Estonian tax system assessed as most competitive in the world

TALLINN - The United States think tank Tax Foundation recently published a report on the tax competitiveness of the Organization for Economic Cooperation and Development (OECD) countries, in which Estonia ranked first for the eighth consecutive year.

Some strengths of the Estonian tax system are that Estonia’s corporate income tax system only taxes distributed earnings, allowing companies to reinvest their profits tax-free; the VAT applies to a broad base and has a low compliance burden; and property taxes only apply to the value of land.

Minister of Entrepreneurship and Information Technology Andres Sutt said that a strong and competitive tax system helps Estonia keep its business environment favorable for local entrepreneurs and attract foreign entrepreneurs. "In a globalized world, a transparent and fair tax system is one of the most important considerations for an entrepreneur thinking about expanding their business internationally or bringing it back to Europe. The Estonian tax system supports free enterprise and low bureaucracy provides an opportunity to focus as much as possible on the development of one's products and services, which is a strong competitive advantage," Sutt said.

He pointed out that countries around the world are looking for ways to attract entrepreneurs to contribute to their economic space, and competition is intensifying. "The coronavirus pandemic has very vividly highlighted the opportunities and limitations of physical space in business. Estonian digital solutions help to successfully respond to surprises. In the growing competition for talent, our advantage is also easy and uniform taxation of personal income at a competitive tax rate. The strength of the Estonian tax system and national digital services to support business are noticed everywhere," Sutt said.

The latter is confirmed by this year's report on national brands by the consulting company Brand Finance. Recording a 38 percent brand value growth from last year and outpacing modest increases across the ranking, Estonia is the world’s fastest-growing nation brand of 2021. According to the report, Estonia's success is down to the successful functioning of the digital society during the coronavirus pandemic. The report also highlights the e-residency program as one of the biggest contributors to the strength and rapid growth of the national brand. E-residency is an Estonian state program unique in the world, enabling entrepreneurs all over the world to have access to Estonia's secure and convenient digital services, so they can create and manage an European Union company 100 percent virtually.

"At a time when many countries were just beginning to look for solutions to digitize services when the coronavirus pandemic broke out, 99 percent of Estonian public services were already digitally available to society. Estonia has boldly built its digital infrastructure and its high positions in international rankings confirm that we are seen as an example," Lauri Haav, CEO of the Estonian e-residency program, said.

He added that Estonia has reason to be proud of several innovative solutions and e-residency is definitely one of them. Estonia was the first country in the world to offer e-residency to people living abroad. Currently, Lithuania, Latvia, Dubai, Azerbaijan, Portugal, Ukraine and others have launched or are launching similar initiatives following the example of Estonia.

"Countries see both direct and indirect economic benefits in this. E-residency is a first-class image-building tool for Estonia, a promoter of diplomatic power, a stimulator of local business and a magnifier of the Estonian economy. Thanks to e-residency and a competitive tax system, innovation will gain a new impetus in Estonia and the tax revenue of successful entrepreneurship will reach the state treasury," Haav said.

He noted that the by now almost 90,000 e-residents help to introduce the Estonian national brand in more than 170 countries around the world and pass on the success story of the Estonian digital society. "Thanks to the rapidly growing community of Estonia's fans and the accompanying increase in diplomatic influence in business, culture and foreign policy, there is reason to believe that the value of the Estonian brand will continue to grow rapidly in the future," Haav added.

The Estonian e-residency program was launched in December 2014 with the aim of providing foreign nationals with safe access to e-services offered within the Estonian e-governance ecosystem. Since the launch of the e-residency program, Estonia has welcomed almost 85,000 e-residents who have gone on to establish more than 18,000 companies in Estonia. In addition to indirect economic impact, resulting primarily from growth among and investments into Estonian companies offering services to e-residents, the e-residency program has generated direct revenue for the Estonian economy in an amount exceeding 70 million euros.