Company Creation Overview

corporate income tax

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0%tax on retained and reinvested profits

There is no corporate income tax on retained and reinvested profits.

This means that Estonian resident companies and the permanent establishments of foreign entities (including branches) are subject to a 0% income tax with respect to all reinvested and retained profits and a 20% income tax only with respect to all distributed profits (both actual and deemed).

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Distributed profits include:

• corporate profits distributed in the tax period

• gifts, donations, and representation expenses

• expenses and payments not related to business

• transfer of the assets of the permanent establishment to its head office or to other companies

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Starting from January 1, 2018 – the corporate income tax rate on regular profit distributions was lowered from 20% to 14%, but only in cases where dividends are paid to legal persons.

Fringe benefits are taxable at the level of the employer. The employer pays income tax and social tax on fringe benefits.

14-20 %tax on distributed profits

Dividends paid to non-residents are no longer subject to withholding tax, irrespective of participation in the share capital of the distributing Estonian company. However, various withholding taxes may still apply to other payments to non-residents if they do not have a permanent establishment in Estonia or unless the tax treaties otherwise provide.

As of 2019, the tax period for corporate entities is a month, income tax must be returned and paid monthly by the 10th day of the following month.

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Value-added tax (VAT)

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Standard VAT rate 20%

The standard rate of VAT (value-added tax; käibemaks in Estonian) is 20%; the reduced rate is 9% and 0% in some cases.

VAT is charged on the supply of goods and services in the course of business activities and the self-supply of goods and services. A taxable person is an individual engaged in business and registered as a taxable person. The threshold for obligatory registration is 40,000 EUR. The threshold for a taxable person with limited liability in the case of the acquisition of goods is 10,000 EUR. There is no threshold in the case of the acquisition of services.

The taxable period is one calendar month, and VAT returns must be submitted to the tax authority by the 20th day of the month following the taxable period.