Bank Money and Taxes in Estonia
The Bank of Estonia (Eesti Pank) is the independent central bank. As Estonia is part of the Euro zone, the core tasks of the Bank are to help to define the monetary policy of the European Community and to implement the monetary policy of the European Central Bank. Eesti Pank is also responsible for holding and managing Estonian official foreign exchange reserves as well as supervising overall financial stability and maintaining reliable and well-functioning payment systems. Eesti Pank is responsible for the circulation of cash in Estonia.
Since Estonia regained independence, the developments in the banking sector have been rapid, along with the trend of welcoming foreign capital. The banking sector has gone through major restructuring as a result of privatization, consolidation and bankruptcy in late 1990s, following a relatively stable period in the 2000s.
The banking sector is dominated by two major commercial banks, Swedbank and SEB, owned by Swedish banking groups. These two banks control approximately 62% of the financial services market. The third largest bank is an affiliate of the Finnish Nordea group and the fourth largest bank is an affiliate of the Finnish Nordea Group and the fourth largest bank is an affiliate of the Danish Danske Bank. There are no state-owned commercial banks or other credit institutions.
Specialized financial institutions
Estonian commercial banks are the largest providers of leasing and factoring services, with the Swedbank group being a definite market leader. The services provided are becoming more sophisticated and diverse while the clients are also becoming more aware of the services on offer. The sector has been growing extensively as a result of the decline in interest rates and the increase in customers' welfare. The range of potential leasing objects has grown to include anything from bikes, home furniture and travelling arrangements up to real estate, personal vehicles, trucks and farming equipment.
The factoring services include domestic factoring, export factoring, invoice factoring as well as tax factoring. There are also options to finance VAT returns. For international companies, the available factoring services include the handling of the entire accounts receivable portfolio of local companies.
The Estonian insurance market has similarly gone through a major consolidation over the years since independence and has reached stability. A wide choice of insurance services is available from Estonian insurance companies as well as from international service providers.
Tax System and Administration
- Main principles of Estonian tax policy: simple tax system, broad tax base and low rates.
- The aim of the Estonian Government is to shift the tax burden from labor to consumption.
- Flat income tax rate since 1994 (flat income tax rate at 21% applies to both individuals and companies).
- Unique corporate tax system since 2000: all undistributed corporate profits are tax-exempt.
- Local taxes play an insignificant role in the Estonian tax system.
- Estonia operates a self-assessment system.
- The Government's intention is to improve tax administration (electronic tax administration is well established).
Administration Of The Tax System
Taxes are levied on the basis of tax laws enacted by Parliament. Both state and local taxes are imposed under the taxation laws. The structure and basis of the tax system is regulated by the Law on Taxation. Local taxes are introduced by local municipal councils according to the Law on Local Taxes. Local taxes play an insignificant role in the Estonian tax system.
The tax administrator is the Estonian Tax and Customs Board. Local taxes are administrated by the local municipal councils and local offices of the Tax Board.
The allocation of state taxes between national and local governments is set out by the tax legislation. The Income Tax Law states that 11.6% of resident individuals' income tax before deductions is allocated to local municipalities, but the rest, including all taxes levied from pensions and capital gains, is allocated to the state budget.
Classes of Taxpayers
Estonian taxpayers are resident and non-resident legal entities and individuals. The term legal entity includes companies, partnerships, legal entities under public law and non-profit organizations and foundations.
A legal entity is treated as resident in Estonia if it is founded under Estonian laws. An Estonian branch of a foreign company is treated as a permanent establishment of a non-resident entity. An individual is treated as resident in Estonia if he has a permanent place of residence in Estonia, is present in the country for 183 days or more during any 12-month period, or if a person is employed in the public state service of Estonia, dispatched abroad.Non-resident taxpayers include foreign entities and individuals, or their permanent establishments in Estonia
Taxpayers that are based in Estonia and are registered in the Estonian Commercial Register (subsidiaries, branches etc.) will be automatically recorded into the taxpayers register that is held by Estonian Tax and Customs Authorities. A separate registration is required for VAT purposes.Foreign companies can only register with the Tax and Customs Authorities in certain circumstances (e.g. acting as a foreign employer, having a permanent establishment and as a VAT liable person).
Money and Currency in Estonia
Estonia joined the EURO-zone in the beginning of 2011 - and now, EURO is the official currency.
The value of the Estonian Kroon (eek) was fixed to the €. The smaller unit was called the Cent, 1 kroon = 100 cents. 1 EUR = 15,65 kroons(EEK).
On the 1st of January 2011, Estonia joined the euro-zone and switched the Estonian Kroons to euros. During the adoption phase, shops (and other establishments) displayed the prices both in kroons as well as euros and it still may be the case in some shops. Seeing two currencies on a price tag may feel just a tiny bit confusing, but the only official currency in Estonia is euro and hopefully, all of the price tags will be updated soon.
Changing money in Estonia is easy at the many ATMs, banks, hotels and bureaux de change that offer currency exchange services.Credit cards such as Visa and Mastercard/Eurocard etc. are accepted in most of the major hotels, restaurants and shops. Use of American Express is not as common. Whether you are on a tight budget or looking for luxury Estonia has something for you. However much you have to spend Estonia offers great value for money compared to most European countries and we have plenty of surprises to tempt you.