Corporate tax in Estonia

Summary

Corporate Tax Rate (%) 20 (a)
Capital Gains Tax Rate (%) 0 / 20 (b)
Branch Tax Rate (%) 20 (a)
Withholding Tax (%) (d)
Dividends 0 (c)
Interest 0 / 20 (d)
Royalties 0 / 10 / 20 (e)
Rental Payments 20 (f)
Services 0 / 10 / 20 (g)
Salaries and Wages 20

 

    a) Resident companies and permanent establishments of nonresident companies are not subject to tax on their income. They are subject only to tax at a rate of 20% on the gross amount of distributed profits and certain payments made. The tax rate is applied to the gross taxable amount divided by a specified percentage (for further details, see Section B).
    b) Resident companies and permanent establishments of nonresident companies are not subject to tax on their capital gains received. They are subject only to tax at a rate of 20% on the gross amount of distributed profits. Nonresident companies without a permanent establishment in Estonia are subject to tax at a rate of 20% on their capital gains derived from Estonian sources. For further details, see Section B.a) Resident companies and permanent establishments of nonresident companies are not subject to tax on their income. They are subject only to tax at a rate of 20% on the gross amount of distributed profits and certain payments made. The tax rate is applied to the gross taxable amount divided by a specified percentage (for further details, see Section B).
    c) Withholding tax is not imposed on dividends. Dividends are subject to 20% corporate income tax at the level of the resident distributing companies only (for further details, see Section B).
    d) Interest payments are generally exempt from withholding tax. Withholding tax at a rate of 20% is imposed on interest paid to resident individuals (including payments made by contractual investment funds on the account of the funds), except for interest received from European Economic Area (EEA) credit insti­tutions from deposits. Interest paid to nonresidents as a result of ownership of contractual investment funds is subject to a 20% withholding tax if more than 50% of the assets owned (directly or indirectly) by the fund during a two-year period preceding the date of the interest payment is real estate located in Estonia and if the interest recipient has at least 10% ownership in the contrac­tual investment fund at the moment of receiving the interest. Withholding tax is not imposed on interest paid from the profits of contractual investment funds if the profits have already been taxed.
    e) Withholding tax at a rate of 10% is imposed on payments to nonresident individuals and companies. Royalties paid to companies resident in other EU countries or Switzerland are not subject to withholding tax if the provisions of the EU Interest-Royalty Directive are satisfied. A 20% withholding tax is imposed on payments to resident individuals.
    f) Withholding tax at a rate of 20% is imposed on payments to resident indi­viduals and nonresidents.

g) The 20% rate applies to payments to nonresidents from low-tax jurisdictions (a low-tax jurisdiction is a jurisdiction that does not impose a tax on profits or distributions or a jurisdiction in which such tax would be less than 1/3 of the Estonian tax payable by resident individuals on a similar amount of business income). The 10% rate applies to payments to other nonresidents for services rendered in Estonia. A 0% rate may apply under double tax treaties.

Taxes on corporate income and gains

Corporate income tax. Resident companies and permanent estab­lishments of nonresident companies are not subject to tax on their income. They are subject only to tax on the following payments made to resident legal entities, nonresident companies, resident individuals and nonresident individuals:

  • Dividends
  • Fringe benefits
  • Gifts
  • Donations
  • Business entertainment expenses
  • Distributions of profits
  • Payments not related to the business of the payer

Resident companies are companies registered (effectively the same as incorporated) in Estonia. European public limited liability com­panies and European Cooperative Societies that have their regis­tered office in Estonia are deemed to be Estonian tax residents. Non resident companies without a permanent establishment in Estonia are subject to tax on their business income derived from Estonia.

Tax rates. Resident companies are subject to tax on the payments described in Corporate income tax at a rate of 20% of the gross amount of the payments. To calculate the corporate income tax for 2016, the tax rate is applied to the net taxable amount divided by 0.8.

A 20% rate applies to income derived by nonresident companies without a permanent establishment in Estonia.

Capital gains. Capital gains derived by resident companies and permanent establishments of nonresident companies are exempt from tax until they are distributed.

Nonresident companies without a permanent establishment in Estonia are taxed at a rate of 20% on their capital gains derived from Estonian sources.

Capital gains derived from sales of shares and securities by non­residents are ex empt from tax. However, if the shares of a com­pany, contractual investment fund or other pool of assets are sold by a nonresident with at least a 10% holding and if at the time of the sale or at any other time during the two preceding years, real estate and buildings directly or indirectly accounted for 50% or more of the assets of the company, capital gains derived from the sale of the shares are taxable.

If a resident company is deleted from the Estonian commercial register without liquidation and its economic activities are ended, the holding of a nonresident in the company is taxed as a capital gain, which is equal to the market value of the holding less the acquisition cost. The taxation is postponed if economic activities are continued through another resident company or a permanent establishment remains in Estonia.

Administration. The tax period is a calendar month. Tax returns must be filed and income tax must be paid by the 10th day of the following month.

Advance rulings. Taxable persons may apply for advance rulings from the tax authorities. Advance rulings may relate only to ac­tual planned transactions, as opposed to theoretical questions. The advance ruling is binding on the tax authorities and recommended for the taxable person. The taxable person must inform the tax authorities of the execution of the transaction described in the advance ruling. A time limit for the binding nature of the ruling is set based on the taxpayer’s evaluation of the time needed for the execution of the transaction.

The processing of the advance ruling may be suspended if a similar transaction is simultaneously being reviewed in challenge proceedings (administrative proceedings involving a dispute be­tween the taxpayer and the tax authorities) or court proceedings and if the ex pected decision in such proceedings is crucial for the determination of the tax consequences. Advance rulings may not be issued with respect to the determination of transfer prices ( determination of value of transactions between related parties).

For the advance ruling to be binding, the taxpayer must present detailed and accurate information before the beginning of the relevant transactions. If the tax laws are amended after the ad­vance ruling has been issued but before the transaction is carried out, the advance ruling is no longer binding. The deadline for issuing an advance ruling is 60 calendar days beginning with the date of acceptance of the application. By a motivated decision (a decision that includes arguments supporting the decision) in writ­ing, the deadline may be extended for an additional 30 calendar days. A state fee is payable for the processing of the advance-ruling application.

A summary of the ruling, except for information protected by the tax secrecy clause (the tax authorities are bound to maintain the confidentiality of information concerning a taxpayer that was acquired in the course of their activities; certain exceptions apply), is published on the tax authorities’ web page. The taxable person may prohibit the disclosure of specific information.

Dividends. Withholding tax is not imposed on dividends paid. Payers of dividends must pay corporate income tax at a rate of 20% on the gross amount of dividends paid. This income tax is treated as a payment of income tax by the distributing company and not as tax withheld from the recipient of the dividends.

Dividends received are not included in taxable income (see For­eign tax relief).

The following payments are also taxable as dividends at the level of the company:

  • Decrease of share capital (if the decrease exceeds paid-in equity capital)
  • Redemption of shares and the payment of liquidation proceeds in an amount that exceeds the monetary and non-monetary pay­ments made into the equity capital

Interest. Interest payments are generally exempt from withholding tax. Withholding tax at a rate of 20% is imposed on interest paid to resident individuals (including payments made by contractual investment funds on the account of the funds), except for interest received from European Economic Area (EEA) credit institutions from deposits. Interest paid to nonresidents as a result of owner­ship of contractual investment funds is subject to a 20% with­holding tax if more than 50% of the assets owned (directly or indirectly) by the fund during a two-year period preceding the date of the interest payment is real estate located in Estonia and if the interest recipient has at least 10% ownership in the contrac­tual investment fund at the moment of receiving the interest. With holding tax is not imposed on interest paid from the profits of contractual investment funds if the profits have already been taxed.

Foreign tax relief. Dividends distributed by an Estonian company and a permanent establishment of a foreign company that had re­ceived dividends from a foreign company (except from a compa­ny located in a low-tax jurisdiction) are exempt from in come tax if the following conditions are satisfied:

  • The dividends are received from a taxable company resident in the EEA or Switzerland, or foreign tax has been paid on or with­held from the profits out of which the dividends were paid.
  • The Estonian company receiving the dividends owns at least 10% of the shares or votes of the foreign company when the dividends were received.

The following profits are also exempt from tax:

  • Profits allocated to a permanent establishment of an Estonian company in an EEA country or Switzerland
  • Profits allocated to a permanent establishment of an Estonian company in another foreign country if foreign tax has been paid on the profits

Any foreign tax paid or withheld can be credited by an Estonian company against income tax payable on dividend distribution.

Determination of trading income

Because resident companies and permanent establishments of nonresident companies registered with the Estonian authorities are not subject to tax on their income, they need not determine their trading income for tax purposes.

Profits of Estonian contractual investment funds from immovable property are taxed immediately when profits are earned.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)
Value-added tax, on goods and services,
Excluding exports
9 / 20
Social security tax 33
Mandatory funded pension contributions 2 / 3
Land tax 0.1 to 2.5
Unemployment insurance contributions (2016 rates); paid by:
Employer 0.8
Employee 1.6

Other significant taxes include excise duty, stamp duties, heavy vehicles tax, charges on the use of Estonian natural resources and pollution charges.

Miscellaneous matters

Foreign-exchange controls. The official currency in Estonia is the euro (EUR).

Enterprises registered in Estonia may maintain bank accounts abroad without any restrictions.

Debt-to-equity rules. No debt-to-equity or thin-capitalization rules exist in Estonia.

Anti-avoidance legislation. Under the Taxation Act, if it is evident from the content of a transaction or act that the transaction or act is performed for the purposes of tax evasion, the actual economic substance of the transaction applies for tax purposes. If a ficti­tious transaction is entered into in order to conceal another trans­action, the provisions of the concealed transaction apply for tax purposes.

Transfer pricing. Under a transfer-pricing measure in the income tax law, pricing between resident and nonresident associated com­panies should be at arm’s length. The tax authorities may adjust to an arm’s-length amount the profit of a company engaging in transactions with nonresident associated persons. Persons are considered associated if they have a common economic interest or if one person has a prevalent influence over another person. The transfer-pricing measure also covers transactions between nonresident legal entities and their permanent establishments in Estonia. Transfer-pricing documentation is required for the fol­lowing entities:

  • Entities with more than 250 employees (together with related parties)
  • Entities operating in certain industries
  • Entities that had turnover, including the turnover of related par­ties, of at least EUR50 million in the preceding financial year
  • Entities that had consolidated net assets of at least EUR43 mil­lion in the preceding financial year
  • Parties to a transaction if one of the parties is a resident of a low-tax jurisdiction

Treaty withholding tax rates

The rates reflect the lower of the treaty rate and the rate under Estonian domestic law.

Dividends (a)

%

Interest (b)

%

Royalties (c)

%

Albania 0 0 5
Armenia 0 0 10
Austria 0 0 5/10 (d)
Azerbaijan 0 0 10
Bahrain 0 0 0
Belarus 0 0 10
Belgium 0 0 5/10 (d)
Bulgaria 0 0 5
Canada 0 0 10
China 0 0 10
Croatia 0 0 10
Cyprus 0 0 0
Czech Republic 0 0 10
Denmark 0 0 5/10 (d)
Finland 0 0 5/10 (d)
France 0 0 5/10 (d)
Georgia 0 0 0
Germany 0 0 5/10 (d)
Greece 0 0 5/10 (d)
Hungary 0 0 5/10 (d)
Iceland 0 0 5/10 (d)
India 0 0 10
Ireland 0 0 5/10 (d)
Isle of Man 0 0 0
Israel 0 0 0
Italy 0 0 5/10 (d)
Jersey 0 0 0
Kazakhstan 0 0 15
Korea (South) 0 0 5/10 (d)
Latvia 0 0 5/10 (d)
Lithuania 0 0 0
Luxembourg 0 0 5/10 (d)
Macedonia 0 0 0
Malta 0 0 10

 

Dividends (a)

%

Interest (b)

%

Royalties (c)

%

Mexico 0 0 10
Moldova 0 0 10
Netherlands 0 0 5/10 (d)
Norway 0 0 5/10 (d)
Poland 0 0 10
Portugal 0 0 10
Romania 0 0 10
Serbia 0 0 5/10 (e)
Singapore 0 0 7.5
Slovak Republic 0 0 10
Slovenia 0 0 10
Spain 0 0 5/10 (d)
Sweden 0 0 5/10 (d)
Switzerland 0 0 5/10 (d)
Thailand 0 0 8/10 (d)
Turkey 0 0 5/10 (d)
Turkmenistan 0 0 0
Ukraine 0 0 10
United Arab Emirates 0 0 0
United Kingdom 0 0 5/10 (d)
United States 0 0 5/10 (d)
Uzbekistan 0 0 0
Non-treaty
countries
0 0 10/20 (f)
    a) Dividends are not subject to withholding tax under Estonian domestic law.
    b) Interest is not subject to withholding tax under Estonian domestic law except for interest paid in certain circumstances to nonresidents as a result of owner­ship in foreign contractual investment funds (see Section B).
    c) Royalties paid to a company resident in another EU country or Switzerland are not subject to withholding tax if the provisions of the EU Interest-Royalty Directive are satisfied.
    d) The lower rate applies to royalties paid for the use of industrial, commercial or scientific equipment.
    e) The lower rate applies to royalties paid for the use of, or the right to use, copy rights of literary, artistic or scientific works, including cinematographic films, but excluding software payments.
    f) The 20% rate applies to rental payments to nonresidents. The 10% rate applies to royalties, including royalties paid for the use of industrial, commercial or scientific equipment.