Residents pay tax on their worldwide income. Taxable income includes, in particular, income from employment (salaries, wages, bonuses and other remuneration); business income; interest, royalties, rental income; capital gains; pensions and scholarships (except scholarships financed from the state budget or paid on the basis of law). Taxable income does not include dividends paid by Estonian or foreign companies when the underlying profits have already been taxed.

The personal income tax is withheld from the employees’ gross salary every month and paid by the employer.

Non-residents pay personal income tax only on their income received from Estonian sources. Taxable income in Estonia includes:

• income from work under a labour contract or contractor’s agreement in Estonia
• income from business carried out in Estonia
• interest income received from Estonia (only if it is substantially higher than that of similar debt claims)
• royalties
• income from the lease of assets located in Estonia
• gains from disposal of assets located in Estonia
• directors’ fees paid by Estonian enterprises; » income of a sportsman or an artist from his or her activities in Estonia
• pensions and scholarships