The government has approved a proposal to reduce the higher income tax rate for entrepreneur accounts, aiming to make it more appealing to a wider range of small business owners. Pending the Riigikogu’s approval, the change is expected to take effect next year, lowering the higher income tax rate from 40 percent to 20 percent for the entrepreneur account.
Margus Holland, the Head of Digital Banking at LHV, expressed optimism about the impact of this change, stating that it could incentivize more entrepreneurs to open accounts as it simplifies the use of the instrument and leads to more reasonable taxation for higher incomes. Additionally, there is a positive adjustment in taxation for those providing services to a business entity.
This modification also includes a change in the tax obligation for business entities purchasing services from owners of entrepreneur accounts. According to Holland, Bolt and Wolt couriers use LHV entrepreneur accounts as a convenient alternative to establishing their own business. Moreover, service providers with low business expenses, such as consultants, also prefer entrepreneur accounts.
Currently, the tax rate is 20 percent for annual incomes up to €25,000, and 40 percent for incomes between €25,000 and €40,000. However, starting January 2025, the tax rate for entrepreneur account owners with annual incomes up to €40,000 will be reduced to 20 percent.
It was reported that approximately €4 million worth of transactions are carried out through entrepreneur accounts each month, generating about €7.7 million in tax revenue in 2023. As of the end of May, there were nearly 24,100 entrepreneur account users, and the number of accounts is steadily increasing, with roughly 700 new users added each month.
The entrepreneur account was initially designed to facilitate the declaration of transactions between private individuals, but it also provides the opportunity to offer services or sell goods to companies. The government’s objective is to streamline taxation for new entrepreneurs and businesses, particularly under the revised law, which lowers the tax burden with the use of entrepreneur accounts.
LHV’s Digital Banking Director emphasized the innovative nature of the entrepreneur account, noting that it is a user-friendly and cost-effective option for individuals to engage in entrepreneurship, with financial reports, monthly tax returns, and tax payments being automated based on the entries on the entrepreneur account.
The government’s move to lower the income tax rate for entrepreneur accounts reflects its commitment to supporting small business owners and simplifying the taxation process. This change is expected to benefit a significant number of entrepreneurs by reducing their tax burden and making the entrepreneur account a more attractive option for those seeking to start and grow their businesses.
Marcus Turovski
Editor