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Simplified taxation of business income

• Under the Simplified Business Taxation Act, the individual micro-entrepreneur who is not active in the same business as a registered individual engaged in business (in Estonian: FIE), is entitled to open a separate bank account in the credit institution (from 2019 only in LHV Bank) – entrepreneurship account, to which customers will make payments for the services rendered or goods sold by that entrepreneur.
• In practice, the application of entrepreneurship account scheme should be considered by such micro-entrepreneurs, who will not incur any significant expenses in relation to their business tools or materials and whose customers are mainly private individuals.
• If the revenues accrued to the entrepreneurship account will not exceed EUR 25 000 per annum, then such revenues will be taxed at 20% rate. If the revenues per annum exceed EUR 25 000, then the exceeding amount will be taxed at 40% rate.
• If the revenues accrued to the entrepreneurship account from the beginning of the calendar year will exceed EUR 40 000, then such individual must register as an individual engaged in business (FIE) or establish private limited company (OÜ) in the Commercial Register and is not allowed to use the entrepreneurship account.
• For example, when the monthly revenues accrued to the entrepreneurship account are EUR 1 000, then the credit institution will automatically withhold from this 20% (EUR 200) and the individual’s net income after taxes will be EUR 800.
• The credit institution will submit reports on the revenues accrued to the entrepreneurship account and will remit the amount of respective tax on a monthly basis to the Tax and Customs Board. That tax amount is used to the extent of 20/55 for individual income tax, 33/55 for social tax and 2/55 for accumulative pension contributions, if the individual has joined this pension scheme.
• If in 2019 the monthly revenues of the entrepreneurship account are at least EUR 1 375 (or if the monthly social tax paid on behalf of the individual along with any other agreement is at least EUR 165), then the individual is entitled also to health insurance coverage.
• In order to avoid the abuse of entrepreneurship account scheme in any employment relationship, there will be introduced a new tax obligation for the company, which is paying fees for services to the individual with entrepreneurship account. In such a case, the company must declare the respective service fee paid to the individual as a non-business related payment and pay on it 20/80 corporate tax by the 10th day of the following month. Whether the individual has or has not any entrepreneurship account, can be verified on the basis of the ID code of that individual (