Estonia is a small country on the Baltic Sea coast. It’s being the sixth year in a row this European Union member wins a trophy for the best tax code across the OECD countries. The International Tax Competitiveness Index is seen as the rating indicator covering two major aspects of tax policy – competitiveness and neutrality. Both these aspects reflect the ease of doing business, and in the case of Estonia, they became a benchmark of the digital nomads’ hub.
An intricate path to Victory
Creating favorable investment conditions made possible due to the adoption of advanced technologies into the entire social, economic, and governance aspects of Estonian life. Implementation of electronic standards took nearly two decades with the continuous approaching to raising challenges and problems. In fact, Estonia appears as one of the first countries who declared in 2001 Internet access as a genuine human right. Today, 99% of public services in Estonia are available online. One of the most complicated difficulties on their way to becoming e-society was internet education, as the adoption of e-services required snug confidence in digital practices. The path from 29% of Internet users at early stages to 98% as of 2019.Economy, taxes, and e-residence
Surviving the aftershocks of Soviet intervention, Estonia managed to modernize and liberalize its practices in order to engage the international standards of living. The estimated GDP per capita in 1991, just after the independence declaration, was as little as $100, while the present data shows a significant, near $20,000 flag. The modern Estonian economy demonstrates a solid growth due to consistent electronics and telecommunication sectors, strong trading ties, and encouraging investment climate. Loyalty and flexibility, alongside with digital convenience of the state tax system turned Estonia into the hotbed of the technological enterprise. Despite the low rates, taxation delivers a meaningful revenue in the amount of 33.2% of GDP to the Estonian economy. This number, however, continues to decrease. E-Governance proposed as an innovative administration method plays an essential role in the country’s international relations. It is so effective that even Malaysia and other big countries have adopted this model. The e-residence program launched in 2014 allows foreigners to enter Estonian services, such as banking, company formation, payment operations, and taxation within online. During its lifetime, the amount of 54 thousand participants from over 160 countries have established more than six thousand new companies.Potential threats
There is a number of threats that innovative digitalization of the Estonian economy involves besides benefits. Two of them are likely to be determined as principal. Here they are:- Cybersecurity
- Tough response to global economic fluctuations
Latest updates and key takeaways from Estonia
Recently, Estonia and Hong Kong have settled an agreement aimed at these jurisdictions to avoid double taxation, as they together propose a loyal tax approach. According to the deal, any tax paid by Hong Kong residents derived from in-Estonia activities to be credited against the local tax withheld on the same amount of income, and vice versa. The other notion applied in 2019 is that it became possible to pay yourself employee salary only, but only in case, the business activity was performed outside Estonia. However, the inhouse tax still needs to be repaid. Taxation in Estonia: key takeaways- Corporate income tax rate: 20%
- Individual income tax rate: 20%
- Property tax applies only to the land
- Foreign profit exemption (up to 100%)
- Double taxation of salaries for non-digital nomads
- A EUR 40,000 turnover threshold for VAT registration
- Social security contribution and payroll for Estonian residents