Tax Stories E6 - Tanel Molok (Bolt) & Kaido Kunnapas (Sorainen) - the only way for a small country

Hobbies 

In this episode Kaido explains about break-dancing that it will be in Paris Olympic games and how to measure who is a better dancer. We spoke about crypto-currencies, that it’s now still a bit like when Estonia got back its independence and there were not that many regulations, but it’s here to stay. 

Authorities 

My attempt to get a story about movie Tenet that was filmed in Estonia failed, but Tanel shared insights on how tax authorities got as business-friendly and IT-advanced as they are now. He says that the authorities realised that being business-friendly generates more money for the state, and Estonia is not the place where investors can be ripped off. A small country cannot afford acting otherwise. And the IT systems of the tax authorities are top notch. 95% of VAT payers get their VAT refund in 5 days. 

Startups 

Kaido thinks that the only way for a small country to get bigger is to support IT business that does not recognise physical borders. Government simply does not interfere with this natural progress of the IT sector and its unicorns. Estonians praise Latvian tax system of reduced taxation of startup employees and just one year stock option plan possibility. 

The Baltics

A way to look at the differences is that Estonia and Latvia has this deferred corporate tax model (20% upon profit distribution), whereas Lithuania has a conventional (15%) system with R&D incentives. Latvia has a largest Russian-speaking community in the EU. Estonians are becoming more like Scandinavians – calm, nice to deal with. Lithuania is a bigger market, but also bigger competition. It also may depend on industry – say, road transport and fintech industry is more developed in Lithuania. But overall the cultural differences are not that significant.

Tax disputes and fraud

If the tax authorities understand there is no such strong evidence as they initially thought, they can agree on the tax assessment amount that corresponds to that evidence. In order to have less VAT fraud companies can go online and check information about turnover and employment taxes paid, that is updated on a quarterly basis. This helps also for public procurement purposes. In Estonia criminal liability is normally possible, if the breach is intentional and the amount of unpaid taxes exceeds EUR 40,000.