Under the Simplified Business Income Taxation Act, the individual engaged in small business activities, who is not registered as an individual engaged in business (FIE), may open from 2019 special bank account in LHV Bank – entrepreneur account, to which will be made payments for the services rendered or goods sold by that individual to its customers.
In order to extend and facilitate the use of the entrepreneur account, the Estonian Parliament adopted on 4 December 2024 the following draft changes, which will be effective from the year 2025.
For reducing the tax avoidance, the higher 40% tax rate will be abolished to these amounts received to the entrepreneur account, which exceed EUR 25 000 per annum. Therefore, from 2025 all amounts received to the entrepreneur account will be generally subject to 20% tax rate. There will remain a rule, that such individual cannot use the entrepreneur account and is required to register as a FIE in the commercial register or establish the private limited company (OÜ), if the amounts received to the entreprenuer account exceed EUR 40 000 from the beginning of the calendar year.
In addition, the tax rate applicable to the entrepreneur account will be changed subject to fact whether the user of the entrepreneur account has joined the II pillar accumulative pension scheme and whether that individual has chosen from 2025 to pay accumulative pension contributions at 2%, 4% or 6%. Therefore, subject to the user of the entrepreneur account, the applicable tax rate will be either 20%, 22%, 24% or 26%. After these changes in tax rates, the user of the entrepreneur account will still not make any personal accumulative pension contributions, as part of the tax automatically levied from the entrepreneur account will be transferred to the II pillar accumulative pension scheme.
The General Taxation Act will be changed, in order to make publicly available the entrepreneur account number used by the respective individual. Thus, the company making the payment to such individual may receive publicly available information from the database of the Tax and Customs Board that the user of the entrepreneur account has provided to the company valid number of the entrepreneur account. Otherwise, the company may be required to enter the recipient of the payment to the Employment Register and to pay payroll taxes on that payment.
