Differences and similarities in taxation between Finland and Estonia

8 October 2013

Because of the free movement of labour, goods and services tax information is needed around the European Union. As European Union does not have a uniform taxation system, the differences between member states can be remarkable. On this article the goal is to compare the taxation system between two European Union member states; Finland and Estonia.

Income tax is paid for income earned during employment.

In Finland the state income taxation is based on progressive system, where the tax percentage is dependent on the taxpayer’s earnings. The tax percentage can vary from 0% until 30%. In Finland taxes are not only paid for the Republic of Finland, but also for the area of living and for The Evangelical Lutheran church or The Eastern Orthodox church, if the taxpayer is member of the church. This will also apply for the foreign worker in Finland if the worker belongs for The Evangelical Lutheran church or The Eastern Orthodox church. The range of tax percentage for ‘Church tax’ is between 1 percentage and 2.5 percentages in 2013 of the income. The municipal tax depends on the municipal’s own decision, the range of municipal tax is in 2013 from 16.25% to 22% of the income.

In Estonia the income taxation is different than in Finland. In Estonia the taxation is based on equal taxation, which means that the tax percentage is the same for everyone. In 2013 the tax percentage in Estonia is 21%. However, the tax will be 20% from the beginning of 2015. This taxation system differs a lot from the system that Finland has. Estonian tax system is clear, simple and liberal. There is no need for calculating the tax percentage according earnings of the year.

In Finland the capital tax, which includes for example: renting a property, dividends etc. is closer to the Estonian equal taxation. The difference is that, the Finnish capital tax includes two levels: Earnings under 50 000 euros are taxed with percentage of 30 and earnings above 50 000 euros are taxed with the percentage of 32.

The most general indirect tax is the Value added tax in Estonia and Finland. The value added tax will be added for the price of good or service. In Estonia the VAT is 20% but the lowered rate is 9% or 0%. In Finland the amount of VAT is 24%. However, in Finland there are several lowered rates, depending on the good and service. The lowered rates are: 14% (for groceries excluding alcohol beverages), 10% (medicines, public transportation, books) and 0% (export). In some cases it also possible to have a release from VAT.

For questions, please, contact Valters Gencs, attorney at law at info@gencs.eu

The material contained here is not to be construed as legal advice or opinion.