Tax on property income in Estonia
Taxation Researcher | May 18, 2020
Effective Tax Rate on Rental Income
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Nonresidents are liable to pay taxes on their income from Estonian sources. Nonresident 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.
Nonresidents are liable to pay taxes on their income from Estonian sources. A flat rate of 21%.
Income tax rate will decrease to 20% in 2015.
No deductions and personal allowances are given to nonresident 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.
Nonresident individuals earning income through renting out Estonian property are liable to pay income tax. Income earned from rental payments is subject to the flat income tax rate of 21%. This is taxed by way of withholding, which are final taxes and does not obligate the nonresident recipient to file returns.
Capital gains are included in the computation for taxable income, and taxed at the standard rate of 21%. Income of nonresidents 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.
Land in Estonia is subject to 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%.
Land tax is generally paid by land owners, but users may be liable to pay the tax in some cases. Land tax is generally payable in two installments, every 31 March and 01 October.
Income and capital gains earned by companies are subject to distribution tax on the company´s distributed profits. Profit distributions may be (1) specific, such as dividends, share distributions via capital reductions, and (2) deemed, which may include expenditure and payments unrelated to business activities, gifts, donations.
The distribution tax is levied at a rate of 21/79 of the net amount or 21% of the gross amount of the profit distribution.