Taxation of income derived from transfer of immovable property

These instructions have been drafted in order to explain taxation of gains derived from transfer of immovable property of non-residents in Estonia with income tax.

  • Income tax is charged on gains derived by a non-resident from transfer of immovable property if the sold or exchanged immovable is located in Estonia (§ 29 (4) of the Estonian Income Tax Act).
  • The gains derived from the sale of property is the difference between the acquisition cost and the selling price of the sold property. The gains derived from the exchange of property is the difference between the acquisition cost of the property subject to exchange and the market price of the property received as a result of the exchange.
  • A taxpayer has the right to deduct certified expenses directly related to the sale or exchange of property from the taxpayer’s gain or to add such expenses to the taxpayer’s loss.
     
  • Tax exemption applies if:
    • an essential part of the immovable or the object of apartment ownership or a right of superficies is a dwelling which was used by the taxpayer as his or her place of residence until transfer, or
    • an essential part of the immovable or the object of apartment ownership or a right of superficies is a dwelling, and the immovable has been transferred to the taxpayer’s ownership through restitution of unlawfully expropriated property, or
    • an essential part of the immovable or the object of apartment ownership or a right of superficies is a dwelling and such dwelling and the land adjacent thereto has been transferred to the taxpayer’s ownership through privatisation with the right of pre-emption and the size of the registered immovable property does not exceed 2 hectares, or
    • a summer cottage or garden house has been in the taxpayer’s ownership as a movable or an essential part of an immovable for more than two years and the size of the registered immovable does not exceed 0.25 hectares, or
    • a structure or apartment as a movable has been transferred to the taxpayer’s ownership through restitution of unlawfully expropriated property or through privatisation with the right of pre-emption, or
    • an apartment in a residential building belonging to the housing association or building association was used by the taxpayer as his or her place of residence until transfer.
  • If the tax exemption is based on the use of the dwelling as the taxpayer’s residence, the tax exemption is not applied to more than one transfer in two years.
    • If an immovable, structure or apartment was used simultaneously with its use as place of residence also for other purposes, the tax exemption is applied according to the proportion of the area of the rooms used as residence and the area of the rooms used for other purposes.
  • Gains from transfer of property are not subject to income tax  under conditions specified in § 15 (5) and (6) of the Income Tax Act.
     
  • Non-residents who have received taxable gain from a transfer of property have to submit an income tax return and pay income tax, because in this case income tax is not withheld upon making the payment.
  • An income tax return shall be submitted to a service bureau of the Tax and Customs Board.
  • If a non-resident transfers an immovable, the income tax return shall be submitted within one month following the date of receiving the gain from transfer of the property. If the payment for immovable property was made by instalments, income tax return declaring the full amount of the transfer price shall be submitted within one month following the date of receiving the first instalment.
  • The form V1 is available on web-site of the Estonian Tax and Customs Board here (PDF).  Table 3.1 of form V1 is to be filled in upon transfer of immovable property.
  • The due date for payment of income tax on gains derived from a transfer of property shall be within three months from the date of submission of income tax return.
  • A tax notice will not be issued to a non-resident. A non-resident shall pay amounts of tax to the bank accounts of the Estonian Tax and Customs Board.
  • In order to obtain the reference number needed for payment of income tax, a service bureau of the Estonian Tax and Customs Board has to be contacted or you can check it on-line here 
  • Income tax rate is 20% (2017).
16.05.2017