The Estonian government is currently deliberating the possibility of abolishing the higher tax rate on entrepreneurship accounts, a move that has the potential to greatly benefit small businesses. Presently, deposits made into these accounts are subjected to a 40 percent tax rate for amounts exceeding €25,000. However, a new bill has been introduced with the aim of eliminating this higher rate.
Kairi Ani, a tax policy advisor at the Ministry of Finance, has underscored the necessity of this change, citing the increase in costs and incomes since the legislation was initially enacted in 2017. She has highlighted that adjusting the threshold in proportion to the growth in wages would result in the higher rate being applicable to a very small portion of the overall income. Consequently, the ministry is proposing the replacement of the current 40 percent tax rate with a flat 20 percent rate for all revenues transferred to entrepreneurship accounts, irrespective of the volume of revenue.
Furthermore, the bill encompasses revisions to the tax rates for account holders who have enrolled in the second pillar of the Estonian pension system, linking their tax rates to their pension contributions.
The Tax and Customs Board (MTA) has been a strong advocate for the entrepreneurship account, touting it as a simplified and advantageous option for individuals offering services to other private individuals, selling homemade goods, or engaging in businesses with low material costs. Consequently, the number of account holders has been steadily increasing, with a total of 23,848 account holders recorded as of early April this year.
If the bill is ratified, the higher 40 percent tax rate on income earned via an entrepreneurship account will be eliminated, potentially providing significant tax relief to small business owners. Additionally, the bill addresses the tax obligations of companies procuring services from entrepreneurship account owners, as well as proposals to transform the additional income tax into a social security tax, with the aim of enhancing social security for account users.
The proposed changes represent a progressive step towards promoting small business entrepreneurship and alleviating the tax burden on entrepreneurs. With the burgeoning popularity of entrepreneurship accounts, these amendments could have a substantial impact on small business owners across Estonia.
The Ministry of Finance, in collaboration with other pertinent authorities, is working assiduously to ensure that these proposed changes are effectively implemented, furnishing actionable solutions to the challenges encountered by small business owners in the country.
For the latest updates on this evolving story, follow ERR News on Facebook and Twitter.