ESTONIAN TAXES AND TAX STRUCTURE

Population ( )1,339,662 Total area 45,227 km 2 Average salary (2010)792 EUR (2011 IV quarter)865 EUR Currency EUR GDP (2011)15,973 mill EUR Economic growth (forecast for 2013)3.0% GDP per capita (2011) 11,918 EUR Inflation 3.3%

Outline of the presentation Tax system Direct Taxes Personal Income Tax Corporate Income Tax Social Tax Indirect taxes VAT Excise duties Gambling tax Plans for the future

Estonian Tax System To achieve sustainable, socially and regionally balanced economic growth Estonian tax system consists of state taxes provided and imposed by tax acts and local taxes imposed by a rural municipality or city council in its administrative territory pursuant to law

1. income taxes; 2. gambling tax; 3. value added tax; 4. land tax; 5. social tax; 6. customs duty; 7. heavy goods vehicle tax. State taxes

1) advertisement tax; 2) road and street closure(закрытие) tax; 3) motor vehicle tax; 4) animal tax; 5) entertainment tax; 6) parking charge. Local taxes

 Corporate income tax – 21% on distributed profit  Personal income tax – 21%  Social tax – 33% (payable by employer)  Unemployment insurance payment – 2,8 % payable by employee and 1,4% payable by employer  Contribution to the mandatory funded pension system - 2% (payable by employee)  Value added tax - 20% (standard rate), 9% (reduced rate) Main tax rates

Tax structure

State Budget Tax Revenue 2011 Total tax revenue 4,342.1 million EUR Total revenue 5,872.2 million EUR Source: Ministry of Finance

Tax Revenue 2011, million € (collected) * - The amount received by the state + local governments Source: Ministry of Finance

Direct taxes

Personal income tax Corporate income tax Social tax Land tax Direct taxes

Personal income tax

Residents pay tax on their total worldwide income. Non-residents pay tax only on their income received from Estonian sources. Individuals are Estonian residents if they: - have a permanent home in Estonia, or - stay in Estonia 183 days or more during any 12-month period.

Income Tax Act Period of taxation: a calendar year Tax rate: 21% (separate tax rate 10% for certain pensions and payments to non-residents) Decrease of the income tax rate (both for individuals and legal persons): Until the year 2004 – 26% Income of the year 2005 – 24% Income of the year 2006 – 23% Income of the year 2007 – 22% Since 2008 – 21%

Income Tax Act Non-taxable minimum (annual basic exemption):1728 EUR Additional exemption for state pensions: 2304 EUR for calendar year Increase of the non-taxable minimum (per year): Income of the year 2003 – EEK (767 EUR) Income of the year 2004 – EEK (1074 EUR) Income of the year 2005 – EEK (1304 EUR) Income of the years – EEK (1534 EUR) Income of the years – EEK (1726 EUR) Since EUR

Corporate income tax

Corporate tax reform in year 2000 The ultimate goal of the reform was promotion of business and acceleration of economic growth by making additional funds available for investment

Corporate income tax The moment of taxation of corporate income is postponed until the distribution of the profits The system applies to: Estonian resident companies - legal persons that are established pursuant to Estonian law permanent establishments (PE) of non-resident companies - PE is an entity through which the business of a non-resident is carried out in Estonia

Corporate income tax Tax rate in 2012: 21% Period of taxation: a calendar month

Social tax

Tax Base Employers' payments to natural persons (wage income) – tax payable by employers in cash in kind (fringe benefits) Business income of sole proprietors – tax payable by self employed persons

Social tax Tax rate is 33 % of the taxable amount Social tax payable is personificated and will be taken into account in making pension payments.

Social tax revenue million € Source: Ministry of Finance

Indirect taxes

Value added tax Alcohol excise duty Tobacco excise duty Energy products excise duty Heavy goods vehicle tax Gambling Tax

Value-added tax (VAT)

Taxable person Person whose taxable supply (excluding import) exceeds EUR in a calendar year Voluntary compliance possible for anyone, who carries out economic activity in Estonia VAT

Tax base VAT is charged on: transactions of goods and services within Estonia intra-Community acquisitions of goods and services importation of goods and services provision of services which are taxable in Estonia, supplied by the foreign taxable person VAT

Tax rates  Standard rate is 20%.  Reduced rate is 9% (books, newspapers, medicines, accommodation).  Zero rated: export; intra-Community supply; vessels and aircrafts used on international routes, including equipment and fuel; goods and services for consumption supplied on board of vessels and aircrafts. VAT

VAT revenue million € Source: Statistical Office of Estonia, Ministry of Finance

Excise duties

Duty rates Alcohol and tobacco products – all rates meet EU minimum levels Energy products – all rates meet the EU minimum levels except for oil shale for which there is a transitional period up to 2013

Excise duty rates on tobacco products

Gambling Tax

Gambling tax is paid by gambling operators.

Gambling Tax Tax rates: 1) for the gambling table – euro per table in month; 2) for the gambling machine – euro per in month euro per gambling machine; 3) euro per gambling machine of game of skill; 4) 18 % from the sale of lottery tickets; 5) 18 % from the winning fund of the commercial lottery; 6) 5 % for the toto, amount received from net revenue; 7) 5 % for the online game, amount received from net revenue; 8) 5 % for the tournament of a game of chance (amount received from participation fees).

Plans for the future

The main goal for the future- shifting tax burden from income and employment to consumption and environmental taxes

Thank you for your consideration