Payment of interests

In case you have tax arrears, you are obliged to calculate and pay interest on tax amounts unpaid by deadline. Interest is calculated beginning from the date following the statutory payment due date of taxes until the date of payment or offset, including the latter.

Payment of interest

In case you have not paid interest on tax liabilities unpaid by deadline, we will issue a claim for interest, unless the interest amount is less than 10 euros.

You can pay calculated interest voluntarily in the Estonian Tax and Customs Board’s electronic environment e-MTA by compiling the respective interest calculation. It is necessary to ensure sufficient funds on your prepayment account for interest payment. The Tax and Customs Board will deduct the amount of interest payable from your prepayment account. 

Pay interest

In case of difficulties with payment, you can apply to pay tax arrears in instalments. The easiest and fastest way to apply for payment of tax arrears in instalments is to submit an application via e-MTA. More information in the article “Payment of tax liabilities in instalments”.

Important

Interest was not calculated for the period from 1 March 2020 to 17 May 2020 (included) due to the emergency situation announced by the Estonian Government on 12 March 2020.

For the period from 18 May 2020 to 31 December 2021 (included), interest in the rate of 0.03% per day has to be calculated and paid on the principal debt. Beginning from 1 January 2022 the interest rate will again be 0.06% per day.

Interest amount = tax amount unpaid by deadline x number of days delayed x interest rate.

Rounding the interest amount

On 1 January 2020 an amendment to § 97 of the Taxation Act entered into force, according to which interest amounts are rounded to the nearest euro. 

Rounding is done according to mathematical rules. Examples:

  • if the calculated interest is 10.49 euros, after compilation of the interest claim, 10 euros are to be paid;
  • if the calculated interest is 10.50 euros, after compilation of the interest claim, 11 euros are to be paid.

In case the calculated interest is less than 0.50 euro, interest claim cannot be compiled or paid, since the interest is rounded to 0. Calculated interest is not displayed in public inquiry of tax arrears. After full payment of the principal debt, calculated interest will expire and is deleted automatically after one year has passed from the tax calculation (§ 118 of the Taxation Act).

Non-calculation of interest

Interest on tax arrears is charged in the event of delaying with payment of tax liabilities. However, in certain cases, the tax authority will suspend calculating interest.

The beginning of suspension may be:

  • suspension of the activity of the credit institution used to fulfil tax liabilities;
  • compromises related to bankruptcy proceedings of the taxable person;
  • declaration of bankruptcy;
  • the amount of interest exceeds the amount of tax claim which is the basis for the interest calculation;
  • debt restructuring is taking place (from the initiation of proceedings until the approval of the debt restructuring plan).

A more detailed list of grounds for suspension is provided in § 119 of the Taxation Act

Based on good governance practice and according to the decision of the Administrative Law Chamber of the Supreme Court of Estonia, we do not calculate interest in situations where the tax proceedings have been delayed due to reasons caused by the tax authority itself. Such cases may be:

  • there has been an unreasonable delay in performing control activities due to the inaction of the tax authority;
  • it takes longer than usual for the tax authority to formulate opinions on taxation and the continuation of the procedure depends on further decisions to be made on the basis of the available evidence.

A respective decision is made to reduce the period of calculating interest. The decision will be sent to you as a separate administrative act along with a notice of assessment or liability decision. The decision will indicate the period of time when the proceedings were unreasonably delayed, and the number of days by which the interest calculation is reduced.
 

Interest calculation is not suspended:

  • when, in order to ascertain relevant information to tax proceedings, it is necessary to submit an application to an authority of another Member State of the European Union (EU). In accordance with the EU Directive on Administrative Cooperation in the Field of Taxation, the authority receiving the application may respond in no later than six months beginning from the date of receiving the application.
  • when we have issued an order for submitting information and/or documents to you or a third party. The time during which the tax authority awaits for information and/or documents relevant to tax proceedings from the taxpayer or a third party cannot be considered a delay in tax procedure caused by the tax authority.

Taxation of interest

Beginning from 1 January 2020 it is not allowed to deduct from business income fines and penalty payments imposed pursuant to law and interest paid according to the Taxation Act, with the exception of interest on tax arrears paid by instalments according to § 111 of the Taxation Act if the tax has not been imposed by a tax decision.

Income tax has to be paid on interest designated and paid on tax arrears according to the Taxation Act § 115 (Income Tax Act § 34 3) and § 51 (1) and (2) 1).

Income tax at the rate of 20/80 is paid according to annex 6 of the declaration of income and social tax, unemployment insurance premiums and contributions to mandatory funded pension (form TSD). If you choose to submit the declaration via the e-MTA, the Tax and Customs Board prefills the interest amount taxed with income tax in the box with code 6021 of the annex 6 of the form TSD. The form E of the income tax return will not be prefilled.

Interest can be deducted from business income if all of the following conditions are met:

  • interest is calculated on tax arrears paid by instalments
  • tax arrears paid by instalments have not incurred on the basis of a tax decision
  • interest has been calculated during the period the payment schedule was in force
  • interest has been paid
  • claim for interest has been compiled and paid after 1 January 2020.

The exemption from income tax is expanded on the interest of a certain deferred claim, which has been calculated from the date of confirmation of the payment schedule until:

  • the due date of the claim according to the payment schedule
  • the date of cancellation of the payment schedule
  • the date of expiration of the payment schedule.

You can view an interest claim compiled to a company and its payment by distribution in the “Claim transactions search” of the menu item “Accounting” of the e-MTA by selecting “Interest”, “Interest subject to income tax” or “Interest exempt from income tax” as the claim type.

To a sole proprietor we display the distribution of interest only by taxation in the e-MTA.

Last updated: 25.10.2021

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