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).

Sale of electricity

The amendment to the Income Tax Act (TuMS) was published in the Riigi Teataja on 07.03.2023, which provides for an income tax exemption for income from the sale of electricity, if the electricity is produced from a renewable energy source for the production of electricity with a production device with a net capacity of which is up to 15 kW, in order to promote the introduction of renewable energy  and also to make taxation fairer.

Income Tax Act § 15 (4) was supplemented with a new clause 12, and § 15 with a new subsection 4¹, which will be applied retroactively from January 1, 2022: 

  • Income from the sale of electricity produced by a production device with a net capacity of up to 15 kW used to produce electricity from a renewable energy source is exempt from income tax. In addition to solar panels, the exemption includes income from the sale of electricity produced by, for example, wind turbines.
  • The tax exemption also applies if the said income is received by a member of an apartment association selling electricity and the net power of the production device does not exceed 15 kW per connection point or 8 kW per apartment ownership.

The power of the generating device is calculated according to the power of the inverter. It is also possible to change the power of the production device (inverter), for more detailed information visit the network operator (e.g., elektrilevi.ee or Elektrilevi self-service).

Income tax is levied on all income from the sale of electricity, which is produced and connected to the network via production equipment with a net capacity exceeding 15 kW. Income from the sale of electricity is subject to taxation in the tax return of a natural person as profit from the transfer of property in table 6.3.

For example, if the production device (inverter) is set to a net power of 17 kW, then regardless of the production volume, all income from the sale of electricity must be declared in table 6.3 of the income declaration. From the point of view of taxation, it is not relevant whether the income from the sale of electricity is credited to a prepaid account with an energy company (e.g., Eesti Energia) or transferred to a bank account of the person.

It is allowed to deduct the cost of acquiring the production equipment and the costs related to its installation from the income from the sale of electricity, according to the proportion of the electricity amount produced and supplied to the electricity network (kWh) from the total electricity produced. The total electricity produced (kWh) is the sum of the amounts of electricity produced both for own use and supplied to the electricity network.

The proportion may vary each year depending on weather and production volume. For example, in the case of solar panels, production and consumption quantities depend on the sunny summer or year.

For example, if in 2022 the amount of electricity produced into the electricity network by the micro producer is 5,600 kWh and the amount of electricity consumed by the micro producer (own consumption) is 8,800 kWh, then the total amount of electricity produced is 14,400 kWh (5,600 + 8,800). The acquisition cost can be taken into account to the extent of 39% (5600/14400 x 100 = 38.88).

The acquisition cost may be taken into the account for one year or over several years. The rule is that the acquisition cost should be considered proportionally.

Electricity can be used for own consumption only on the property where the production device is installed. According to the proportion of the amount of electricity produced and supplied to the electricity network (kWh) from the total produced electricity (including electricity produced for own consumption), can be taken into account as the acquisition cost only   a production device and its installation which is on this property.

If electricity produced on different properties using different production equipment, the capacity and production volumes of each device must be accounted separately.

Support is paid to the owner of solar panels on the basis of § 59 of the Electricity Market Act and the support is exempt from tax for the recipient.

A private individual is not required to declare the tax-free support in his or her income tax return.

If the sale of electricity is a business activity, the rules on the taxation of the income of a sole proprietor (FIE) must be followed. Business is a person’s independent economic or professional activity, the aim of which is to derive income from the production, sale or intermediation of goods, provision of services, or other activities.

A natural person who conducts business must register his or her activities in the commercial register. Business income from which business-related expenses have been deducted, is subject to income tax and social tax, and contributions to funded pension if the person has subscribed to mandatory funded pension.

In certain cases, a person may also be required to pay excise duty on electricity. You can read more about electricity excise duty on our web page on fuel and electricity excise duties.

A sole proprietor must declare the income from the sale of electricity in the income tax return form E.

A sole proprietor has the right to take into account all costs related to electricity production (e.g. plant construction and maintenance costs, including costs covered from the support received) and the tax liability on profits is calculated on the basis of the tax return.

The support received by economic operators is taxable and must be declared in the income tax return form E.

Costs covered from the support are taken into account in the total costs and the tax liability is calculated on profits.

Turnover derives both from the sale of electricity to the electric grid by a small producer acting as an entrepreneur and from the sale of electricity to a small producer via the grid by an energy company.

However, a small producer registered for VAT person must add 20% VAT to the price of electrical energy released to the grid and submit an invoice to the energy company by the requirements of the VAT Act. In case a small producer is not registered for VAT person, no VAT shall be charged on the sale of electricity supplied to his system.

An energy company must account for and pay VAT on all electricity it sells to a small electricity producer and also submit an invoice for all electricity it sells to a small electricity producer – this cannot be deducted from the amount of electricity that the same small electricity producer releases into the grid of the energy company. It is irrelevant whether the small electricity producer is a natural person, a legal person identified for VAT purposes or a legal person not identified for VAT purposes. The energy company does not account for VAT only on the amount of electricity that is directly consumed by the small electricity producer itself without having to discharge it into the grid.

Taxation of the income of drivers providing taxi service through a ride-sharing platform

The provision of taxi services is essentially business. While doing business, a person has to decide whether to offer his or her services as a sole proprietor, through a company or by using an entrepreneur account.

The work and service fees of a natural person (not a sole proprietor (FIE), entrepreneur account user or a company) must be declared by platform operator and taxed with all labour taxes, i.e. income tax, social tax and contributions (unemployment insurance premium and, in the case of an obligated person, a funded pension payment). The taxed work and service fees are pre-filled in the person’s income tax return in part I of table 5.1.

If the work or service fees have not been pre-filled in the income tax return, the person must declare the remuneration received from a platform operator in part II of table 5.1 of the income tax return and pay income tax at the rate of 20% on the income received.

Since 2019, for simplifying the taxation of services offered by one natural person to another (incl. income derived through a taxi service platform), it is possible to use an entrepreneur account.

It is possible to open an entrepreneur account in a bank (LHV) offering the entrepreneur account service and to transfer income to this account. The bank will reserve a fixed percentage of the received amount automatically to cover taxes and transfers it to the Estonian Tax and Customs Board. Tax rate is 20% if the annual receipt is up to 25,000 euros and 40% if the annual receipt exceeds 25,000 euros.

The tax on business income will cover income tax, social tax and contributions to mandatory funded pension. The stated tax rate takes into account the estimated expenses which may be related to offering a service. The natural person does not have the obligation to submit tax returns, register as an entrepreneur or keep records of expenses.

It is convenient for a natural person to use the business account when earning occasional (business) income, because it also covers social tax and contributions to mandatory funded pension and therefore increases contributions to the II pension pillar. Income transferred to the business account will be taken into account when calculating compensations related to social tax.

You can find out more about an entrepreneur account.

Sole proprietors (FIE) may deduct business related expenses from their business income. From their profit they have to pay income tax and social tax, and also contributions to mandatory funded pension in case they have joined the mandatory funded pension system.

A sole proprietor registered as a person liable to value added tax (VAT), has to pay VAT. The VAT return (form KMD) has to be submitted every month.

A sole proprietor cannot distribute dividends and does not have to file an annual report to the Commercial Register.

The sole proprietor’s business income has to be declared on the form E of the income tax return. The income tax return and form E have to be submitted once a year with the person’s other income and deductions by 30 April of the year following the period of taxation. A sole proprietor has cash based accounting which means that income and expenses have to be indicated in the accounting for taxation purposes in the year money is paid or received.

If a sole proprietor wishes to save up for a bigger investment, he or she may use a special account to defer tax obligations.

Sole proprietors have to take into account the obligation to pay advanced payments.

More instructions about sole proprietors’ tax obligations.

When performing business activities through a private limited company (in Estonian ‘osaühing’, OÜ), it is necessary to consider that providing driver services is a business activity and labour taxes need to be paid on income from employment (income tax, social tax, unemployment insurance premiums and in case the driver has joined the mandatory funded pension system then also contributions to mandatory funded pension).

The owner of a private limited company may receive dividends as owner’s income in addition to salary. Distributing dividends requires only income tax to be paid.

In case of making taxable payments, the representatives of private limited companies need to submit monthly income tax declarations (form TSD or declaration of income and social tax, unemployment insurance premiums and contributions to mandatory funded pension) to the Estonian Tax and Customs Board and annual reports to the Commercial Register.

An obligation to register as value added tax (VAT) liable arises when the taxable supply exceeds 40,000 euros as calculated from the beginning of a calendar year. When the limit amount is reached the representative of the company has to submit an application to the Estonian Tax and Customs Board to register the company VAT liable. VAT return (form KMD) is submitted monthly.

The person providing driver services can decide on which business form (sole proprietor or private limited company) to use.

Regardless of the chosen form of business in Estonia, the Uber service of enabling the use of the application is registered as VAT liable in the Netherlands and is regulated in Estonia according to subsection 10 (5) of the Value Added Tax Act. This means that by using the Uber application for offering ride-sharing services the Estonian entrepreneur (sole proprietor or private limited company) has to register as a taxable person with limited liability and this service has to be declared and VAT with the Estonian rate of 20% has to be paid (the so-called reverse charge).

As a VAT liable person with limited liability does not have the right to deduct the input VAT on purchased goods and services (incl. the VAT calculated from the purchase price of the reverse charged service), the driver offering services in the course of business activities can consider registering for VAT according to the standard procedure voluntarily before the VAT registration threshold limit is reached.

If using the taxi service was related to performing the passenger´s (an employee) work tasks, the cost can be reimbursed to the employee by the employer on the basis of a ride summary issued by the ride-sharing platform as the expense in the benefit of another person and supported by documentary evidence pursuant to subsection 12 (3) of the Income Tax Act.

This is the case regardless of whether the taxi service was provided by a sole proprietor, private limited company, owner of an entrepreneur account or by a private individual.

The income derived from the assets upon the merger of the company with the assets of the natural person

If the sole shareholder of a company who is a natural person has merged the assets of the company with the personal assets as an alternative to the liquidation proceedings of the company, then he/she shall have to declare it in table 6.6 of the income tax return.

The difference between the income received from the company in monetary or nonmonetary form and the liabilities taken over, and the acquisition cost of the holding shall be declared. The income received in nonmonetary form shall be stated at the market price. The received gains shall be taxed except the share of profit taxed by the company.

If upon merging the liabilities of the company are taken over, then the amount of the liabilities taken over shall be declared.

If the liability taken over from the company ceases to exist later due to waiver of a claim, limitation period, consolidation of an obligor and an obligee or other reason, then it shall be declared and the taxable income shall occur during the period of taxation when the liability shall cease to exist.

Income from gambling

In Estonia, no income tax has to be paid on casino winnings or on any other gambling winnings if the gambling operator holds a gambling licence issued by the Tax and Customs Board. This applies to lotteries, sports betting, poker tournaments, casinos, and any online gambling.

All winnings from gambling licensed in Estonia are exempt from tax, i.e. you do not have to declare or pay income tax on the winnings. All taxes are paid by the gambling operator in the form of a gambling tax.

Operators that do not have a licence in Estonia are considered to be illegal and gambling there is prohibited. However, if a person unknowingly ignores the prohibition and plays on illegal gambling sites and wins, then the winnings must be declared and income tax paid at the rate of 20%. In this case, gambling winnings received in Estonia must be declared in part II of table 5.1 of the income tax return and gambling winnings received abroad in table 8.1.

Last updated: 29.11.2023

Was this page helpful?