Estonia Crypto Tax

Estonia Crypto Tax

Estonia Crypto TaxAlthough Estonia has recently raised crypto licence application fees, it has the potential to remain one of the favourable jurisdictions for development-oriented crypto companies due to the low corporate taxes and over 60 international agreements on the elimination of double taxation which can allow your crypto business to protect your income from being taxed in two different countries. Furthermore, you’ll be happy to learn that Estonia has been consistently ranked first in the International Tax Competitiveness Index.

 

The Estonian tax system is supervised and administered by the Estonian Tax and Customs Board (ETCB) who currently hasn’t set out any crypto-specific taxes which means Estonian crypto companies fall under the framework of existing regulations. For instance, if your crypto company is about to become a tax resident in Estonia, you’ve got to keep in mind that the tax period for any Estonian company is one month and you should file your tax returns (expenses, revenue, payments and circumstances related to the tax liability) by the 10th of each calendar month.

As soon as a crypto company is incorporated in Estonia, it becomes a tax resident and is therefore automatically included into the registry of Estonian taxpayers. VAT is the only tax that requires a separate registration.

Crypto companies in Estonia are liable to pay taxes when carrying out such activities as:

  • Converting cryptocurrencies into fiat money and vice versa
  • Exchanging cryptocurrencies for other cryptocurrencies
  • Using cryptocurrencies to pay for products or services

Depending on the legal structure and activities of a crypto company, the following taxes might be levied:

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

Corporate Income Tax

In Estonia, Corporate Income Tax is regulated by the Income Tax Act and is levied on a company’s profits (including capital gains) only when they have been distributed (e.g. by paying out dividends). Resident companies are taxed on their worldwide income, whereas non-resident companies are taxed only on income sourced in Estonia. These general rules also apply to cryptocurrency transactions and crypto-related products and services.

In other words, if your crypto company doesn’t distribute dividends, you’ll be exempt from the tax. Instead, you may decide to invest your profits into the growth of your crypto business. This sort of taxation approach can be a significant accelerator of your success in the fast changing cryptocurrency industry.

When it comes to reporting income received from crypto activities (trading, mining, provision of crypto wallets, etc.), the purchase, sale price or sourced income has to be converted into euros at the exchange rate of cryptocurrency (market price), available on the date of receipt of the income or of incurred costs.

According to the Income Tax Act, a resident company is also subject to paying the Corporate Income Tax on a loan granted to a shareholder, partner or member of the company if the circumstances of the transaction indicate that this may constitute a hidden profit distribution.

Estonian crypto companies are entitled to deduct business costs from their gross income if they are related to their business operations. Examples of costs qualifying as deductible business expenses:

  • Marketing expenditure
  • Communication costs, except for mobile phone expenses
  • Participation in business events
  • Subcontracting fees
  • Professional and support services
  • Professional training
  • Hardware and software
  • Transportation and accommodation required for business trips
  • COVID-19 tests required for business trips
  • Bank and transaction fees
  • Office expenses, including supplies

Social Tax

If a crypto company employs people, it’s subject to paying Social Tax which is imposed on employment income to fund pension insurance and national health insurance. It’s regulated by the Social Tax Act, declared in the tax return form and paid every month. The minimum monthly amount of the Social Tax paid by the employer is 192,72 EUR.

The Social Tax must be paid by resident companies, non-resident companies who have a permanent establishment in Estonia and non-resident companies who make payments specified in subsection 1 of section 2 of the Social Tax Act.

Tax exemptions are available in a number of cases specified in section 3 of the Social Tax Act. For example, it’s not imposed on such payments as sickness benefits and wage compensation paid for additional holidays and breaks for feeding a child.

Value Added Tax

Registering for VAT is optional until your business reaches the annual turnover threshold of 40,000 EUR. As soon as you exceed the threshold, you have three business days to register as a VAT payer. However, no matter the registration day, the ETCB will consider you liable for paying VAT the moment the threshold is exceeded. As a VAT payer you’ll be obligated to submit monthly VAT returns.

If you’re not VAT-registered but have mistakenly added VAT on your issued invoices, you’ll still be liable to pay VAT. If you haven’t exceeded the threshold but wish to register voluntarily, you’ll have to submit an application to the ETCB who’ll decide whether your supplied documentation (e.g. business plan) proves at least one essential criteria – your intentions to have transactions with Estonia-based clients.

When it comes to taxing crypto transactions, general VAT taxation rules apply, i.e. if your activities are classified as provision of products or services (exchange services, wallet services, mining and platform services), it’s likely that they will be subject to VAT. However, most of the specific cases are yet to be clarified by the ETCB. On the other hand, the European Court of Justice has ruled out that cryptocurrencies are exempt from VAT.

Withholding Tax

The Withholding Tax is imposed on a variety of payments made to residents and non-residents and must be reported and paid to the ETCB no later than by the 10th of the calendar month following the month during which the payment was made.

Depending on several factors, the Withholding Tax rates vary as follows:

  • Payments for technical services are generally tax-exempt
  • Payments to non-resident companies for services provided in Estonia are taxed at the rate of 10%
  • Service fees, wages and directors’ fees paid to residents and non-residents are generally taxed at the rate of 20%
  • Dividends are tax-exempt, although a reduced rate of 7% is levied on dividends paid out to residents and non-residents if the distribution has been taxed at the reduced Corporate Income Tax rate
  • Interest payments to residents are subject to a 20% rate, while interest payments to non-residents are tax-exempt
  • Prizes, awards, insurance benefits and scholarships paid to non-resident and resident individuals are taxed at the rate of 20%
  • Royalties paid to resident individuals are taxed at the rate of 20%, while royalties paid to non-resident individuals are taxed at the rate of 10%

Reduced rates and exceptions might be available under the international agreements on the elimination of double taxation.

If you’re determined to run a cryptocurrency company in Estonia, our highly experienced and dynamic team of Regulated United Europe (RUE) is here to assist you. We offer comprehensive advice on taxation, crypto company formation and crypto licensing. Furthermore, we’ll be more than happy to step in if you’re in need of accounting services. Rest assured, we guarantee efficiency, confidentiality as well as meticulous attention to every detail that impacts your business success. Contact us now to book a personalised consultation.

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julia

Julia
Allik

Legal Advisor

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jekaterina

Jekaterina
Smolits

Legal Advisor

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Diana

Diana
Nossenko

Legal Advisor

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kristine

Kristine
Ella

Company Formation Executive

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Diana

Diana
Hamdamova

Company Formation Executive

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jekaterina

Jekaterina
Alsmit

Main Accountant

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vasilina cryptocurrency Estonia

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Kreida

Accountant

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svetlana cryptocurrency Lithuania

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Gertsen

Accountant

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Parushina

Accountant

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Kulesova

Accountant

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CONTACT US

At the moment, the main services of our company are legal and compliance solutions for FinTech projects. Our offices are located in Tallinn, Vilnius, and Warsaw. The legal team can assist with legal analysis, project structuring, and legal regulation.

Company in Estonia OÜ

Registration number: 14153440
Licence number: FIU000186
Phone: + 372 5611 0164
Email: [email protected]
Address: Sepise 1, Tallinn, 11415, Estonia

Company in Lithuania UAB

Registration number: 304377400
Phone: +370 680 21 596
Email: [email protected]
Address: Lvovo g. 25, 7th floor, Vilnius, 09320, Lithuania

Company in Poland Sp. z o.o

Registration number: 38421992700000
Phone: +48 50 633 5087
Email: [email protected]
Address: Twarda 18, 15th floor, Warszawa, 00-824, Poland

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