Analytics, Estonia, EU – Baltic States, Financial Services, Markets and Companies, Taxation

According to the PwC report, Estonia's "Total Tax Rate" is 49.3%, of which 8.4%age points is profit's Total Tax Rate, 39%age points is labour Total Tax Rate and 1.9%age points is other Total Tax Rate. The EU average Total Tax Rate is 41%, and thus Estonia's is significantly higher than the average.

"The definition of the tax burden is division of paid by taxes or tax obligation with the tax base or the amount on which tax rate is taken. PwC's analysis, therefore, does not speak about tax burden, but the notion "Total Tax Rate,"," said the ministry, adding that this is not tax burden because it does not concern paid taxes or the corresponding tax base.

The ministry said in its blog that in legal terms, social tax is among a company's tax obligations in Estonia and thus the tax rate number is very high but in many other countries, social tax or its analogue can be the obligation of the employee or part of some other tax, like in Denmark, where it is part of income tax. Thus, it gives a very distorted picture of our company taxation.

39.0%age points of the Estonia's 49.3% total tax rate is formed by labour taxes, and the majority of that is social tax. The remaining small part is the companies' part of the unemployment insurance. As a result of that tax system quality, Estonian system seems relatively favourable to the company according to PwC methodology. Company's profit is not the basis of social tax, so their comparison is inappropriate. When the social tax is disregarded, the total tax rate would be slightly more than 10%.