Crypto Regulation and Taxes in Estonia (2024 Guide)

Estonia has turned into a crypto hub, attracting numerous startups and becoming a breeding ground for general crypto adoption.

But despite being a crypto-friendly environment, the country’s dry and rigid legal language can make it hard to figure out your crypto tax obligations.

In this guide, we’re providing a clear and simple overview of all aspects of crypto regulation in Estonia in 2024.

Key Takeaways

• Definition of Cryptocurrencies: Estonia has signed up for the International Crypto Asset Reporting Framework, so the country treats crypto assets as a digital representation of value.
• Taxable and Tax-Free Transactions: Not all transactions are subject to taxation in Estonia. For example, buying crypto for fiat or simply holding your coins is tax-free.
• Strategies for Reducing Tax Liability: Crypto regulation in Estonia makes it possible to reduce your tax burden in a few cases.

How Does Estonian Tax Law Define Cryptocurrencies?

The legal definition of cryptocurrencies is, perhaps, one of the most important aspects of crypto regulation. The way a certain region defines cryptocurrencies directly affects the taxation rules.

Estonia’s Income Tax Act doesn’t say anything about digital currencies, which could be seen as confusing for businesses and individuals aiming to deal with crypto in this region.

Fortunately, since Estonia signed up for the International Crypto Asset Reporting Framework (CARF) in 2023, we do have some guidance at our disposal.

As CARF defines crypto assets as a digital representation of value, this framework stipulates that the country’s common taxation rules apply to crypto too.

General Tax Rules in Estonia

An Estonian tax resident, be it an individual or a crypto company, is automatically included in the registry of Estonian taxpayers. 

Since the local law doesn’t contain any crypto-specific taxation rules, businesses dealing with crypto have to follow the same rules as businesses that deal strictly with traditional finance. 

Estonia’s general income tax rate is 20%. This means that both individuals and companies have to pay a flat rate for any gains obtained from crypto transactions.

In addition, the following taxes may apply for crypto businesses:

• Corporate Income Tax (CIT) – 0%-20% (regulated by the Income Tax Act). If a crypto company doesn’t distribute dividends, it gets an exemption from this tax.
• Social Tax (ST) – 33% (regulated by the Social Tax Act). This is the tax that companies have to pay on behalf of their employees to cover their pension and state health insurance.
• Value Added Tax (VAT) – 20% (regulated by the Value-Added Tax Act). VAT is optional for companies with an annual turnover below EUR 40,000. Those who reach this threshold have to register as VAT payers within three days. Importantly, not all crypto-related activities are subject to VAT. Therefore, each case should be considered separately.
• Withholding Tax (WHT) – 7%-20% (regulated by the Income Tax Act). The rate of WHT depends on the type of payment (fees, services, royalties, etc.). At the same time, dividends are normally tax-exempt. In some specific cases, a reduced tax rate of 7% may be applied.

Estonia has signed more than 60 international agreements to eliminate double taxation. 

As a result, crypto companies in Estonia that deal with customers from other regions have legal means to protect their profits.

Taxable vs Tax-Free Crypto Activities in Estonia

Not all crypto activities in Estonia require you to pay tax.

In this list, we’ve rounded up different taxable and tax-free crypto activities that are legal in the country. It can provide a great starting point for understanding the logic behind which activities are subject to tax requirements.

Taxed Crypto Transactions

• Selling crypto for fiat currencies (such as the euro).
• Receiving payments for goods and services with crypto.
• Mining and staking crypto.

Tax-Free Crypto Transactions

• Trading between different cryptocurrencies.
• Buying crypto with fiat.
• Holding crypto.
• Transferring crypto across different wallets.
• Receiving crypto rewards and donations.
• Sending crypto to someone else as a gift.

Taxes on Specific Crypto Activities

Aside from selling goods and services for crypto, crypto offers a plethora of other activities that one may perform to obtain profits. 

Below, we have reviewed some of the most popular crypto activities, as well as how they are treated by Estonia’s current crypto regulation as of 2024.

Mining

In Estonia, mining is considered as a business activity. Therefore, a standard 20% tax rate is applied to the income derived in this form.

However, this taxable event strictly occurs when digital assets are converted into fiat, exchanged for other assets, or used as a payment for goods and services.

The amount of tax owed can be reduced for businesses if an owner declares their associated expenses, such as electricity costs or the sum spent on mining equipment.

As for individuals, they do not have an option for tax reduction unless they register as sole proprietors or legal entities per the e-Business register.

Staking

Similar to other crypto-related activities, rewards obtained via staking are subject to income tax.

Those who earn rewards through staking have to declare their yield on their income tax return.

The staking process itself, before a profit is realized, is regarded as lending and is not considered a taxable event.

Gifts and donations

The Income Tax Act contains several sections dedicated to the taxation rules for gifts and donations, though these do not explicitly mention cryptocurrencies. 

In the lack of crypto-specific regulations, the same rules likely apply to digital assets as well.

According to the law, the amount of tax owed is different for a natural person and a legal entity.

In fact, a crypto gift transferred from one natural person to another, or to a legal entity, is tax-free.

If individuals make crypto donations to any of the officially listed non-profit organizations, they can apply for a tax deduction of up to €1,200. 

To claim this deduction, recipients must submit a "declaration of gifts and donations received" via Form INF 4 to the Tax and Customs Board. 

The provided information will then automatically be added to the donor’s income tax return.

ICOs, IDOs, and other types of token sales

Crypto regulation in Estonia doesn’t contain any specific guidance on how to tax the assets received via ICOs and similar token distribution events.

Since these represent crypto-to-crypto transactions, the gains that one earns through these avenues will likely be treated as income and taxed accordingly.

NFTs

In Estonia, tax rules for NFTs differ for creators and investors.

The payments that creators get for their unique items are considered as royalties. Thus, when submitting an income tax return, they have to declare those as license fees.

Investors, in turn, have to declare the profits they gain when selling NFTs in Table 6.3 or 8.3 of their income tax return.

How To Reduce Crypto Taxes in Estonia

If you deal with crypto in Estonia, there are a few strategies that could help you reduce the tax burden. 

While we can list some general options, specific tax advice can only be provided by a qualified professional.

Some general methods for reducing crypto taxes in Estonia include:

1. Holding digital assets instead of selling them. Unless you cash out your coins or exchange them for some other cryptocurrencies, you don’t have to pay any taxes at all. This option may be a good fit for long-term investors.
2. Gifting or donating crypto. As mentioned earlier, gifting crypto is tax-free in Estonia. As for donations, individuals can get a tax deduction of up to €1,200 when donating assets to eligible entities.
3. Applying for a general income tax allowance. Residents can get certain deductions from their annual gross income if the annual sum they earn is below EUR 14,400.
   
   At the same time, other allowances can cover specific documented expenses, unemployment insurance contributions, contributions to foreign social security schemes, and more.
4. Declare your expenses on crypto mining. As mentioned earlier, income derived from crypto mining is considered business income. Businesses or individuals registered as legal entities may reduce their tax burden by submitting their associated expenses, such as electricity costs and equipment.

Frequently Asked Questions (FAQ)

Is crypto taxed in Estonia?

Yes, crypto transactions such as trading crypto for fiat, mining, staking, or receiving payments in crypto are subject to a general income tax of 20%. 

Can I buy crypto in Estonia?

Yes, you can legally buy crypto through any of the country’s trusted centralized or decentralized exchanges.

What is the MiCA regulation in Estonia?

MiCA is the regulatory framework fostering the usage of innovative technologies, including blockchain and cryptocurrencies. MiCA is applicable to Estonia and all other members of the EU.

Which bank is crypto friendly in Estonia?

LHV Bank offers various crypto services such as trading, custody, a crypto debit card, and more. Storing your crypto in the bank is free of charge. Those who want to buy or sell crypto through LHV have to pay a 0.5% service fee.

You may also be able to find other crypto-friendly banks in Estonia that match your needs.

When should I report crypto taxes in Estonia?

All residents have to submit their tax returns by April 30th of the following year. Those who use an electronic form can submit their taxes from February 15th.