Taxable income

Types of taxable income include income from employment, business income, rent and royalties, interest, taxable scholarships and grants, benefits, awards and pensions, as well as gains from transfer of property. Income tax is also imposed on types of income that are not included in the list, the economic substance of which corresponds to the definition of income. Income means non-returnable earnings, resulting in an increase in a person’s property.

Income from employment

The concept of income from employment covers remuneration paid on the basis of an employment contract and employment in public service and service fees paid on the basis of a contract for services, authorisation agreement or any other contract under the law of obligations and remuneration paid to members of the management or control body of legal entities. Employers withhold income tax on income from employment at the rate of 20% and pay social tax and in most cases unemployment insurance premiums and mandatory funded pension contributions.

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Envelope wages

Envelope wages are the wages on which taxes are not paid. Employees who accept envelope wages will be deprived of the social guarantees that they would be provided with in the case of legally paid wages.

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Pension and insurance indemnities

The Estonian pension system consists of three pillars: the first pillar is state pension, the second pillar is mandatory funded pension and the third pillar is supplementary funded pension. The second and third pillars operate based on the principle of savings collection by a person. It is also possible for a person to conclude a life insurance contract with investment risk.

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Scholarships and grants, benefits, awards

There are different principles for the application of tax exemption to scholarships and grants, benefits or awards. Below we are explaining the substantial differences between the payments mentioned.

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Interest

Interest received on a loan, security, deposit, or other debt of an individual is income that is subject to income tax.

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Income from lease and rent, licence fees

Income from lease and rent as well as licence fees are taxable with income tax.

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Transfer of immovable property

When selling or exchanging land, house or apartment, the question arises – whether income tax is payable on the gains received, and if so, how and when to declare the gains and how the tax amount is calculated. You can find answers to these questions in the following guide.

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Securities and investment account

If a private person sells or exchanges securities and receives gains from the transaction, it must be entered in the income tax return as gains from the transfer of securities. If a loss has arisen from the transfer of securities, the loss shall be taken into account for the purpose of the taxation of the income from securities only if the loss has been declared. Ordinary income from securities is taxed on a transaction basis as the difference between purchase and sale.

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Forest cutting right and timber

Here you can find an overview of the taxation of income from the transfer of cutting right or timber or from the Natura 2000 support for private forest land. Depending on the circumstances and conditions under which timber is transferred or Natura 2000 support granted, the income received is taxed either as business income or as gains from transfer of property.

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Other types of income

Income means a person’s non-repayable income, as a result of which a person’s assets increase. The concept of income also includes income generated through the so-called sharing economy (e.g. ridesharing, home accommodation).

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Business income and entrepreneur account

Business income is taxable with income tax, social tax and, in the case of an obligated person with contribution to mandatory funded pension. Income earned through an entrepreneur account is taxed with a uniform tax, which is divided into income tax, social tax and, in the case of obligated persons contribution to mandatory funded pension. More detailed explanations are given in the guidance material on this webpage.

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Last updated: 02.06.2021

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