Estonia has lowest property taxes in EU

TALLINN - Estonia has the lowest property taxes in the European Union, it appears from a short report by the parliament's Foresight Center.

"Estonia's tax system is largely based on labor and consumption taxes, whereas property taxes have been used modestly for funding the society's expenditures," expert for the center Magnus Piirits said. "Property taxes account for almost 5 percent of EU states' tax revenues. If property taxes had been levied at the same level in Estonia as on the average in the European Union, over 530 million euros more would have flown into the 2019 state budget."

Property taxes include real estate taxes, net worth taxes, estate taxes, gift taxes and taxes on financial and capital transactions, such as securities and holdings. Piirits noted that real estate taxes account for the largest part of property taxes in most EU states, including in Estonia, where the land tax has been the main property tax, revenue from which goes to local governments.

"Real estate taxes accounted for 0.6 percent of tax revenue in Estonia in 2019, whereas the average in EU states was 3 percent. Starting from 2012, the land tax collected annually has remained stable at around 60 million euros," Piirits said. He added that Estonia's tax structure will inevitably change in the future.

"The shrinking of working-age population, digital development and changes in the forms of working will reduce the capability of labor taxes to fund the state's expenditures. If expenses remain at the current level or increase, avenues of covering costs must be found," he said.

Piirits noted that with global tax trends, it must be taken into consideration that income disparity has aggravated globally over the past decades.

"45 percent of all assets are owned by the wealthiest 1 percent of people. Discrepancies are aggravated by central banks' money-printing and the resulting increase in the price of assets," Piirits said.

Meanwhile, the fight against concealment of assets is gaining momentum globally with new IT solutions and improved cooperation between states.

"All of this is creating fertile ground for greater use of property taxes. On the other hand, new property classes, such as crypto assets, are emerging, and assessing their value is very difficult," Piirits noted.

The report was written as part of the Foresight Center's "Future-proof Tax Structure" research project that looks for ways of covering costs in an aging society and ways of amending the tax system in the next 15 years. The report also gives a short overview how inheritance is taxed in Finland and net assets in Switzerland.

The Foresight Center is a think tank at the chancellery of the Estonian parliament; its tasks include analyzing long-term developments in the society, identifying new trends and development avenues, and drafting development scenarios.