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Corporate Tax in Estonia

Corporate Tax in Estonia

According to Estonian Corporate Tax System, any undistributed corporate profit, of either local companies or  foreign companies registered in Estonia, is tax-exempt. Both active (such as trading) and passive (dividends, interest, royalties) types of income are also tax-exempt. This exemption also covers any capital gain from all kind of sales – immovable property, shares, securities etc.

Corporate income tax-exemption for companies registered in Estonia

For any company registered in Estonia, distributed dividends are exempt from corporate income tax if these are derived from:

  • – dividends received from any Estonian, Swiss, EU or EEA (European Economic Area) tax resident corporations for which the Estonian company owns at least 10% of the shares;
  • – profits paid by any permanent establishment („PE”) in Switzerland, EU or EEA;
  • – capital reductions, share buy-backs or liquidation proceedings which have been subject to taxation by the distributor of the income; 
  • – dividends from any foreign company in which the Estonian company has at least a 10% shareholding, provided that either the underlying company has paid foreign tax or foreign income tax for the profit;
  • – profits from a foreign PE in all other countries, provided that such profits have been subject to tax in the country of the PE.
  • – Estonian corporate tax system

Before opening a company in Estonia, you must know that there are no special tax incentives in Estonia. Instead, the corporate tax system in Estonia makes it possible to postpone the taxation of corporate profits for an indefinite period of time. Therefore, we can say that the whole Estonian corporate tax system is a tax incentive that stimulates economic growth, by encouraging re-investment of profits.

According to the same Estonian corporate tax system, corporate profits – derived from resident companies and permanent establishment of the foreign companies (branches included) – are taxed only after they are distributed as dividends, liquidation proceeds or deemed profit shares (like expenses and payments not related to business, fringe benefits, gifts, donations and business entertainment expenses). For fringe benefits, the payments are made by the employer, as income tax and social tax.

Corporate tax in Estonia – tax filling period

Generally, branches and subsidiaries are subject to same tax system in Estonia. For any corporate company registered in Estonia, the tax period is one month. The income tax must be paid by the 10th day of the following month.

In Estonia, distributed corporate profits are generally subject to a 21% income tax (at a rate of 21/79 on the net amount of profit distribution). According the Estonian law, any company can distribute dividends in value of maximum 79% on the net amount of profit distribution.

For more information related to how to open a company in Estonia or corporate taxes in this country, please contact our company formation specialists in Estonia.