A non-resident pays income tax on gains when transferring:
- immovable property located in Estonia
Immovable property is a delimited part of the land or a plot of land, the essential parts of which are permanently attached to it (buildings, growing forest, other plants, unharvested crop), which together with the land form a separate registered immovable.
- movable subject to entry in an Estonian register
A movable is a thing that is not an immovable.
- timber felled on an immovable located in Estonia
Timber is a felled tree and stem, the part of stem or slash. The gains from the sale of timber may be taxable income from the transfer of property or as business income – consequently, the calculation and declaration of taxable income differ. The gains derived from felled timber may be carried forward to up to three following periods of taxation.
- the transferred real right or right of claim , related to an immovable or a structure as a movable located in Estonia
This could be, for example, the right to cut the standing crop, the gains from the transfer of which may, by way of exception, be carried forward to up to three following periods of taxation.
Gains from the transfer of holding is subject to income tax if the holding was transferred or returned or the liquidation proceeds were paid in a company, contractual investment fund or other pool of assets of whose property, at the time of the transfer or return or during a period within two years prior to that, more than 50 per cent was directly or indirectly made up of immovables or structures as movables located in Estonia and in which the non-resident had a holding of at least 10 per cent at the time of conclusion of the specified transaction.
Income tax is also charged in Estonia, if
- gains were derived from the liquidation of contractual investment fund or other pool of assets under the conditions referred to in the preceding paragraph;
- A non-resident receives income from the reduction in the share capital of a public limited company, private limited company or association or in the contributions of a general or limited partnership, and in the case of redemption or return of shares or contributions, income tax is also charged on the portion of the payments received from the equity which exceeds the acquisition cost of the holding (shares, contributions), unless the portion of the specified payments or the share of profit which is the basis of the proceeds has been taxed with income tax.
Income tax is not charged if a non-resident transfers:
- his or her residence
The residence of a person is the place where he or she permanently or primarily lives. The residence may be simultaneously in several places. No more specific conditions are laid down in the definition of residence, such as the time of residence, etc. The specification of residence is a matter of proof of the facts.
If a taxpayer transfers more than one residence within a period of two years, the exemption shall be applied only to the first transfer.
The residence of a non-resident may be in Estonia, for example, in the case of a former resident who is selling his or her residence in Estonia where he or she had lived until moving to a foreign country, but the sales transaction has dragged on and the person’s residence has changed. A non-resident’s residence may be in Estonia also in the case where he or she has several residences in several countries and the resulting dual residence has been avoided pursuant to the tax treaty and the person is therefore a non-resident in Estonia.
- returned unlawfully expropriated immovable property, an essential part of which is a dwelling;
- immovable property subject to privatisation with the right of pre-emption, if an essential part of the immovable is a dwelling and the size of the registered immovable property does not exceed 2 ha;
- a summer cottage or garden house, if a non-resident has owned it for more than two years and the size of the registered immovable does not exceed 0.25 ha;
- returned apartment, which was unlawfully expropriated or privatised with the right of pre-emption;
- movable property in personal use.
Income tax in not charged also in the case of:
- the exchange of a holding in the course of a merger, division or transformation of companies;
- the increase or acquisition of a holding by way of a non-monetary contribution.
Gains from transfer of property in tax treaties
As a rule, the Convention for the Avoidance of Double Taxation with Income Tax (tax treaty) concluded between Estonia and foreign countries stipulates that gains derived from the transfer of property shall be taxable only in the state of residence of the beneficiary, unless immovable property situated in Estonia and holding in an Estonian company whose assets consist mainly of immovable property situated in Estonia is transferred.
Therefore, tax treaties can significantly restrict the right of taxing gains from transfer of property in Estonia.
Gains from the transfer of immovable property shall be taxed as income of a non-resident in Estonia, if the immovable is located in Estonia.
Obligations of a non-resident transferring property
A non-resident declares gains from the transfer of immovable property located in Estonia on Form V1 in table 3.1.
Taxable income = gain - acquisition cost - transfer cost.
Income tax = gain x 20%
Gain, acquisition cost and transfer cost are shown separately on the income tax return.
|How to calculate|
|Gain||The gain derived from the transfer of property shall be shown based on the contract of sale or other similar document, without the deduction of any expenses.|
|Acquisition cost||The acquisition cost shall include costs, including commissions and fees paid for the acquisition and improvement of the taxpayer’s property, supported by documentary evidenc. The acquisition cost is declared in the tax return of the year in which the gain was derived from the transfer of property, not in the year in which the expenses were incurred.|
|Transfer costs||The costs related to the transfer may include notary fees, state fees, the cost of valuation of property, or, if the transfer required a visit to Estonia, also travel expenses (plane or ship tickets). Supporting document is required for certified expenses in case the Tax and Customs Board decide to require it.|
|Expenses related to the transfer of the right to cut standing crop and felled timber||In the case of the transfer of the felled timber or the right to cut standing crop, the transfer costs include reforestation costs as well as costs of harvesting and transportation of timber paid as a service fee. The taxpayer has the right to deduct these costs from the gain derived from the transfer of the right to cut standing crop or felled timber during the same period of taxation or three following periods of taxation.|
- Deduction of certified expenses
A non-resident has the right to deduct from the gains the certified expenses directly linked to the sale or exchange of property, such as brokerage and notary fees.
- Deduction or carry forward of loss from transfer of securities
The loss incurred from the transfer of securities can be deducted from the gain from transfer of securities, which is subject to income tax in Estonia, or it can be carried forward to the following periods of taxation.
To carry forward a loss or deduct it from the gain a non-resident has to submit an income tax return on Form V1. A resident of another contracting state of the European Economic Area (EEA) may declare the deductions also on the income tax return for an Estonian resident natural person. In other cases, it is not possible to carry forward a loss and declaration is not necessary.
A non-resident declares gains from the transfer of property located in Estonia on Form V1 in Table 3.1. Upon transfer of immovable property, the registered immovable number must also be indicated in the tax return.
A resident of another contracting state of the European Economic Area (EEA) may declare gains from the transfer of immovable property located in Estonia also in the income tax return for an Estonian resident natural person. In order to calculate the amount of basic exemption, foreign income that is not taxed in Estonia must also be declared.
The due date for tax returns is 30 April of the year following the year in which the gains were received.
Tax returns can be submitted to the Tax and Customs Board:
- digitally signed to the e-mail address firstname.lastname@example.org;
- through the online services environment e-MTA. The completed and signed tax return can be uploaded under the menu item “Communication”;
- at the most suitable service bureau of the Tax and Customs Board;
- by post to the address Lõõtsa 8a, 15176 Tallinn
After the tax return has been submitted, we send tax information to a non-resident, which includes, among other things, the amount of tax to be paid and the personal reference number required for the payment.
When the reference number has been issued, it can be checked on our website through Search of personal reference number by personal identification code or registry code issued by the Tax and Customs Board. Each person has always one reference number for the payment of all taxes.
The Estonian Tax and Customs Board shall not issue a tax notice to non-residents.
The income tax calculated on the basis of the tax return is paid into the bank account of the Estonian Tax and Customs Board by 1 October of the year in which the tax return is submitted.
Last updated: 14.04.2021