INDIVIDUAL TAXATION

Non-resident individuals earning income through renting out Estonian property are liable to pay income tax. Non-resident married couples are taxed separately.

A joint tax return may be filed if the following conditions are met: (1) one of the spouse is a resident of Estonia and the other spouse is a resident of another EU member state who has received at least 75% of his taxable income in Estonian sources, and (2) both spouses are residents of another EU member state and they have received at least 75% of their income for the tax year from Estonian sources. In the case of jointly filing income tax returns, the aggregate taxable income is divided equally between the spouses.

INCOME TAX

Non-residents are liable to pay taxes on their income from Estonian sources. A flat rate of 21% is imposed on taxable income in 2009.

No deductions and personal allowances are given to non-resident taxpayers, although residents of other EU member states are granted the same deductions that Estonia offers to its residents, provided they received at least 75% of their taxable income from Estonia and they file tax returns.

The income tax rate will go down for the next couple of years. The applicable tax rate for 2010 is 20%, 19% for 2011, and 18% for 2012.

RENTAL INCOME
Income earned from rental payments is subject to the flat income tax rate of 21% in 2009. This is taxed by way of withholding, which are final taxes and does not obligate the non-resident recipient to file returns.

CAPITAL GAINS
Capital gains are included in the computation for taxable income, and taxed at the standard rate of 21% in 2009. Income of non-residents from the sale of property is subject to income tax by way of assessment.

Taxable capital gain is generally computed as gross selling price less acquisition costs. Gains from the sale of a summer cottage or garden house are exempt if owned for more than 2 years.

PROPERTY TAX

Land Tax

Land owners in Estonia are liable to pay an annual land tax, levied on the market value of the land. The rate is established by the municipal council and varies between 0.1% and 2.5%.