Flat Tax Estonia

About Flat Tax Estonia

Estonia became the first country to introduce a flat tax in 1994, setting a single rate of 26 percent on personal and corporate income. The flat tax was part of Estonias radical economic reforms after independence from the Soviet Union. The simplicity of the flat tax reduced avoidance and evasion. Estonia gradually reduced the rate to 20 percent. The flat tax was credited with making Estonia one of the fastest growing economies in Europe. Estonia later evolved its system, introducing a dual income tax that taxes distributed corporate profits but not retained earnings. This unique system encourages investment and reinvestment. Several other Eastern European countries adopted flat taxes in the 2000s, though some have since moved away from them.