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Simplified taxation of business income

• Under the Simplified Business Taxation Act, from 2018 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 – 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.
• 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 liability should cover individual income tax, social tax and accumulative pension contributions.
• If the monthly revenues of the entrepreneurship account are at least EUR 1 300, 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.