Company obligations in Estonia

Companies are obligated to inform the tax administration about any loans granted to the shareholders. According to the provisions of the Income Tax Act (Income Tax Act, § 50²), which will enter into force on the 1^st of January, 2018, the resident companies will be required to pay income tax on a loan granted to a company's shareholder or member if the circumstances of the transaction indicate that it may constitute a hidden gain of profit.

For a parent company and a subsidiary of the same parent company, with the exception of a loan granted to a lender's subsidiary, if the deadline for repayment of is more than 48 months, the taxpayer is required, at the request of the tax authorities, to demonstrate the ability and the intent to repay the loan. The tax authority must provide the company time to provide relevant evidence within at least 30 days.

The above is accompanied by an obligation to provide information that is pursuant to § 56⁵ of the Income Tax Act a permanent establishment of a resident company and a permanent establishment of a non-resident company in Estonia, excluding a publicly traded company or a fund, a resident credit institution and a branch of a non-resident credit institution, are obliged to submit to the Tax and Customs Board, by the 20th of every month declaration regarding the previous quarter, for any loans granted to persons specified in § 50² of the Income Tax Act and their returns. The burden of proof provided in § 50² and the obligation to declare loans provided in § 56⁵ of the of the Income Tax Act applies to the loan granted from 1^st of July, 2017 as well as to any loans for which the loan amount has been increased from 1^st of July, 2017 the loan repayment term has been extended or amended other important conditions.

Should you have any questions about the rules regarding loans granted to the shareholders of the company in Estonia, Latvia or Lithuania, please do not hesitate to contact our English speaking lawyers at info@gencs.eu.

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