Estonia Crypto Tax

Although Estonia has recently increased the fees for crypto licenses, it might still become a friendly jurisdiction for development-oriented crypto companies by way of low corporate taxes and more than 60 international double taxation elimination agreements, which could enable your crypto business to guard your income against tax burden in two different countries. You will be pleased to know that Estonia constantly tops the International Tax Competitiveness Index.

Estonia’s tax system is controlled and administered by the Estonian Tax and Customs Board, which, up until this day, has not imposed any cryptocurrency-specific taxes, meaning that Estonian crypto companies fall under existing regulations. For example, if your crypto company is going to become a tax resident in Estonia, you need to consider that the tax period for any Estonian company is one month. The company has to file its tax returns—expenses, revenues, payments, and tax liability circumstances—by the 10th of every calendar month.

When the crypto company becomes registered in Estonia, it will become a tax resident and hence automatically included in the Estonian taxpayer register. Only VAT is the tax that requires separate registration.

Crypto companies in Estonia pay taxes for such activities as:

• Converting Cryptocurrencies into Fiat Money and Vice Versa
• Cryptocurrency Exchange for Other Cryptocurrencies
• Using cryptocurrencies to pay for goods or services

Depending on the legal form and types of activity of a crypto company, the following taxes can be imposed:

• Corporate Income Tax (CIT) – 0%-20%
• Social Tax (ST) – 33%
• Value Added Tax (VAT) – 20%
• Withholding Tax (WHT) – 7%-20%

Corporate Income Tax

Corporate income tax in Estonia is regulated by the Income Tax Act, and it becomes due only upon the distribution of company profit, including capital gains. This means that resident companies are liable to corporation tax on all income received from around the world, while non-resident companies will pay corporation tax only on income arising in the state. The crypto transactions and crypto-related products and services follow the above-mentioned general rules.

That is to say, you will not be obliged to pay any tax if your crypto company does not pay dividends. In other words, you are allowed to reinvest all your income into the development of your crypto business. This is one way in which taxes can actually help speed up your pace of success in this always-changing world of cryptocurrency.

In the case of income received from crypto activities, trading, mining, and providing crypto wallets, the purchase price or the origin of income is valued in euros at the cryptocurrency rate.

Under the Income Tax Act, a resident company is also obliged to pay corporate income tax on an advance given to a shareholder, a partner, or a member if the conditions of the agreement show that the same may amount to a concealed profit distribution.

Estonian crypto companies can deduct business-related expenses from gross income. Costs that constitute deductible business expenses include the following:

• Marketing expenses
• Communication costs, except for mobile phone costs
• Attending business events
• Subcontractor fees
• Professional and support services
• Professional training courses
• Hardware and software
• Transportation- and accommodation-related costs, which are necessary for business trips
• COVID-19 testing costs
• Bank and transaction fees
• Expenses for the office, such as supplies

Social Tax

When people are employed in a crypto company, it should pay the social tax level imposed on the income of employment-related and which serves to provide pension insurance and national health insurance. It is ruled by the Law on Social Tax, declared in the tax declaration and paid monthly. The minimum of the social tax, which an employer must pay per month is 19,272 EUR.

Payers of the social tax are resident companies and non-resident companies having a permanent establishment in Estonia, and also non-resident companies making the payments referred to in section 2, subsection 1, of the Social Tax Act.

Tax relief is granted in several cases referred to in section 3 of the Social Tax Act. For example, sickness benefits and wage compensation for additional leave and nursing breaks are not subject to it.

VALUE ADDED TAX

VAT registration is voluntary until your business has exceeded the annual threshold of EUR 40,000. If you have passed the threshold, you will have three working days to declare yourself a VAT payer. However, regardless of the day of registration, the ETCB will consider that you are liable for VAT starting with the date of crossing over the threshold. As a VAT payer, you will have to file monthly VAT reports.

If a person is not registered in VAT but has added VAT to the invoices anyway, he will be obliged to pay the VAT. If the threshold has not been reached but it is intended to register nevertheless, an application to ETCB shall be submitted; the latter shall decide whether the documentation-including the business plan-proves at least one of the main criteria, namely the intention to have transactions with Estonia clients based on.

The general rules of the taxation with VAT are applicable, in the case of taxing crypto transactions, that is, if your activity falls under providing products or services, services of exchange, wallet services, mining, and platform services, then most likely they will be subjected to VAT. However, in most particular cases, this still hasn’t been clarified by the ETCB. On the other hand, the European Court did rule out the possibility of exempting cryptocurrencies from VAT.

WITHHOLDING TAX

The withholding tax shall be levied on various payments made to residents and non-residents and shall be notified and paid to the ECFD no later than the 10th day of the calendar month following the month during which payment was made.

Depending on a number of factors, the rates of withholding tax vary as follows:

• Payments for technical services are generally tax-free
• Payments to non-resident companies for services offered within Estonia are taxed at 10%
• Services, wages, and directors’ fees paid to residents and non-residents are usually taxed at the rate of 20 percent
• Dividends do not form a part of tax liability. However, dividends paid to residents and non-residents are levied at a lower rate of 7% provided that the distribution has been taxed at a reduced rate of corporate income tax.
• Interest payments to residents at a rate of 20 percent per cent, while it is free in respect of interest payments to non-residents;
• Payment in respect of bonuses, premiums, insurance benefits and scholarships paid to non-resident and resident individuals are taxed at 20 percent rate;
• Royalties paid to the residents are subjected to tax at 20 percent and the same when paid to non-resident individuals at 10 percent.

International agreements to avoid double taxation may prescribe lower rates and exemptions.

If you are determined to pursue the running of a cryptocurrency company in Estonia, our highly experienced and dynamic team of Regulated United Europe – RUE – is here to help. We offer full advice on taxation, crypto company formation, and crypto licensing in Estonia. Moreover, if you need accounting services, we will be happy to assist, inform you about all news in the field of cryptocurrency regulation in Estonia. Be sure – efficiency, confidentiality, and an eye for detail are the main features of our work, which influences your success. Contact us for an appointment to a private consultation in real-time.

Crypto Taxes in Estonia in 2023

In 2022, Estonia again ranked 1st in the International Tax Competitiveness Index, which is an indication of the low marginal tax rates and minimal economic distortions sometimes caused by such factors as targeted tax breaks. In spite of the inflation, the tax rates remain the same in 2023; therefore, crypto entrepreneurs of Estonia can expect to continue doing business within one of the most favorable taxation frameworks.

How to Pay Taxes on Crypto in Estonia in 2024?

There are some laid-down rules concerning taxation of income from cryptocurrency in Estonia. Income from trading in cryptocurrency, conversion of cryptocurrency into ordinary currency, exchanging it for another cryptocurrency, or using the cryptocurrency to pay for goods or services shall be declared by the individuals. Furthermore, income derived from extracting a cryptocurrency shall be treated as entrepreneurial income.

The basic rate of income tax in Estonia for 2024 is 20%. Taxable income may be reduced by tax-free income, the amount of which shall depend on the income received but shall not exceed 654 euros per month and 7,848 euros per year. For pensioners, special non-taxable income is up to €776 per month and €9,312 per year.

In 2024, some changes were made to Estonian tax legislation. Among them is the treatment of cryptocurrency taxation. It is relevant to note that such operations as the conversion of income that is already taxable-in other words, salary received in cryptocurrency-into regular currency or any other purchases of goods and services with it does not create additional tax liabilities. In other words, in cases when tax has already been paid on income received in cryptocurrency, its further use does not imply further taxation.

Starting from 2024, the obligation of information disclosure about the income earned by the users with the Estonian Tax and Customs Board concerns platforms and payment intermediaries. Among those are the incomes received from trading platforms, real estate rent, provision of services, sale of goods, and vehicle rentals.

For those individuals who are involved in the development of cryptocurrency, the proceeds derived from such an activity represent entrepreneurial income. Such persons have to be registered in the commercial register and can act as sole proprietors-FIE or through an organization. Notably, expenses connected with the generation of income from the development of cryptocurrency cannot be subtracted by individual entrepreneurs.

Estonian tax system is unique in the European Union in the absence of such a feature as annual corporate income tax. Income tax is uniformly applied to personal income-private employment and capital gains- and dividend income. This, of course, has its definite advantages because it increases investment and entrepreneurial activities in the country.

Important to mention that Estonian taxation is characterized by filing the return of income by physical and legal entities, accordingly, including income gained with cryptocurrency. To that end, one may address electronic services of the Tax and Customs Board, where he would be able to submit the tax declaration and find out the latest information about the tax rates and news in legislation.

To sum up, the basic problems of using cryptocurrency in Estonia are as follows: income received as cryptocurrency is to be declared as an award or a franchise from the sale of such cryptocurrency, mining, and as payments for goods and services. Changing the already taxed income into cryptocurrency and its usage does not give any reason for additional tax obligations.

• Platforms and payment intermediaries are required to report the users’ income to the Tax and Customs Service.
• The income earned from the development of cryptocurrency is considered entrepreneurial income and is subject to registration in the Commercial Register.

Table of Basic Tax Rates, Estonia, 2024

Also, lawyers from Regulated United Europe provide legal support for crypto projects and help with adaptation to MICA regulations.