Residence – A legal person is resident if it establish pursuant to Estonian law. European public limited companies and European associations with their registered seat in Estonia also are deemed to be resident.
Basis – Resident companies are taxed on worldwide income. Nonresidents are taxed only on income derived from Estonian sources. This rule applies both to Estonian resident companies and to permanent established (PE) companies.
Taxable income – Estonia levies a corporate income tax on a company’s distributed profits (in lieu of an annual corporate tax). Retained earnings are not taxed until profit distributions are made. Profit distribution may be specific (i.e. dividends, share buybacks or profit distributions via capital reductions) or deemed (which include expenditure and payments unrelated to business activities, as well as gifts and donations).
Taxation of dividends – The corporate income tax applies to dividends and is paid by the resident legal person making the distribution. A similar regime applies to an Estonian PE of a nonresident. There is no separate dividend withholding tax.
Losses – Not applicable (as corporate income tax applies only to distributed profits)
Foreign tax credit – A foreign tax credit is available for all types of foreign-source income unless the Estonian participation exemption applies.
Participation exemption – The corporate income tax will not be charged on a redistribution of dividends if the underlying dividends are received from a subsidiary that is tax resident in an EEA member state or Switzerland and the Estonian parent holds at least 10% of the shares or votes of the payer company. The participation exemption also applies to dividends received from other countries if the Estonian company holds at least 10% of the shares or votes, or income tax on the dividends has been withheld in a foreign jurisdiction.
|Taxable income:||20/80 (20% of the gross amount) of the profit distribution|
|Taxation of dividends:||–|
|VAT registration:||Registration is mandatory for all taxpayers that carry out transactions in the Estonian VAT territory (or turnover exceeds 40.000€)|
|– VAT Rates:||20% (reduced rate 9% on items such as books, newspapers, medicines and accommodation.)|
|Alternative minimum tax:||No|
|Withholding tax (general):||0% / 10%|
|– From Dividends||–|
|– From Royalties||10% withholding tax applies to royalties paid to nonresidents (EU or Swiss-resident companies may be exempt)|
|– From Interests||0% (exemption for nonresidents)|
|– Technical services||10% if technical services are rendered in Estonia. Withholding tax is not applicable if the services are performed outside Estonia and the service provider’s country of tax residence that provides for an exemption.|
|Capital gains tax:||Treated as ordinary business income taxable by rate 20% (only taxed where there is a profit distribution)|
|Real property tax:||0.1%-2.5% an annual land tax is imposed on the assessed value of the land and is paid by owner of the land|
|Social security:||The combined social and health insurance rate paid by the employer on cash and in kind (fringe benefits) employee remuneration is 33%|
|Payroll tax:||No, but unemployment insurance contributions must be paid by the employer and the employee on the employee’s monetary employment income. The employers’s contribution is levied at a rate of 0.8%|
|Stamp duty:||Stamp duty in insignificant amounts may apply|
|Tax treaties:||56 tax treaties in force|
|CFC (Controlled Foreign Company) rule:||Given the nature of the corporate income tax, the CFC regime applies only to individuals.|
|Other:||A general anti-avoidance rule allows the tax authorities to apply what is, in effect, an economic substance rule and special scrutiny is given to payments and fees to low-tax jurisdictions.|
Transfer pricing – If the value of a transaction conducted between a resident legal person and a person associated with that person differs from the value of similar transactions conducted between non-associated persons, the tax authorities may, upon determining the income (i.e distribution) tax, use the value of transactions applied by unrelated independent persons under similar conditions. Income tax is charged either on the income the taxpayer would have derived or the expense the taxpayer would not have incurred had the transaction been conducted with unrelated persons under similar conditions.
Thin capitalization rule – No
Disclosure requirements – No
Compliance for corporations:
Tax year – Given the nature of the corporate income tax, relevant taxable period is the calendar month.
Consolidated returns – Consolidated returns are not permitted; each company must file a separate return.
Filling requirements – Filling and payment must be made monthly basis by the 10th day of the calendar month following the month of taxation. For non-VAT registered taxpayers, filling is required only if taxes on profit distribution and payroll are due for the period.
Penalties – A penalty is levied on late tax payments at a rate of 0.06% per day.
Rulings – Advance rulings are available and are binding the tax authorities for non-transfer pricing issues
Tax authorities: Tax and Customs Board, Ministry of Finance
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