Estonia’s Tax System Leads the Way: Insights and Opportunities

For the tenth consecutive year, Estonia has been recognized as the leader in the 2023 International Tax Competitiveness Index. This remarkable achievement underscores the country’s tax system as the most competitive among all OECD countries. But what does this mean for businesses and individuals looking to optimize their tax obligations, and how can HAYMAN-WOODWARD assist in this context?

A well-structured tax code is a key indicator of a country’s economic performance. Taxpayers find it easier to comply with a tax code that is properly structured, which in turn promotes economic development and improves public revenues. Conversely, poorly structured tax systems can be costly, distort economic decision-making, and harm domestic economies, according to the Tax Foundation, the US-based tax policy non-profit that publishes the ICTI.

The OECD countries have various approaches to taxation, necessitating a comparison to critically evaluate performance. The Tax Foundation developed the ITCI to serve this purpose, examining over 40 tax policy variables to measure the competitiveness and neutrality of country tax codes. These include corporate taxes, individual income taxes, consumption taxes, property taxes, and the treatment of profits earned overseas.

Estonia’s top score in 2023 is driven by several features of its tax system:

• A cash-flow corporate tax system with a 20% tax rate applied only to distributed corporate profits.
• A flat 20% tax on individual income that does not apply to personal dividend income.
• Property tax that applies only to the value of land, rather than to the value of real property or capital.
• A network of 62 tax treaties that help domestic corporations get credits for foreign tax liabilities.

Estonia’s clear tax system, transparent business environment, and efficient digital services are also advantageous for e-residents, and foreign entrepreneurs looking for a place to base their borderless business.

Looking ahead to 2024-26, the Estonian Government has announced amendments to the tax law, with changes coming into force between 2024 and 2025. These include an increase in the standard VAT and CIT rates and the elimination of some exemptions. However, the overall tax system will remain simple and transparent.

For e-residents and businesses, understanding these changes is crucial, and HAYMAN-WOODWARD is here to provide guidance. Our expertise in global mobility and tax advisory can help you navigate the complexities of international tax laws, optimize your corporate tax structure, and ensure compliance with the upcoming changes in Estonia’s tax system.

Whether you’re considering becoming an e-resident or already operating a business in Estonia, HAYMAN-WOODWARD’s team of experts is ready to assist you with personalized advice and strategic planning. We are committed to helping our clients achieve their global mobility goals with ease and confidence.

For more information on how we can support your endeavors in Estonia or elsewhere, please feel free to reach out to us. We are grateful for the opportunity to serve your global mobility needs and look forward to contributing to your success.