In Estonia, the proportional (i.e. flat) tax rate is 20%, which applies to all income received by a resident taxpayer. From 2018, dividends subject to the reduced 14% list tax rate at the level of the Estonian company distributing the dividend will be subject to WHT of 7%. Individuals pay income tax on their income. Salary income, gains from the transfer of assets, business income and other income are taxed at a rate of 20%. In addition to income tax, salary income and business income are also subject to social tax, unemployment insurance contributions and, in the case of liable persons, funded pension contributions.
A special feature of the Estonian income tax system is that the company’s tax liability arises on the distribution of profits (dividend payment). If the company does not distribute the profit but invests it in the company, no tax liability arises. The dividend is subject to a tax rate of 20/80, while the regular dividend is subject to a preferential rate of 14/86. Estonia has a corporate income tax regime in place where the moment of taxation of the profit is raised from the moment of its receipt to the moment of its distribution.