Estonia – country with one of the most competitive tax system

Estonia Tallin taxation tax havens, IBCCS TAX Cyprus, Georgia

The Tax Foundation recently published a report on the tax competitiveness of the Organization for Economic Co-operation and Development (OECD) countries, which ranked Estonia as the 1st country for the eighth consecutive year.

Its top score is driven by three positive features of its tax system:

First, it has a 20 percent tax rate on corporate income only applied to distributed profits allowing excellent tax deferral and planning opportunities as retained earnings can be lent out or invested. For example, the shareholders can exercise a tax-free right to reduce the share capital in proportion to their paid-in share capital, which applies to non-monetary contributions such as cryptocurrencies.

Second, it has a flat 20 percent tax on individual income that does not apply to personal dividend income.

Third, its property tax applies only to the value of land rather than to the value of real property or capital.

In today’s globalized world, capital is highly mobile. Businesses can choose to invest in any number of countries throughout the world to find the highest rate of return. This means that businesses will look for countries with lower tax rates on investment to maximize their after-tax rate of return. If a country’s tax rate is too high, it will drive investment elsewhere, leading to slower economic growth. On top of that, a transparent and fair tax system is one of the most important considerations for entrepreneurs thinking about expanding their business internationally or bringing it back to Europe. The Estonian tax system supports free enterprise, and low bureaucracy provides an opportunity to focus as much as possible on the development of its products and services, which is a substantial competitive advantage.

The COVID-19 pandemic has very vividly highlighted the opportunities and limitations of physical space in business. Estonian digital solutions help to respond to surprises successfully. In the growing competition for talent, Estonia’s key advantage is easy and uniform, personal income taxation at a competitive tax rate. Estonia’s E-residency is a unique state program, which enables entrepreneurs worldwide to have access to Estonia’s secure and convenient digital services. Today, nearly 90,000 e-residents help introduce the Estonian national brand in more than 170 countries worldwide and pass on the success story of the Estonian digital society.

IBCCS TAX holds a license to offer fiduciary services in Estonia, and is an official member of the government-funded e-residency marketplace. Our office in Tallinn is at your disposal to assist you with starting and managing your business in Estonia.