Accounting Services in Estonia

Basic Requirements for the Organisation of Accounting

OPENING BALANCE SHEET

To begin with, you should prepare an opening balance sheet, which lists the assets, liabilities, and the share capital of your company before you start an economic activity.

ACCOUNTING POLICIES AND PROCEDURES

Internal accounting procedures should be developed at the beginning of the business. Internal accounting rules are mandatory and individual for each company.

Internal accounting procedures should:

• Describe the required chart of accounts with a description of the contents of these accounts.
• Establish procedures for documenting and recording transactions.
• Establish turnover and storage of primary documents.
• Regulate the maintenance of accounting registers.
• Report income and expenses in the profit and loss statement.
• Describe the company’s inventory, assets, and liabilities.
• Determine accounting policies, reporting and other accounting procedures.

ACCOUNTING PLANS

Based on Estonian laws, there are two profit and loss account charts. Estonian companies can choose between two types of profit and loss statement charts. In 1 profit and loss statement chart, business expenses are separated by the nature of the expenses (e.g. material costs, labour costs, depreciation and amortisation charges). This is often used by small companies that do not need to allocate costs by function.

Chart 2 of the profit and loss statement allocates operating expenses by function (e.g., cost of goods sold, advertising expenses, general administrative expenses). Chart 2 is usually more difficult to implement because all business expenses require a decision about which business function they are associated with. Certain costs (e.g. labour costs) must be allocated proportionately between the different functions. A profit and loss statement based on chart 2 gives a better picture of the costs of the different functions of the company, whereas the allocation of costs to functions is subjective.

The choice of the appropriate chart for the profit and loss statement should be based on which division gives the best indication of the dynamics of economic activity. However, if it turns out that the current choice of chart does not justify itself, it is possible to switch to another chart. Note that when switching from one schedule to another, the comparable figures of the previous period should also be adjusted retrospectively (in accordance with the new methodology).

OVERVIEW OF ESTONIAN TAXATION

Today, Estonia has one of the most convenient and profitable business taxation systems in the world. Tax and Customs Department is responsible for taxes in Estonia. The Estonian tax system attracts foreign entrepreneurs, inter alia, by a tax rate on retained earnings equal to 0 per cent. However, as in everything, it is necessary to understand the specifics of the application as well as to have information about possible nuances. The general rule is that the undistributed and reinvested profits of a company in Estonia are not taxable. In other words, no profit tax is paid when a company decides not to reinvest the profits rather than pay them as dividends.

Taxes in Estonia 2024

Today, Estonia has one of the most convenient and favourable business taxation systems in the world. Thanks to the government’s active support of small businesses, Estonia has become a European centre for entrepreneurship and start-up projects. All business processes associated with owning an Estonian company can be conducted online, including company registration, filing of declarations and interaction with state authorities. Responsibility for tax obligations in Estonia rests with the Tax and Customs Board.

The following tax rates are valid in Estonia for the year 2024:

VAT tax rate
Value added tax rate: 22%, 9% and 0%
Income tax
Income tax rates: 20%; 14%, 10%, 7%, 0%, 20/80 and 14/86
Social tax
Social tax rate 33%
Contribution to funded pension
The funded pension contribution rate is 2%.

There are also such taxes in Estonia as:

• land tax
• advertising tax
• tax on road and street closures
• tax on motor vehicles
• pet tax
• entertainment tax
• car parking fees
• environmental use charge

For more information on rates and conditions, please contact our consultant.

PAYROLL TAXES

Social tax rate 33%

According to Article 4 of the Social Tax Act, social tax is paid by:

• A resident legal entity
• An individual
• A non-resident who has a permanent place of business in Estonia or who makes payments specified in paragraph 1 of Article 2 of the Social Tax Act
• An institution of the state, municipality, or city
• The state, municipality, or city in cases specified in Article 6 of the Social Tax Act.

In 2024, the monthly rate on which the minimum social tax liability is based is 654 euros, i.e. the minimum social tax liability for the employer is 239,25 euros per month. The taxable period for social tax is one calendar month. An individual-entrepreneur pays social tax per year starting from at least 12 times the monthly social tax rate.

 Personal Income Tax

Income tax rate: 20%

It applies to an individual – both a resident and a non-resident, who receives income subject to taxation.

Unemployment insurance payments

The unemployment insurance payment rate in 2024 will be 1.6% for an employee and 0.8% for an employer.

Contribution to the funded pension

The funded pension contribution rate is 2%.

The funded pension taxation payment applies to residents of Estonia who are obliged or voluntarily joined the second stage. Payment is made by withholding the payment amount from the employee’s payment amount by the employer. The salary of non-residents of Estonia is not subject to the funded pension payment.