The Estonian Tax and Customs Board keeps a list of organizations that enjoy certain income tax benefits. The income tax list is renewed every year, and some new companies are added to the list while some companies are scratched off. The officers of the Board always advise the applicants to think twice if they want to be enlisted. The matter is that the status does not bring income tax advantages alone. It also brings some obligations.
I Tax benefits
1. Fellowships for students, scientists, scholars, artists, and sportspeople
The organizations that are on the abovementioned list can avoid being taxed on the fellowships and stipends that they pay to students, scientists, scholars, artists, and sportspeople if they meet certain conditions.
Tax-exempt fellowships: conditions
- The fellowship is offered through a public contest. The information about the contest is published in a national newspaper, a local newspaper, the stipend grantor’s website, or a website relevant for the area in which the fellowship is granted.
- The fellowship is not paid to people connected with the organization in any way nor to the people who have made donations to the organization within the last 12 months.
- The fellowship cannot be paid to the employees of the organization (if it is, it is going to be taxed at the same rate as a salary is taxed).
- The fellowship meets the following conditions: it is a contribution to the recipient’s future that is provided to facilitate knowledge acquisition, skill improvement, and artistic or scientific talent development. The fellowship cannot be tax-exempt if it is paid for some services or for copyrights.
2. Entrepreneurs making donations to organizations on the list are eligible to Income Tax benefits within certain limits
Legal entities making donations to the enlisted organizations enjoy some tax advantages in Estonia too. However, the income tax cuts are kept within certain limits.
The limits applicable to tax exemption:
- 3% of the sum on which the cumulative social tax is levied, by the end of the calendar year; or
- 10% of the profit made by the corporate entity over the last business year that expired before January 1.
In accordance with the Income Tax Act, the profit made over the year has to be calculated and calculations finalized before the 10% limit can be applied. The taxpayer has a choice of two limits, however. He or she can choose whether to apply the 3% limit calculating the income tax every month or the 10% limit calculating the overall profit over the year.
3. An individual taxpayer can also deduct donations from his/ her taxable income within certain limits
An individual taxpayer can indicate in his/ her income tax declaration the donations that he/ she has made during the year to an enlisted organization. The income tax declaration has to be submitted by March 31 every year.
The enlisted organizations submit ‘Declarations of gifts and donations’ to the Tax and Customs Board by February 1 every year. The Board uses these declarations as confirmations of the truthfulness of the information presented by the individual income taxpayer applying for tax deduction.
Please seek professional advice to find out what other expenses can be deducted from the taxable base in Estonia.
4. Reception costs
Board, lodging, transportation, and entertainment costs can be deducted from the taxable base if they are incurred when covering board, lodging, transportation, and entertainment of partners or volunteers.
5. Gifts and donations made for statutory purposes to an enlisted organization
Gifts and donations made for statutory purposes to an enlisted organization are tax-exempt.
6. Transfer of property for the benefit of the public or for a charitable purpose
An organization can make an income tax-free transfer of its property to another entity if the property is going to be used in the interests of the public or for some charitable purposes. The transfer of property has to be documented and the organization has to be capable of proving that the property has been used for the said purposes. Otherwise, the transferred property will be qualified as a gift and the market price of the property has to be declared in this case.
7. Souvenirs for youth camp or sports event participants
A participant of a youth camp or a sports event can be given a souvenir (as an award to the competition winner, for example). Such souvenirs can be income tax-exempt on the condition that the price of each souvenir does not exceed 32 euros.
8. Financial assistance in solving everyday problems
A person or a company can provide assistance to somebody in solving everyday problems. The assistance can be monetary or non-monetary. Such assistance is income tax-exempt within certain limits.
Assistance in resolving daily challenges can take the form of allowances or discounted/free products and services. This encompasses a range of essentials like meals, clothing, footwear, household goods, transportation to medical appointments, medicines, hearing aids, spectacles, and house repairs. The support can be a combination of offerings, such as providing both food and clothing. The focus is on aiding individuals unable to independently address their everyday issues, as outlined in the Social Security Act.
Tax exemption limits
- The deductible amount of financial assistance is limited to the amount of average monthly expenses of a household member (289.38 euros per month).
- If the assistance is provided in a non-monetary form, no tax exemption limits apply. All non-monetary assistance aimed at solving somebody’s everyday problems is tax-exempt.
II Obligations for enlisted organizations
The organization that has been put on the list of organizations eligible for income tax exemptions enjoys tax benefits, but it also has obligations. First, it has to pay all the income taxes that it has to pay in accordance with the Income Tax Act. If the organization fails to do so, it will be deleted from the list of organizations enjoying preferential tax treatment.
Second, all enlisted organizations have to submit the following declaration forms to the Tax and Customs Board every year:
- By February 1 of the following year: an INF 4 Declaration Form ‘Gifts and Donations’.
- By July 1 of the following year: an INF 9 Declaration Form ‘Utilization of gifts, donations, and other contributions.
Tax benefits are available in Estonia, but they cannot be misused. The local fiscal legislation has no loopholes, and you have to pay all the taxes that you have to pay in Estonia.