From 1 January 2020, fines and penalty payments imposed on the basis of law and interest paid on the basis of the Taxation Act shall not be deducted from business income, except for the interests paid from the tax arrears being paid in instalments pursuant to § 111 of the Taxation Act if the tax is not determined by a notice of assessment (subsection 34 (3) of the Income Tax Act).
When do you have to pay interest?
If the taxable person has not paid the tax by the due date, or if a higher amount has been unduly returned or set off, the taxable person shall be liable for payment of interest. The interest is calculated until the tax debt is paid in full at 0.06% per day.
A taxable person who is in financial difficulties can apply for payment of tax arrears in instalments.
The easiest and fastest way to apply for payment by instalments is through the e-MTA.
To send the application you need to log in to the e-MTA, go to section “Accounting” and choose “Payment of tax arrears in instalments”.
If the application submitted through the e-MTA fulfills the requirements for simplified instalments procedure, the decision with a relevant interest claim will be automatically generated in the data processing system. The interest is calculated at 0.03% per day on the tax arrears to be paid in instalments prospectively until the tax debt is paid in full.
More information in the explanation “Payment of tax liabilities in instalments”.
When there is an income tax payment liability from the interest?
Income tax must be paid from tax arrears of the interest determined and paid based on § 115 of the Taxation Act (bases: clause 34 (3) and subsection 51 (1) and clause (2) 1) of the Income Tax Act). Income tax at rate 20/80 is payable based on Annex 6 of form TSD.
When submitting a declaration through the e-MTA, the Estonian Tax and Customs Board shall pre-complete the amount of interest determined pursuant to § 115 of the Taxation Act and interest sum paid by the taxable person in Annex 6 of the TSD under code 6021.
Self-employed person (FIE) cannot deduct the interest determined and paid under § 115 of the Taxation Act from their business income.
When there is no obligation to pay income tax from interest?
There is no obligation to pay income tax from the interests paid from the tax arrears being paid in instalments pursuant to § 111 of the Taxation Act (basis: subsection 34 (3) of the Income Tax Act) if the tax has not been determined by a notice of assessment.
Interest paid on the tax arrears being paid in instalments is a business expense under the following conditions:
interest is calculated on the tax arrears being paid in instalments for the period of the schedule and
the interest claim has been drawn up and paid since 1 January 2020.
The income tax exemption therefore applies to the interest of a particular claim of payment of tax liabilities in instalments calculated from the date of approval of the schedule of payment in instalments until (whichever is the earliest):
- the due date for the payment of a particular claim according to the schedule or
- the date of cancelling the schedule or
- the end date of the schedule.
From January 2020, the e-MTA will show the payments of interest claims as well as its separate breakdowns in the section "Accounting" – "Claim transaction search" where the respective "Claim type" has to be selected:
- interest (INTR),
- interest with income tax (INTRM) or
- interest exempt from income tax (INTRMV).
When filing a tax return through the e-MTA, the Estonian Tax and Customs Board will pre-complete from January 2020 under code 6021 of form TSD Annex 6 only the interests taxable with income tax.
A self-employed person (FIE) may deduct from his/her business income the interests paid on the tax arrears being paid in instalments pursuant to § 111 of the Taxation Act if the tax has not been determined with a notice of assessment.
Income tax return form E is not pre-completed. The self-employed person (FIE) sees the interest distribution by taxation in the e-MTA only!