Baltic Tax Card 2015: Corporate income tax in Estonia

Taxpayers

Corporate income tax is paid by:

• domestic companies – residents;
• permanent establishments of non-residents that perform economic activity (including branches);
• non-residents acting as employers in Estonia

Taxable objects

Corporate income tax is applied to the following:

• corporate profits distributed in the tax period;
• gifts, donations and representation expenses;
• expenses and payments not related to business
• fringe benefits (taxable at the level of employer)

The transfer of assets of the permanent establishment to its head office or to other companies is also treated like a distribution.

Tax rate in Estonia

Corporate income tax rate is 20/80 to net payments. Tax is calculated of the net payment. 

Taxation of dividends

Tax from profit distribution is withheld by the legal person. For the recipient, dividends are not taxable income and additional income tax is not withheld on the amount of dividends.

Redistribution of dividends is not taxed:

• Dividends received from subsidiary domiciled in the EEA Member State or Switzerland (except low tax jurisdictions) – are not taxed with income tax if at least 10% of the shares or votes in the subsidiary is held by Estonian company.
• Dividends received from subsidiary domiciled in another country (outside of EEA Member States and Switzerland, except low tax jurisdictions) – are not taxed with income tax if at least 10% of the shares or votes in the subsidiary is held by Estonian company and if income tax has been withheld or paid.

Under certain conditions the exemption method is applied to the dividend paid out of profit attributed to a resident company’s permanent establishment. Under certain conditions the income tax is not charged on dividends or on payments upon a reduction in share capital or contributions, redemption of shares or liquidation of a legal person. The threshold for the application of participation exemptions is 10%.

When a resident company or a non-resident legal person acting through its permanent establishment in Estonia has received payments from abroad, the income tax paid abroad may be deducted from the taxable amount of profit distributed in Estonia. Income tax paid in a foreign state on the income which was the basis of the payment not taxable in Estonia shall not be taken into account for deduction.

Taxation of payments to non-residents

In Estonia income tax is withhold on following payments made to non-residents:

• rental payments – 20%;
• fees for services provided in Estonia – 10%;
• royalties – 10% and 0% (royalty payments are exempt from tax if the recipient is an associated company of the paying company and is resident in another EU Member State or Switzerland or this company’s permanent resident is in another EU Member State or Switzerland)
• interests – No income tax on interests. Exception is when non-resident investor derives interest from Estonian fund or other pool of assets.  

Under tax treaties these tax rates may be reduced.

Filing tax declarations

As the tax period of corporate entities is a month, the income tax shall be returned and paid monthly by the 10th day of the following month.

Tax payment deadline

Taxpayers shall pay the tax calculated in their tax declarations to the bank account of the Tax and Customs Board not later than by the tenth day of the calendar month following the period of taxation.

Tax incentives and relief

There are no special tax incentives in Estonia. Tax incentives or exemptions arising from tax treaties can be applied only if the recipient of the payment has certified his/her residence status to the withholding agent.

For full TAX CARD 2015: Corporate income tax in Baltics click below: