As every year, this time of the year is the high season for income tax returns. The Estonian Income Tax Act stipulates that under certain conditions a non-resident is liable for income tax in Estonia. The tax rate for the income in the fiscal year 2007 is 22 percent.
As in previous years, a non-resident individual shall be obligated to submit an income tax return and is liable for paying income tax on:
- received salaries and management fees;
- received service fees and income from entrepreneurship;
- profits from sale of real estate and sale of other tangible assets (except assets, which have been in personal use);
- profits from sale of any real right or right of claim in connection to real estate or building in Estonia;
- profits from sale of shares of a company owning Estonian real estate or buildings;
- profits from redemption of shares or liquidation proceeds;
- profits received as a result of de-registration of an Estonian company without liquidation;
- rent from Estonian real estate and license fees;
- interests received from Estonian state, local municipality, resident company or permanent establishment;
- received artist fees.
In regards to several of the above sources, the income tax will, according to the applicable legislation, be withheld upon payment to the non-resident individual by a resident legal entity, Estonian state or local municipality 's such as salaries and management fees, service fees, rent from Estonian real estate and license fees, interests and artist fees. If the income tax has been withheld by the obligated party in Estonia, then the non-resident natural person is not required to submit a tax return.
The due dates for submitting an income tax return vary. The usual term of submitting the income tax return is March 31. The income tax shall be payable to the state by July 1 the same year. There are, however, some exceptions:
- In case of profits from sale of real estate the non-resident individual is obliged to submit an income tax return within one month from receiving such profits. The income tax is payable within 3 months from the time of submitting the income tax return.
- In case of income from entrepreneurship the non-resident natural person will be obliged to submit the income tax return within 6 months from the end of the fiscal year for the entrepreneur. The income tax shall be payable within 3 months from the time of submitting the income tax return.
In comparison with last year, the Income Tax Act has been amended in respect of declaring certain income.
As of Jan. 1, 2007 the non-resident is now liable for income tax on profits from sale of shares of a company owning Estonian real estate or buildings if the person's share in that company, investment fund or other asset holding at the time of sale was at least 10 percent and at the time of the sale, or any time during the last two years, more than 50 percent of the assets of the company, investment fund or asset holding were made of real estate or buildings situated in Estonia. Previously, the asset level had to be at least 75 percent at the time of last balance date and the amount of shares to be sold at least 10 percent of total capital.
Profits received as a result of de-registration of an Estonian company without liquidation are treated as additional taxable income for a non-resident from the beginning of last year. A situation may occur when in the course of a restructuring an Estonian company is transformed into an Estonian permanent establishment, as in the case of establishing or re-registration of a Societas Europaea.
In short, the rules of taxation have not changed much compared to last year; however, in case of doubt, it is best to seek professional advice on issues related to submitting tax returns and paying taxes.
Steven Lipp is a lawyer at the law firm Teder, Glikman & Partners,
a member firm of the Baltic Legal Solutions, a pan-Baltic integrated network of law firms including Kronbergs & Cukste in Latvia and Jurevicius, Balciunas & Bartkus in Lithuania, dedicated to providing a quality 'one-stop shop' approach to clients' needs in the Baltics.