Corporate Income tax
Estonia applies a unique and favourable approach on taxation of corporate profits. Resident companies and permanent establishments of the foreign entities (including branches) are subject to 20% income tax only in respect of all distributions (both actual and deemed), including:
- dividends and other profit distributions;
- fringe benefits;
- gifts, donations and representation expenses;
- concealed distribution of profits;
- expenses and payments not related to business.
Starting from January 1st, 2018 — the corporate income tax rate on regular profit distributions will be lowered to 14%, but only in cases where dividends are paid to legal entities.
Profit retained in the company is taxed at 0%
Dividends paid to non-residents are not subject to withholding tax at the general rate of 20%, irrespective of participation in the share capital of the distributing Estonian company.
Estonia does not impose any estate taxes. Local governments have the authority to impose local taxes, but effectively only few municipalities have introduced these.
Estonia has effective tax treaties with 57 countries. Under the double tax treaties a significant reduction of withholding taxes on various payments to non-residents is available. In order to apply the lower tax treaty rates, the residence certificate of the recipient of income must be submitted to the Tax Authorities by the 10th day of the month following the payment.
Considerations for the investor
- Main principles of Estonian tax policy: simple tax system, broad tax base and low rates.
- The aim of the current Estonian tax policy is to shift the tax burden from labour to consumption.
- Flat income tax rate since 1994 (flat income tax rate at 20% applies to both individuals and companies).
- Unique corporate tax system since 2000: all undistributed corporate profits are tax-exempt. (0%)
- Individuals can have investment account to benefit from 0% corporate income tax.
- Local taxes play an insignificant role in the Estonian tax system.
- Estonia operates a self-assessment system.
- Electronic tax administration is well established. Business taxpayers can file, view and correct their tax returns online using the eTaxBoard (eMaksuamet). They can also use it to view their tax account balances and VAT returns, and submit VAT refund applications.
- Vast majority (96% - 2015) of yearly personal income tax declarations are submitted electronically.
- Estonia has no thin capitalisation or CFC rules for corporate taxpayers.
- Estonian VAT legislation is based on the EC VAT Directive (2006/112/EEC).
- The standard VAT rate is 20% and the reduced rate is 9%.
- Estonia applies an extended reverse charge mechanism.
- An option to tax is available in respect of certain exempt supplies.
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