Estonian taxes and tax structure (april 2014)
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Transcript of Estonian taxes and tax structure (april 2014)
Population (01.01.2014) 1 311 870
Total area 45,227 km2
Average salary (2013) 948 EUR
Average pension (April 2014) 354 EUR
Currency EUR
GDP (2013) 18 434,7 million EUR
Economic growth (2013) 0,8%
(forecast for 2014) 2,0%
GDP per capita (2013) 13 784,2 EUR
Inflation (2013) 2.8%
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 – Gambling tax
• Plans for the future
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
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
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.
State taxes Local taxes
1) advertisement tax;
2) road and street closure tax;
3) motor vehicle tax;4) animal tax;5) entertainment
tax;6) parking charge.
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
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.
Taxation ActRequirements for Act concerning tax
1) 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.
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.
• Corporate income tax – 21% on distributed profit
• Personal income tax – 21%• Social tax – 33% (payable by employer)• Unemployment insurance payment – 2,0
% payable by employee and 1,0% payable by employer (from Jan 1, 2013)
• Contribution to the mandatory funded pension system - 2% (payable by employee)
• Value added tax - 20% (standard rate), 9% (reduced rate)
Main tax rates
0
5
10
15
20
25
30
35
40
2000 2002 2004 2006 2008 2010 2012 2014* 2016* 2018*Direct taxes Indirect taxes Social security contributions
Structure of tax burden (% of GDP)
Source: Statistical Office of Estonia, Ministry of Finance
Tax burden ( % of GDP)
Source: Statistical Office of Estonia, Ministry of Finance
31,0
30,2
31,0 30,830,6
30,6
30,7
31,431,9
35,3
34,0
32,3 32,532,3 32,4
31,9
31,631,6 31,7
29
30
31
32
33
34
35
36
37
2000 2002 2004 2006 2008 2010 2012 2014* 2016* 2018*
Structure of tax revenue
0%
20%
40%
60%
80%
100%
Personal income tax Corporate income taxSocial contributions VATExice duties Land taxOther taxes
Source: Statistical Office of Estonia, Ministry of Finance
State Budget Tax Revenue 2014Total tax revenue 6,559.8 million EUR Total revenue 7,880.9 million EUR
5,1% 5,0%
25,5%
12,6%
0,1%0,4%
33,8%
0,3%17,1%
Personal income tax Corporate income tax VATExcise duties Heavy vechile tax Customs dutySocial tax Gambling tax transmittable taxes
Source: Ministry of Finance
Tax Revenue 2013, million € (collected)
* - The amount received by the state + local governments
State taxes 6 140,4 Direct taxes 3 652,7 Personal income tax* 1 030,6 Corporate income tax 326,6 Social tax 2 071,2 Unemployment insurance 167,1 Land tax 57,2 Indirect taxes 2 397,7 VAT 1 550,6 Excise duties 792,8 Heavy vehicle tax 4,0 Customs tax 28,7 Gambling tax 21,6 Local taxes 10,9
Source: Ministry of Finance
• Income tax (personal and corporate income tax both stipulated in the Income Tax Act)
• Social tax• Land tax
Direct taxes
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 1 January 1994.
Personal income tax revenue 1994-2018 million €
0
200
400
600
800
1 000
1 200
1 400
1 600
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014* 2016* 2018*
Local government State
million EUR
Source: Statistical Office of Estonia, Ministry of Finance
Corporate income tax revenue 1995-2018
0
50
100
150
200
250
300
350
400
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015* 2017*
67,1 56,978,5
122,3104,5
54,6 47,8
86,2
137,8161,2 159,5
199,6
261,0 266,3 256,3
193,8 201,1
252,4
326,6 329,0316,0
328,0
355,0373,0
million EUR
* - includes revenue under the prior Income Tax Act (taxable period 1999)
million €
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.
Income Tax ActPeriod 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%Income of the years 2008-2014–
21% Since income of the year 2015 – 20%
Income Tax ActNon-taxable minimum (annual basic exemption):
1728 EUR
Additional exemption for state pensions: 2520 EUR
since 2015 2640 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)Income of the years 2011- 2014 – 1728 EURSince income of the year 2015 – 1848 EUR
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014*
2015*
2016*
2017*
2018*
18
20
22
24
26
28
0
20
40
60
80
100
120
140
160
180
26
24
23
22
21
201932
51
64
89
109
128144
154
Income tax rate (left scale) Monthly basic exemption (€, right scale)
%Income tax reduction
Personal income taxFor 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; • directors' fees paid by Estonian enterprises; • income from a business carried on in Estonia;• gains from disposal of assets located in Estonia; • income from the lease of assets located in Estonia;• royalties;• interest received from the holding in a contractual
investment fund, whose property was made up more than 50 per cent of immovables in Estonia (in certain conditions);
• income of a sportsman or an artist from his activities in Estonia
• pensions and scholarships.
Personal income tax
For non-resident individuals• Period of taxation is a calendar year• Tax rates: 21% and 10%
• Estonia has 56 treaties for the avoidance of double taxation (income and capital taxes) in force
Personal income taxTax allocation of personal income tax paid by residents
• The amount received by local governments (from Jan 1, 2014) is 11.6% 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
Personal income tax
Avoidance of double taxation
Individuals
• Exemption method for foreign dividends and certain salary income
• Credit method for all other types of foreign income
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
Corporate income tax
Eliminationof technical
shortcomings
Additionalfunds availablefor investment
Stricter regulationof transfer
pricing
Accelerationof economic
growthIntroduction of the CFC
rules
Transparencyand exchangeof information
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 out in
Estonia
Tax rate 26 % (on
gross profit)
Income tax
26 EUR
Dividend payment74 EUR
Profit earned 100 EUR
Time
The taxation of profit until 1999
Corporate income tax
Income tax
26 EUR
Dividend payment74 EUR
Profit earned 100 EUR
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
Corporate income tax
Corporate income tax
• Tax rate in 2014: 21% (21/79 of the net
amount of the dividend or other profit
distribution)
• Period of taxation: a calendar month
Corporate income taxTax 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)
Corporate income tax
+ qualified dividend 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
2010
200 EUR +
Profit earned in
2011
1000 EUR
Dividend /
liquidation 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
Corporate income taxThere 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
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
Structure of declared corporate income tax 2003-2018
0
100
200
300
400
2003 2005 2007 2009 2011 2013 2015* 2017*
Payments to non-resident legal personsNon-business expensesCharitable gifts and donations exceeding non-taxable amountFringe benfitsDistributed profit (dividends paid out)
million EUR
Source: Statistical Office of Estonia, Ministry of Finance
Social tax
Tax Base• Employers' payments to individuals
(wage income) – tax payable by employers• in cash • in kind (fringe benefits)
• Business income of self- employed– tax payable by self- employed persons
Social tax
Period of taxation
• Calendar month for wage income• Calendar year for business income of
self- employed
Social tax
• Tax rate is 33 % of the taxable amount
• Social tax payable is personificated and will be taken into account in making pension payments or health insurance benefits.
• 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%
Social tax revenue and structuremillion €
0
500
1 000
1 500
2 000
2 500
3 000
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014*2016*2018*
Employers' payments to natural persons Fringe benefits
State (according to social tax law §6) Business income of sole proprietors
Social tax
million EUR
Source: Statistical Office of Estonia, Ministry of Finance
Indirect taxes
• Value added tax• Alcohol excise duty• Tobacco excise duty• Energy products excise duty• Packaging excise duty (budget
revenues insignificant) • Heavy goods vehicle tax• Gambling Tax
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
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
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
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
VAT revenue 1994-2018million €
0
500
1 000
1 500
2 000
2 500
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014* 2016* 2018*
million EUR
Source: Statistical Office of Estonia, Ministry of Finance
Excise duties
Excise duties are levied on:• Alcohol• Tobacco• Fuel• Electricity• Packaging
Duty rates on alcohol, tobacco and energy products meet the EU minimum levels
Excise duty rates on alcohol
Unit
Excise duty rates 01.01.2014
EU minimum excise duty
rates Wine and fermented beverage
Hectolitre
(up to 6 %): 36,71 EUR
(> 6 %): 84,67 EUR
0
Beer
1 % alcohol in
hectolitre
6,28 (yearly production up to
3000 hl): 3,14 EUR
1,87 EUR
Intermedi-ate product
Hectolitre
180,81 EUR
45 EUR
Other alcohol
Hectolitre of pure alcohol
1643 EUR
550 EUR
Excise duty rates on tobacco products
Product Excise duty rates 01.01.2014
EU minimum excise duty rates
CIGARETTES:
46,50 EUR 90 EUR per 1000 cigarettes, but not less than 60% from weighted average price of cigarettes
Specific rate (1000 cigarettes)
Ad valorem rate (% of the retail selling price)
34 %
Minimal amount of excise to pay (1000 cigarettes)
90,00 EUR Unlimited
CIGARS, CIGARILLOS (1000 cigars or cigarillos)
211 EUR
12 EUR or 5% from the retail selling price
SMOKING TOBACCO (1 kg )
61 EUR
47 EUR or 43% from the retail selling price
Excise duty rates on motor fuels
ENERGY PRODUCT
Excise rates in Estonia 01.01.2014
EU minimum excise duty rate
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
Excise duty rates on heating fuels and electricity
Energy product
Excise rates in Estonia
01.01.2014
EU minimum excise duty rate
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, coke and oil shale
0,3 EUR/ GJ 0,15 EUR/ GJ 0,3 EUR/ GJ
Electricity 4,47 EUR/ MWh
0,5 EUR/ MWh
1 EUR/ MWh
Excise duty revenue 1994-2018million €
0
100
200
300
400
500
600
700
800
900
1 000
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014* 2016* 2018*
Alcohol Tobacco Fuel
million EUR
Source: Statistical Office of Estonia, Ministry of Finance
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.
Packaging excise duty
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;
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.
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.
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).
Future Plans for Tax Policy
• Lower labour-related taxes and increase consumption-related and other indirect taxes– increase of excise duties– increase of environmental taxes– decrease of income tax
• Maintaining the current simple tax system
• Broadening the tax base and reducing tax incentives
• Improving tax administration
Estonian real convergence with the EU
76
7069
3035404550556065707580
1995 1997 1999 2001 2003 2005 2007 2009 2011
% of EU27
GDP per capita in PPSComparative price levelLabour productivity per person employed
Growth expectations
GDP growth, %
Consumer price index, %
2014 2015 2014 2015 IMF 2.4 3,2 3,2* 2,8* OECD 1,3 3,3 0,8* 1,7* European Commission 1,9 3,0 1,5* 3,0* Ministry of Finance (April 2014) 2.0 3.5 1.7* 2.9*
* Harmonised Consumer Price Index (HICP)
General Government budgetary balance 2003-2018
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013* 2014* 2015* 2016* 2017* 2018*-4
-2
0
2
4
1.8 1.6 1.6
2.42.4
-3.0
-2.0
0.2
1.1
-0.3 -0.2-0.7 -0.8
-0.7-0.1
0.9
Central Government Local GovernmentSocial Security General Government
% of GDP
Source: Statistical Office of Estonia, Ministry of Finance
General Government tax burden 1995-2018
36,334,3 34,3 34,0
32,531,0 30,2 31,0 30,8 30,6 30,6 30,7 31,4 31,9
35,934,0
32,3 32,5 32,3 32,4 31,9 31,6 31,6 31,7
0
10
20
30
40
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013* 2015* 2017*
Direct taxes Indirect taxes Social security contributions Tax burden
% of
General Government debt in 2012
9,80
20406080
100120140160180
Est
onia
Bul
garia
Luxe
mbo
urg
Rom
ania
Swed
en
Lith
uani
a
Latv
ia
Den
mar
k
Cze
ch R
epub
lic
Slov
akia
Finl
and
Slov
enia
Cro
atia
Pola
nd
Mal
ta
Net
herla
nds
Aus
tria
Hun
gary
Ger
man
y
Spai
n
Cyp
rus
Uni
ted
Kin
gdom
Fran
ce
Bel
gium
Irel
and
Port
ugal
Ital
y
Gre
ece
% of GDP