Lowest corporate tax in Europe

The Estonian legislation offers its residents a very interesting tax system. Cooperation with Estonian companies can be advantageous in many areas of activity, for example in the delivery of goods from/to EU countries, when registering as a holding company. Look in more detail at Estonian taxation and the possibilities of companies from this state.

Taxation in EstoniaEstonia is well known for the friendly attitude of officials towards business and developed digital infrastructure. Almost all business processes can be controlled online – register a company, file reports, ask questions to public services, etc. It also attracts moderate prices for business support.

Taxes in Estonia are administered by the Estonian Board of Taxes and Customs. A large proportion of tax returns are available via the Internet.

Main tax advantages:

  • There is no tax on retained earnings
  • Profit tax is paid only when a company decides to distribute dividends to its owners Corporate tax rate on allocated profits is 20% (14% may be applied in some cases since 2020)
  • The VAT rate for certain goods and services is 0% and 9%
  • Standard VAT rate is 20%
  • Double taxation treaties with 60 countries worldwide, including Belarus and Ukraine

Corporate tax

In Estonia, income tax is 0%, which means there is no need to pay corporate tax on income earned. Instead, corporate taxes are paid distributing company profits — for example, when paying out dividends to shareholders — or other taxable payments.

Estonia’s corporate income tax is paid only after dividends (interest, royalties, etc.) have been distributed. That is, all retained profits of the company are exempt from tax. The tax is deferred until the profit is considered as distributed. After distribution, profits are taxed at 20% of the net amount.

It is worth noting that since 2018 the income tax for enterprises in Estonia is reduced to 14%. This applies to companies that regularly distribute profits. Payment of dividends in Estonia in an amount that is less than or equal to the number of taxable dividends paid during the previous three years will be taxed at a rate of 14%. If the average is exceeded, the tax will be 20%. If the beneficiary of the dividend is a natural resident or non-resident, the rate is 7 per cent.

Some domestic and foreign taxes may be applied to corporate income tax under domestic laws or double taxation agreements. Some distributions are exempt from such a tax:

  • Dividends obtained from Estonian, EU, EEA or Swiss tax resident companies in which the Estonian company owns at least 10% of the shares;
  • Profits obtained through a permanent establishment in the EU, the EEA or Switzerland; Profits earned through foreign missions in all other countries, provided that such profits are taxed in the country of the mission;
  • Dividends obtained from all other foreign companies in which the Estonian company owns at least 10 per cent of the shares, provided that the main profits were subject to foreign tax or the foreign income tax was withheld from the dividends received; Liquidation proceedings, repurchase of shares or reduction of capital, which are taxable by the distributor of such proceeds;
  • Dividends paid by Estonian companies to non-resident legal entities (including companies with «low tax jurisdictions»).

 

Company in Estonia OÜ provides accounting services and legal advice on taxation. Please contact us and present your enquiry.

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