Estonia

Corporate - Income determination

Last reviewed - 03 January 2020

Distributable profits are determined based on financial statements drawn up in accordance with Estonian Generally Accepted Accounting Principles (GAAP) or International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS), and there are no adjustments to accounting profits for tax purposes (e.g. tax depreciation, tax loss carryforward or carryback).

The CIT liability associated with the distribution of dividends is accounted for as an expense at the time the dividends are declared, regardless of when the profits were generated or distributed.

Dividends paid by Estonian companies are generally subject to 20/80 CIT at the level of the distributing company. However, dividends distributed by Estonian companies are exempt from CIT if the distributions are paid out of:

  • dividends received from Estonian, EU, European Economic Area (EEA), and Swiss tax resident companies (except tax haven companies) in which the Estonian company has at least a 10% shareholding
  • profits attributable to a PE in the European Union, European Economic Area, or Switzerland
  • dividends received from all other foreign companies in which the Estonian company (except tax haven companies) has at least a 10% shareholding, provided that either the underlying profits have been subject to foreign tax or if foreign income tax was withheld from dividends received, or
  • profits attributable to a foreign PE in all other countries, provided that such profits have been subject to tax in the country of the PE.

In addition, stock dividends (bonus shares) distributed to stockholders are exempt from 20/80 CIT charge.

Certain domestic and foreign taxes can also be credited against the 20/80 CIT charge under domestic law or tax treaties.

From 2018 onwards, a lower CIT at the rate of 14% for those companies making regular profit distributions is available. The payment of dividends in the amount that is below or equal to the extent of taxed dividends paid during the three preceding years (20%) will be taxed with a rate of 14% (the tax rate on the net amount being 14/86 instead of the regular 20/80). 2018 is the first year that is taken into account for determining the average dividend payment. In cases where the recipient of the 14% dividend is either a resident or non-resident individual, a 7% WHT rate will apply unless a tax treaty provides for a lower WHT rate (5% or 0%).