Training expenses related to business, tax allowance for entrepreneurs [deductions from business income]

Income Tax Act (§32)

To reduce tax burden of companies, conduce sustainability of companies, lower labour costs for creation of high-productivity jobs, enhance participation in life long learning.

Ministry of Financial Affairs

Government issues Income Tax Act. Estonian Tax and Customs Board collects and monitors declarations of tax income.

All entrepreneurs (companies and self-employed/sole proprietor)

Any kind of training (or studies since 2012), which is related to present or future job.

State (loss of tax revenue)
company

No regulation on maximum amount of education and training expenditure to be deducted.
Maximum share of education and training expenditure that can be duducted: 100%;
in case of the costs related to business partners, maximum 2% of the costs may be deducted.

A special feature of corporate income tax in Estonia is the fact that only dividends are taxed; since 2015 income tax rate is 20% for all types and sizes of companies (prior to this it was 21%). Earnings are not taxed as long as they are reinvested in the company. Income tax must be paid on distributed earnings, expenses and payments not related to enterprise and on gifts, donations, costs of entertaining guests and fringe benefits granted to employees. Training costs, if they are related to the company activities, can be deducted from the taxable income. If training is partly company related, then appropriate share can be deduced, but there is no specific calculations given, companies can decide this themselves; if necessary a tax authority can discuss the character of the training (if and how much of it is company related). If company does not gain any profit/earnings/income that is not reinvested in the company, then there is no premium on training expenses because there are simply no earnings to deduct costs from (and thus also income tax is not applied). However, Income Tax Act (§35) also stipulates that if the total amount of the deductions allowed (incl. training costs) exceeds the business income derived by a taxpayer during a period of taxation, the amount by which expenses exceed business income may be deducted from business income during up to 7 subsequent taxation periods.

Fees and other costs related to education and traning (costs of materials, travel, accommodation, wage costs, daily allowance in case training takes place in another municipality), personnel absence costs.

Each year

There are only estimations which speak of a yearly loss of the State revenue of EUR 5 000 000.

No data is available on the actual use.
There were over 144 000 active economic units in 2013. As a rule, two thirds of all legally registered units are economically active (in the statistical profile). More than a half of them (59%) were companies and nearly one fifth (19%) were sole proprietors. Non-profit associations and foundations made up another fifth (20%) of economically active units. Government and local government institutions constituted a little under 2%. In addition, there were over 112 000 enterprises (companies and sole proprietors). All are eligible, probably most benefited.

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https://www.riigiteataja.ee/en/eli/ee/Riigikogu/act/520012015019/consol…

https://www.riigiteataja.ee/akt/119112010007

Until 2012 only non-formal job-related training was eligible for tax allowance and training in formal education (such as higher education) was taxed with preferential tax for companies. As from 1 January 2012 entrepreneurs can reduce their income with costs of both non-formal and formal job-related training (or studies). It is difficult to ascertain if the reason behind this amendment of the Income Tax Act is the economic crisis. The topic has been under discussion for years (more than 10 years) and the Government in force since April 2011 took this into their coalition programme.
As a result of the crisis, enterprises did not invest (or spend) their own funds on training as much as during the economic boom. State/Government costs (mostly with the help of different EU funds) increased and private costs decreased (exact numbers are not known). Since 2012 formal education costs are also eligible for reducing income without any penalties; prior to this it was also possible to reduce income with formal education costs but the company was taxed with 21% (preferential tax) in that case)

consolidated texts of English translations of Estonian legislation; https://www.riigiteataja.ee/en/

Estonian Tax and Customs Board; http://www.emta.ee/?lang=en