Corporate Tax in Estonia

Corporate Tax in EstoniaIn most countries tax system is designed so that the state budget is replenished, to a large extent, by tax revenues. In Estonia, about 80 per cent of the state’s income is taxed. The central taxes are corporate tax in Estonia, personal income tax, social tax, VAT, various excise taxes, etc.

Estonia offers one of the world’s most favourable tax systems for startups and small businesses.

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»).

Lawyers and accountants of LKS Consult OÜ can advise you on various legal issues. Our team will be pleased to advise on tax-related issues in Estonia and provide accounting services. Please do not hesitate to contact us, and it will be our pleasure to help you.

The legal department of the LKS Consult OÜ can develop a package of documents within the framework of Estonian legislation according to the needs and specifics of your business.

The contents of the documents affect how your company will be managed, how its profits will be distributed, what rights the company owners share, and how decisions will be made in the company. The rights and obligations of clients and partners of your company are clearly defined in the documents.