Tax In History: Transition from Soviet Union’s Tax Regime to Estonia’s Own Tax System - Intertax View Tax In History: Transition from Soviet Union’s Tax Regime to Estonia’s Own Tax System by - Intertax Tax In History: Transition from Soviet Union’s Tax Regime to Estonia’s Own Tax System 49 10

Dissolution of the Soviet Union in 1991 resulted in regaining independence for many countries, including Estonia. This caused the urgent need for the country to design its own tax system together with drafting all of the relevant legal acts and implementing them in practice. Both the Estonian Parliament and Government (although both were inherited from the Soviet Union regime, the parliament had not yet been elected by Estonian citizens) initiated this work already in 1990–1991 when the first value added tax (VAT) regulations, personal income tax, and corporate income tax laws were adopted. Significant change has occurred since June 1992 when the referendum on the adoption of the Estonian Constitution was held. According to it, all taxes would need to be stipulated in tax laws approved by the parliament which, thus far, had not often been the case. The next qualitative step was made in 1994 when tax laws that were more advanced entered into force. At that time, Estonia introduced a single flat tax rate for both individuals and companies (having the same flat tax rate both for individuals and companies has enabled Estonia to fully tax fringe benefits (non-monetary income from employment) at the employer level without any need to personalize the exact value of benefit received by each employee.). The corporate income tax system was further redesigned in 2000 when Estonia became the first country in the world where retained profits of companies remain untaxed until they are distributed to shareholders.

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