistical Office of Estonia, Ministry of Finance
64
Excise duties
65
Duty rates
■ Alcohol and tobacco products – all rates meet EU minimum levels
■ Energy products – all rates meet the EU minimum levels except for oil shale for which there is a transitional period up to 2013
66
Excise duty rates on alcohol 01.01.2011
Unit
Excise duty rates in euros
EU minimum excise duty
rates Wine and fermented beverage
Hectolitre
(up to 6 %): 31,70
(> 6 %): 73,11
0
Beer
1 % alcohol in
hectolitre
5,43
(yearly production up to 3000 hl): 2,715
1,87
Intermedi-ate product
Hectolitre
156,20
45
Other alcohol
Hectolitre of pure alcohol
1418
550
67
Excise duty rates on tobacco products 01.01.2011
Product Excise duty
rates in euros EU minimum
excise duty rates
CIGARETTES: 38,35
64 EUR per 1000 cigarettes, but not less than 57 % from weighted average price of cigarettes
Specific rate (1000 cigarettes) Ad valorem rate ( % of the retail selling price)
33 %
CIGARS (1000 cigars)
191,73
12 EUR or 5% from the retail selling price
CIGARILLOS (1000 cigarillos)
191,73
12 EUR or 5% from the retail selling price
SMOKING TOBACCO (1 kg )
55,79
40 EUR or 40% from the retail selling price
68
ENERGY PRODUCTS: national excise duty rates on MOTOR FUELS and the EU minimum excise levels
ENERGY PRODUCT
Excise rates in Estonia 01.01.2011
The EU minimum levels of taxation
Unleaded petrol
422,77 EUR/1000 l
359 EUR/ 1000 l
Leaded petrol 422,77 EUR/ 1000 l
Gas oil 392,92 EUR/1000 l
330 EUR 1000 l
Gas oil for specific purposes
110,95 EUR/1000 l
21 EUR/1000 l
LPG 125,26 EUR/1000 kg
125 EUR/1000 kg
Petroleum 330,1 EUR/1000 l
330 EUR 1000 l
69
National excise duty rates applicable to heating fuels and electricity and the EU minimum excise levels
Energy product
Excise rates in Estonia
01.01.2011
The EU minimum levels of taxation
business non-business
Light fuel oil
110,95 EUR/ 1000 l
21 EUR/1000 l
21 EUR/1000 l
Heavy fuel oil
15,01 EUR/ 1000 kg
15 EUR/1000 kg
15 EUR/1000 kg
Petroleum 330,1 EUR/ 1000 l
- -
Natural gas
23,45 EUR/ 1000 m3
0,15 EUR/ GJ 0,3 EUR/ GJ
Coal and coke
0,3 EUR/ GJ 0,15 EUR/ GJ 0,3 EUR/ GJ
Electricity 4,47 EUR/ MWh
0,5 EUR/ MWh
1 EUR/ MWh
70
Excise duty revenue 1994-2015million €
0100200300400500600700800900
1 000
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012* 2014*
Alcohol Tobacco Fuel
Source: Statistical Office of Estonia, Ministry of Finance
71
Packaging excise duty
72
Packaging excise duty
Object of taxation: Excise duty on packaging shall be imposed on
packaging of goods placed on the market in Estonia or acquired in and imported from another Member State of the European Union.
Exemption from excise duty incidentally are:
1) packaging concerning which a deposit has been established under the Packaging Act, except metal packaging of beverages, and from which at least 85 percent of each class of packaging material is recovered as of 1 January 2012;
73
Packaging excise duty
2)metal packaging of beverages of which of which at least 50 percent is recovered as of 1 January 2010;
3)as of 1 January 2009, other packaging recovered to the extent provided for in § 36 of the Packaging Act.
74
Gambling Tax
75
Gambling Tax
Objects of gambling tax
1) gambling tables and gambling machines used for organising games of chance and on gambling machines used for organising games of skill;
2) in the event of organising a lottery, the total amount received from the sale of lottery tickets;
3) in the event of organising a commercial lottery, the winning pot whose value exceeds 10 000 euros;
4) in the event of organising a toto (betting+totalisator), the total amount net revenue of bets;
5) in the event of organising an online game of chance or an online game of skill, the net revenue of bets;
6) in the event of organising a tournament of a game of chance, the total amount of participation fees.
Gambling tax is paid by gambling operators.
76
Gambling Tax
Tax rates:
1) for the gambling table – 1 278.23 euro per table in month;
2) for the gambling machine – 447.38 euro per in month euro per gambling machine;
3) 31.95 euro per gambling machine of game of skill;4) 18 % from the sale of lottery tickets; 5) 18 % from the winning fund of the commercial
lottery;6) 5 % for the toto, amount received from net revenue; 7) 5 % for the online game, amount received from net
revenue;8) 5 % for the tournament of a game of chance
(amount received from participation fees).
77
Plans for the future
78
Future Plans for Tax Policy
■ Lower labour-related taxes and increased consumption-related and other indirect taxes increase of excise duties increase of environmental taxes decrease of income tax
■ Maintaining the current simple tax system and broad tax base.
■ Improving tax administration
79
Plans for the future
The main goal for the future- shifting tax burden from income and employment to consumption and environmental taxes
80
Thank you!
81
Background information
82
Average Economic Growth in 1996–2010
2,3
-4
-2
0
2
4
6
8
EE IE LT LV PL SK LU SI CY
CZ FI ES
BG
RO SE GR US
UK
HU
NL
AT
BE PT EU FR EA
MT
DK
DE IT JP
1996–2010 2010
83
Estonian real convergence with the EU
64 6463 6569
7378 77 75
69
70
4542 43
5550
4642
36 38
5762
66
42
50 5154 57 57
61 6162
3035404550556065707580
1995199619971998199920002001200220032004200520062007200820092010
% of EU27
GDP per capita in PPSComparative price levelLabour productivity per person employed
84
Labour market goals in Lisbon Strategy
70,0
60,0
50,0
61,0 60,6
36,1
17,3
64,1
58,2
32,2
9,7
0
10
20
30
40
50
60
70
Employment rate (15-64)
Employment rateamong women
Employment rateamong the elderly
Unemployment rate
Goal of Lisbon strategy Estonia in 2010 EU27 in 2010
85
Growth expectations
GDP growth, %
Consumer price index, %
Current account, % of GDP
2011 2012 2011 2012 2011 2012 IMF 6.5 4.0 5.1 3.5 2.4 2.3 European Commission 4.9 4.0 4.7 2.8 1.8 0.1 Bank of Estonia 6.3 4.2 4.7 2.5 1.7 1.0 Estonian Institute of Economic Research 5.5 – 4.5 – - – Ministry of Finance (Sept 2011) 7.0 3.0 4.9 2.8 3.3 2.0
86
General Government budgetary balance 2004-2015
1,00,5
-0,1
-2,1
0,20,3
-2,0-2,9
2,42,5
1,61,61,7
-4
-2
0
2
4
2003 2004 2005 2006 2007 2008 2009 2010 2011* 2012*2013* 2014* 2015*
% of GDP
Central Government Local Government Social Security General Government
Source: Statistical Office of Estonia, Ministry of Finance
87
General Government tax burden 1995-2015 (% of GDP)
34,3 34,3 34,032,5
31,0 30,2 31,0 30,8 30,6 30,6 30,7 31,4 31,7
35,734,2
32,7 32,6 32,5 32,1 31,9
36,3
0,0
10,0
20,0
30,0
40,0
1995 1997 1999 2001 2003 2005 2007 2009 2011* 2013* 2015*
Direct taxes Indirect taxes Social security contributions Tax burden
88
General Government debt in 2010 (% of GDP)
80,2
6,70
20406080
100120140160
Esto
nia
Bulga
ria
Luxe
mbo
urg
Rom
ania
Czec
h Re
publ
ic
Lith
uani
a
Slove
nia
Swed
en
Slova
kia
Den
mar
k
Latv
ia
Finl
and
Polan
d
Spain
Cypr
us
Net
herla
nds
Malt
a
Austr
ia
Unite
d K
ingd
om EU-2
7
Hun
gary
Fran
ce
Ger
man
y
Euro
area
Portu
gal
Irelan
d
Belgi
um Italy
Gre
ece
89
Tax rate on low wage earners: Tax wedge on labour cost
33
34
35
36
37
38
39
40
41
42
43
44
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
%
Estonia Latvia Lithuania EU 27