Israel – Estonia Tax Treaty

Business Activity in Estonia

Estonia offers a variety of opportunities for business investments in sectors like information technology, electronics, food manufacturing, and research and development. The country provides a stable economic environment and has an effective e-Tax system.

Estonia is a model of business infrastructure excellence with modern transportation, advanced telecommunication, and information technology networks. The labor market is highly efficient, and the educational system produces a well-trained workforce. Estonia is a leader in research and innovation, with a special emphasis on green technologies and digitalization. 90% of banking transactions are conducted online in Estonia, indicating an advanced banking system. The country’s GDP is projected to reach $45.72 billion by 2024, demonstrating strong economic success.

Estonia’s primary trading partners are Finland, Latvia, the United States, Sweden, and Russia, with significant exports of consumer and capital goods. The country’s open and stable economy, clear legal regulations, freedom for foreign land ownership, and 100% profit repatriation make it an appealing destination for enterprises, attracting both domestic and international investors.

Bilateral Agreements Between Estonia and Israel

The following agreements were signed between Israel and Estonia:

1. Double Taxation Agreement
2. International Investment Agreement

Reciprocal Promotion and Protection of Investments

The Agreement on the Promotion and Protection of Investments was signed on March 13, 1994, and became effective on May 22, 1995. The agreement seeks to promote and protect respective investments, stimulate business efforts, and improve prosperity in both states.

Convention on the Prevention of Double Taxation

The agreement between the Governments of Israel and Estonia regarding the avoidance of double taxation was signed on June 28, 2009, and entered into force on December 31, 2009.

To read the agreement in English click here.

Applicability of the MLI

Both Estonia and Israel have signed the “Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting” (MLI). Israel signed the agreement on June 7, 2017, and ratified it on September 13, 2018. In contrast, Estonia signed the MLI on June 29, 2018, and ratified it on January 15, 2021

Residency for Tax Purposes in Estonia

Residence of an Individual

An individual is classified as tax resident in Estonia if at least meets one of the following requirements:

• Lives in Estonia
• They stay in Estonia for at least 183 days in any 12 months
• They are an Estonian diplomat serving abroad

To read about how an individual is considered a resident of Israel, click here.

Residency of a Company

A company is considered tax resident in Estonia if it is incorporated under Estonian law.

To learn about how a company is considered a resident of Israel, click here.

The Tax System in Estonia

Estonia’s Tax Authority is called Estonian Tax and Customs Board.

Income taxation: 20%

Taxation of Companies and Branches: 20%

VAT: 0%, 5%, 9 % and 22%

Capital Gains Tax: 20%

The Corporate Tax System in Estonia

One of the unique features of Estonia’s tax system is the way corporate profits are taxed. Unlike in many other countries, an Estonian company does not pay ongoing corporate tax on the profits it generates as long as those profits remain within the company and are not distributed to shareholders.

An Estonian company can earn income, retain the profits in the business, and use them for ongoing operations, investment, development, or expansion, without paying corporate tax at that stage. Tax is imposed mainly when profits are distributed as dividends or when certain payments are made that are treated as profit distributions.

As of 2025, a dividend distribution in Estonia is taxed at the company level at a rate of 22/78 of the net dividend amount – a tax rate of 22% of the gross amount, or approximately 28.2% of the net amount distributed.

This system may be of interest to Israeli entrepreneurs and companies, especially in the fields of technology, digital services, e-commerce, and activities targeting the European market. In addition, Estonia is a full member of the European Union, and an Estonian company may therefore benefit from access to the EU single market and a familiar European regulatory environment.

However, Israeli residents should be cautious about assuming that simply incorporating a company in Estonia guarantees taxation only in Estonia. The Israel Tax Authority may examine where the company is actually managed, where the key business decisions are made, who performs the work, and whether there is real activity outside Israel.

A company registered in Estonia but effectively managed from Israel may, in certain cases, be considered an Israeli tax resident. In addition, the provisions of Israeli law should be examined with respect to a controlled foreign corporation (CFC), a foreign professional company, a wallet company, foreign tax credit, and reporting obligations in Israel.

Another topic worth noting is the global minimum tax rules. These rules are mainly relevant to large multinational groups with consolidated revenue of €750 million or more, and therefore generally do not apply directly to entrepreneurs and small and medium-sized companies. However, developments in this area highlight the importance of real activity, genuine management, and proper documentation.

Withholding Tax

Inheritance Tax and Estate Tax in Estonia

If you accept an inheritance in Estonia, you have rights and responsibilities of the of the person’s estate who passed away, including any liabilities they had to the Estonian Tax and Customs Board. Important to mention, Estonia does not tax inherited estate such as property, real estate and money. However, income tax must be paid in case an inherited estate is sold, though available exemptions or deductions might apply.

Relocation to Estonia

Estonia offers several tax benefits for investors looking to relocate, including 0% tax on retained and reinvested profits and only 20% on distributed profits. When dividends are paid to legal entities, the tax rate is lowered to 14%.

A wide range of grants are also offered to help and support foreign investors, including large investor support schemes, digital transformation support, and product development programs. These grants cover various sectors like manufacturing, mining, gas, information and communication technologies, and professional, scientific, and technical activities. Apart from numerous corporate benefits, there are many advantages for individuals who would like to relocate to Estonia.

Estonia has a progressive, digital society that prioritizes innovation and boasts excellent air quality, ranking as the 4th country in the world for air quality. It provides open spaces and ensures a secure environment for families. The nation offers an affordable lifestyle and promotes a healthy work-life balance. Furthermore, Estonia’s healthcare system, which is funded through solidarity-based financing, guarantees equal quality healthcare to all its residents.

Estonia’s Jewish community reached 1,939 members by the end of 2023. Estonian Jews participate in many regional activities with neighboring Latvian and Lithuanian communities.

Real Estate Taxation in Estonia

Since 2024, the land tax in Estonia ranges from 0.1% to 1%, while the rates for residential and agricultural land vary from 0.1% to 0.5%. If the amount is less than 5 euros, no tax is charged.

Transfer of Funds from Israel to Estonia

According to section 170(a) of the Israeli income tax ordinance, any transfer of payment to a non-Israeli resident is subject to 25% of withholding tax. The tax authority can allow, under certain circumstances, to reduce or dismiss the withholding tax. Our firm handles withholding tax matters with the Israeli Tax Authority.

Due to the fact that both countries have a tax treaty with each other, one can submit a declaration form (2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax), and under certain circumstances, there is a possibility to transfer the payment without the withholding tax and the approval of the Tax Authority.

In providing advice regarding the transfer of money abroad, in addition to the issue of withholding tax, our office handles the requirements of the foreign banks, such as an accountant’s approval regarding the payment of taxes and examines additional actions required in light of the uniform standard of CRS between the countries – automatic exchange of information between countries which is carried out first through the banks and then between the tax authorities of each two countries.

The banks raise many difficulties and charge high fees for converting shekels into other currencies, so it is important to consult before transferring the funds – Contact us.

For more information on money transfers abroad, click here.

Types of Business Entities in Estonia

Private limited company (OÜ)

In Estonia, a private limited company can issue shares with a minimum capital of €0.01 per shareholder. A supervisory board is not required. If half of the board members do not reside in Estonia, this must be reported to the Commercial Registry.

Public limited company (AS)

A public limited company in Estonia can be formed by individuals or entities, with a minimum share capital of €25,000. It must be registered in the Estonian Central Register of Securities, have a supervisory board with at least one member, and appoint an auditor.

General partnership (TÜ)

A general partnership has two or more partners operating under a common business name, sharing the same responsibility for obligations and assets. New partners can be added with everyone’s consent, and all partners must be treated equally.

Limited partnership (UÜ)

In Estonia, a limited partnership has at least two partners, one general partner responsible for obligations and one partner responsible for contributions.

Incentive Laws in Estonia

Estonia provides financial resources and advice to develop and expand businesses across various sectors and for different groups of entrepreneurs, especially those from abroad. The largest investor program offers up to €3 million to companies with a turnover exceeding €50 million for establishing new manufacturing plants or upgrading existing ones. The digital transformation scheme supports automation and the adoption of digital technology with grants covering up to 15% of the costs.

In Estonia, tax incentives allow deductions for basic exemptions, house loan interest, training expenses, donations, and contributions to supplementary pensions. In 2024, the basic exemption is €654 per month, which decreases with higher income. For pensioners, the deduction amount is €776 per month.

Additional deductions include mandatory and voluntary pension contributions, unemployment insurance premiums, and mandatory foreign social security contributions, increased exemptions from forest land sales, training expenses, and donations. These deductions cannot exceed 50% of the taxpayer’s taxable income.

Electric vehicles in Estonia benefit from lower registration taxes compared to gasoline-powered vehicles, with specific rates based on CO2 emissions. Ownership and company tax benefits may be available for fully electric vehicles. Direct purchase subsidies for electric vehicles ended in December 2023, but VAT benefits remain unaffected. Local incentives include free parking and the Estonian government’s investment in public charging infrastructure.

Estonia Double Tax Treaties