The "Paying Taxes 2015" report, a joint effort of the World Bank Group and PricewaterhouseCoopers, measuring the ease of paying taxes across 189 economies, has ranked Estonia 28th, up four places up from last year. The easiest countries in which to pay taxes, are in the Middle East.
The study compares the time it takes the same company to prepare, file and pay its taxes, the number of taxes that it has to pay, the method of that payment and the total tax liability as a percentage of its commercial profits in different countries.
On average, it takes a company 25.9 payments and 264 hours to comply with its taxes. The average total tax rate is 40.9.
The Middle East is still the most attractive region in which to pay taxes, as it continues to have the least demanding tax system. It has the lowest total tax rate and time to comply.
The top five tax systems are in the United Arab Emirates, Qatar, Saudi Arabia, Hong Kong and Singapore.
The top European countries are Ireland, Denmark, United Kingdom, Luxembourg and the Netherlands. Surpassed by Latvia, Estonia has dropped a place in the European rankings compared to 2014.
Estonia is in the forefront for the user-friendly payment system: it takes seven individual payments and 81 hours for a company to pay its taxes in a given year. This is five times less than in Czech Republic, for example, where eight payments take 413 hours to complete. However, there is still room for improvement: in San Marino, the time to comply is only 52 hours; in Norway, a company only has to make four different payments.
Estonia's success is undermined by a high 49.3 percent total tax rate, eighth highest in Europe. The total tax rate is made up of 8.4 percent profit taxes, 39 percent labor taxes and 1.9 percent by other taxes.
The highest total tax rate in Europe is in France (66.6 percent) and Italy (65.4), and lowest in Croatia (18.8) and Luxembourg (20.2).
Villi Tõntson from the PricewaterhouseCoopers Estonia said that the Total Tax Rate is not the most objective measure, as countries use different ways to split the labor taxes between the employer and the employee.
"As the study only measures the taxes paid by the employers and in Estonia, unlike in many other countries, the majority of the labor taxes are paid by them, not the employees, the country's rank in the total tax rate index is rather modest. If we take the sum total of taxes paid by the employers and the employees, the situation is not actually that bad," he said.
Risto Kaarna from the Ministry of Finance further explains that the social security taxes make up the majority of the 39.0 percentage points of the 49.3 percent of the total tax rate that are filed under labor taxes. However, these taxes are not related to companies' profits and a comparison with countries like Denmark, where social security taxes form an undistinguished part of the profit tax that is paid by the employees, are misleading. "If we do not take the social security taxes into account, the total tax rate is a bit over 10 percent," Kaarna wrote in the ministry's blog.