95% of taxpayers filed tax returns electronically

95.4% of taxpayers in Estonia filed their tax returns electronically, an increase of 0.4% year on year, spokespeople for the Estonian Tax and Customs Board said.

All in all, tax returns for 2013 were filed by a total of 629,715 Estonian taxpayers.

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Hotels against proposal to increase VAT

Estonian tourism sector does not support a proposal made in the course of coalition negotiations to raise the value added tax (VAT) applicable to accommodation services from 9 percent to the universal VAT rate of 20 percent applied in Estonia.

Of the 28 member states of the European Union only four do not apply a lower VAT rate to accommodation services. Their number will decrease further in 2015 because Lithuania has decided to impose lower VAT rate on accommodation services.

Feliks Mägus, board member of Nordic Hotel Forum, said changing the VAT rate would have a negative effect on the whole tourism sector.

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Reform Party, SocDems promise to reduce labour taxes

The coalition of Reform Party and Social Democrats are promising more funding for various purposes, but do not yet want to say where the additional money will come for, in other words, from which sectors it will be taken away from, writes Postimees.

One area where the new coalition seeks to agree is to reduce labour taxes.

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Explanation to Estonian wage taxes

Examples of tax calculations for payments made from 1 January 2014

The calculation is applicable to payments made from 1 January 2014.

A. In case an employee is a non-resident

A gross payment of 1000 EUR is agreed upon

  • an unemployment insurance premium of 10 EUR (1%) is to be paid by the employer
  • the amount of social tax of 330 EUR (33%) is to be paid by employer
  • a total cost to employer is 1340 EUR
  • an unemployment insurance premium of 20 EUR (2%) is withheld
  • an income tax of 205.80 EUR is withheld, calculated as 21% x (1000 – 20) = 205.80
  • a total net result received by the employee is 774.20 EUR, calculated as 1000 – 20 – 205.80 = 774.20

B. In case an employee is a resident

A gross payment of 1000 EUR is agreed upon

  • an unemployment insurance premium of 10 EUR is to be paid by the employer (1%)
  • the amount of social tax of 330 EUR (33%) is to be paid by employer
  • a total cost to employer is 1340 EUR
  • an unemployment insurance premium of 20 EUR is withheld (2%)
  • the amount of a funded pension payment withheld 20 EUR (2% of 1000 EUR)
  • an income tax of 171.36 EUR is withheld, calculated as 21% x (1000 – 144 – 20 – 20)
  • 144 EUR is 1/12 of the annual basic exemption 1 728 EUR of income tax
  • a total net result received by the employee is 788.64 EUR, calculated as 1000 – 171.36 – 20 – 20 = 788.64

Source: Estonian Tax and Customs Board

Amendments to the law coming into force this year

The Ministry of Finance reminds everybody on the amendments to the legislative acts that enter into force this year.
This year’s budget expenditure will be 8.06 billion euros and the expected revenue will be 8.02 billion euros. The increase in state revenue is five percent, soon to reach all spheres of life. The budget was prepared conservatively, as indicated by the 0.7 percent structural surplus measuring the substantive coping with expenditure.
An amendment to the Taxation Act enters into force, which reduces the limitation period for enforcement of compulsory tax levied pursuant to returns as well as administrative acts (e.g. orders) from seven years to five years. The practice has shown that the percentage of collection of tax debts older than five years is extremely low.
Amendments to the Income Tax Act enter into force, which allow equal taxation of real estate income of contractual investment funds established either in Estonia or in any foreign country. From now on also the Estonian-sourced real estate income of Estonian contractual investment funds will be taxed.  The income taxed at the fund level will no longer be taxed at the level of the unit-holders. These amendments only apply to real estate income and not to pension funds or their unit-holders.
EU 2014-2020 Structural Assistance Act sets out the national allocation of tasks from the Structural Funds, allows the ministries to impose conditions for granting aid, specifications regarding the procedure of granting aid, supervision and settling disputes.
Amendments to the Public Procurement Act allow to nullify procurement contracts unlawfully entered into under the framework contract. The term of submitting the request for review of public procurement has been changed from seven working days to ten calendar days. From now on, the disputes related to state secrets will be submitted to administrative court.
As agreed in the State Budget Strategy in spring 2012, the excise duty on tobacco increases by 6% and on alcohol by 5%.
As of February 1, 2014, a bailiff will have the right under an administrative regulation and at the request of a tax authority to order detention in accordance with the procedure of preliminary detention. 
As of April 1, 2014, the court and prosecution claims as well as the administration of state fees collected by courts will be transferred to the Tax and Customs Board’s Taxable Persons Register database.  This means that the claims of several state authorities will be gathered into a single register providing individuals a better overview of their financial obligations to the state. The court and prosecution claims will have a separate reference number. In cases stipulated by law, the prepayment account of an individual will be used for settling the claim in the extent of the sum calculated.
Amendments to the Value Added Tax Act allow extended options of providing proofs of tax free purchases, the place of taxation of electronic communication services and electronic services will change and quantitative restriction will be set to coffee (500 g) and tea (100 g) sent without VAT from a country outside EU. The amendments will enter into force from March 1, 2014.
Additional exemption rate of pensions increases.  As of January 1, 2014, the additional tax-exempt income of pensions is 2520 euros per year, which is 210 euros per month. This is 18 euros more than before.
Amendments to the Insurance Act and the Investment Funds Act enter into force. These will change the insurers’ management requirements based on EU-wide rules, allow insurers, in addition to being an insurer’s agent, operate as an agent of credit institution, management company or investment firm, raise the insurance amounts of insurance brokers’ liability insurance contracts.
Amendments to the Credit Institutions Act and related acts enter into force. The amendments based on EU legislation set new obligations to banks, investment firms and hedge fund managers. Banks and investment firms will have to maintain more quality capital and create additional risk buffers. Additional requirements are also set for management bodies. Hedge fund managers will be monitored more closely. The act increases financial stability and allows for increased reliability and transparency in financial sector.
The validity period of the limits of pension fund management fee will be extended. The act of amendment of the Investment Fund Act, the Funded Pensions Act and the Social Tax Act extends the validity period of the limits of pension fund management fees of mandatory funded pension (in case of conservative funds 1.2% and the rest 2%) by five years. The act also amends the rules of succession of units of mandatory pension fund. Now, the units can also transfer to legal persons, in addition to natural persons. The regulation of estate bankruptcy has also been amended. If the estate is declared bankrupt the creditors can satisfy their claims out of the units of mandatory pension fund.
The acts of amendment of the Financial Supervision Authority Act and the Investment Funds Act improve the financial supervision over financial conglomerates, facilitate the offering of units of other member states’ investment funds in Estonia, and give the financial supervision authority a more comprehensive role in promoting financial knowledge among the population.
Source: Estonian Ministry of Finance

Viking XPRS went under Estonian flag

Finnish ferry operator Viking Line announced that its Viking XPRS will make its first voyage under the Estonian flag today.

Until now the ferry has been in the Swedish registry.

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The state budget for the year 2014

The Riigikogu has passed the state budget for the year 2014, with planned revenue of 8.02 billion euros and planned expenditure of 8.06 billion euros. The increase in state revenue is five percent, soon to reach all spheres of life. The budget was prepared conservatively, as indicated by the 0.7 percent structural surplus measuring the substantive coping with expenditure.
Estonia’s budget for the coming year is also acknowledged by the European Commission which assessed it to be fully compliant with the rules of the Stability and Growth Pact.
Nearly four billion euros will directly reach the people again as various benefits from the 2014 state budget. A large share of that is the state pension and the second pillar pension paid from social insurance tax. The first and the second pension pillars will grow by a total of 10 percent i.e. to 1.8 billion euros; this is 21.9 percent of the entire budget revenue.

The pension increase in the year 2014 will be nearly 6 percent; it is the largest increase in the past six years and means an average of 240 euros more paid to each pensioner per year. Moreover, it was decided to increase the basic exemption, leaving the average pension to be fully exempt from tax.

The state will direct 900 million euros into the health insurance scheme; this is 70.6 million euros more i.e. 8.5 percent more than in the year 2013. There are plans to use this money for increasing the funding of general medical aid, for significant expansion of the list of special medical services and for ensuring additional means for community care.

Estonia spends more than the EU average on education; nearly a tenth of the 2014 budget is education expenditure. In relation to increasing accessibility of non-chargeable higher education, the activity support for higher education will increase in the next year and the minimum wage for teachers will grow by 12 percent.

In addition to teachers, the social and cultural field can also expect a higher than average wage increase. The salary funds of other areas of governing will increase by 5.1 percent. Regardless of the country’s small size, the government’s salary expenditure remains near the EU average.

In comparison with other EU Member States, the Estonian government sector’s investment volume is at the top, although the volume will decrease by 8.9 percent in the coming year, i.e. down to 832 million euros. As recently as in 2012, Estonia made nearly a percent of GDP more investments than Poland did on the second position.

Tax expenditure in the 2014 budget is ca. 332 million. This includes additional tax-exempt income for pensioners and for families with two or more children, deduction of residence loan interests, and other.

Source: Estonian Ministry of Finance

Paper: those who drive more should pay more

The big news yesterday in Estonia was the solution that Finland is reportedly considering: to replace the car tax with a new kilometer-based fee that is calculated by the on-board tracking system, Eesti Päevaleht writes in its editorial.

Although the concept “Those who drive more must also pay more” that Finnish experts including Jorma Ollila made to the Finnish Minister of Transport will not be introduced in Finland before 2022, it is one possible development scenario for Estonia which does not have a formal car tax, but burdens its motorists with several indirect taxes.

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Transactions over 1,000 euros should be reported

Starting from July 2014, all businesses in Estonia must disclose to the tax authority all transactions that exceed 1,000 euros, writes Äripäev.

The information will be submitted regularly in an annex to the VAT declaration and include information about the other  party. The requirement concerns both purchase and sales invoices.

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Estonia’s tax environment – 32nd most business-friendly in world

Estonia placed 32nd worldwide and 8th among European Union member states in the fresh Paying Taxes index of PricewaterhouseCoopers and World Bank that ranks 189 economies worldwide by the ease of paying taxes.

United Arab Emirates, Qatar and Saudi Arabia were found to have the world’s most attractive tax environments, followed by Hongkong, Singapore and Ireland. Among EU economies, Denmark and Britain followed Ireland.

Estonia that last year dropped to 50th — the country’s lowest position in the history of the index — returned to its customary range this year. Estonia’s advantages are the simplicity and user-friendliness of the tax system: for example, it takes a company here 81 hours annually to comply with its taxes, compared to 175 hours in Lithuania, 264 hours in Latvia and 413 hours in the Czech Republic. However, the tax burden of Estonian businesses, in particular labor taxes, is relatively high.

“The findings of the fresh study show how important it is for Estonia to maintain the simplicity of tax administration while continuing to reduce labor taxes as far as the budget permits so as to improve our businesses’ competitiveness,” head of PwC tax services in Estonia Villi Tontson said.

Source: Estonian Review / BNS


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