Tallinn
EY
Rävala 4, 7th Floor 10143 Tallinn Estonia
Principal Tax Contact
Ranno Tingas
+372 611-4610
ey.com/globaltaxguides
+372 611-4610
Mobile: +372 511-1848
Email: ranno.tingas@ee.ey.com
International Tax and Transaction Services – International Corporate Tax Advisory
Ranno Tingas
Hedi Wahtramäe
+372 611-4610
Mobile: +372 511-1848
Email: ranno.tingas@ee.ey.com
+372 611-4610
Mobile: +372 509-2665
Email: hedi.wahtramae@ee.ey.com
International Tax and Transaction Services – Transfer Pricing
Jevgeni Semjonov
+372 611-4610
Mobile: +372 520-0624
Email: jevgeni.semjonov@ee.ey.com
International Tax and Transaction Services – Transaction Tax Advisory
Hedi Wahtramäe
People Advisory Services
Anita Suurorg
Indirect Tax
Tõnis Elling
Legal Services
+372 611-4610
Mobile: +372 509-2665
Email: hedi.wahtramae@ee.ey.com
+372 611-4610
Email: anita.suurorg@ee.ey.com
+372 611-4500
Mobile: +372 502-8551
Email: tonis.elling@ee.ey.com
Inga Pakalniškyte, +370 687-55577 (resident in Vilnius,
Mobile: +370 527-42194 Lithuania)
Maris Merilo
Email: inga.pakalniskyte@lt.ey.com
+372 611-4603
Mobile: +372 518-8164
Email: maris.merilo@ee.ey.com
The tax law in Estonia has been frequently amended, and further changes are likely to be introduced. Because of these frequent changes, readers should obtain updated information before engaging in transactions.
A. At a glance
Corporate Tax Rate (%)
0/14/20 (a)
Capital Gains Tax Rate (%) 0/14/20 (b)
Branch Tax Rate (%) 14/20 (a) Withholding Tax (%) (d)
Dividends
0/7 (c)
Interest 0/20 (d)
Income tax is charged annually on exceeding cash-based borrowing costs of resident companies and permanent establishments of nonresidents (except for financial institutions) to the extent they exceed losses if such costs amount to at least EUR3 million and if they exceed 30% of the company’s earnings before interest, tax, depreciation and amortization (EBITDA). Alternatively, a group level equity/total assets ratio or a group EBITDA test may be applied.
Income tax is charged annually on resident companies and permanent establishments of nonresidents’ income from controlled foreign companies (CFCs) if the income was derived from ostensible transactions of which the main purpose was to obtain a tax advantage using assets and taking risks related to controlling company key employees. The rule does not apply to resident companies if the CFC financial year profit does not exceed EUR750,000 and other business income does not exceed EUR75,000.
The exceeding borrowing cost and taxable CFC income must be reported by the 10th day of the 9th month following the financial year. The tax is payable by the same deadline.
Resident companies are companies registered (effectively the same as incorporated) in Estonia. European public limited liability companies and European Cooperative Societies that have their registered office in Estonia are deemed to be Estonian tax residents. Nonresident companies without a permanent establishment in Estonia are subject to tax on their business income derived from Estonia.
Tax rates. Resident companies are subject to tax on the payments described in Corporate income tax at a rate of 20% of the gross amount of the payments. To calculate the corporate income tax for 2019, the tax rate is applied to the net taxable amount divided by 0.8.
Until the end of 2024, a lower income tax rate of 14% is applied to regular profit distributions. A regular profit distribution is the amount of the company’s last three years’ average dividend that is subject to tax in Estonia. The 20% tax rate is applied to the dividend amount exceeding the regular profit distribution.
To calculate the corporate income tax on a regular dividend, the tax rate of 14% is applied to the net taxable amount divided by 0.86.
A 20% rate applies to income derived by nonresident companies without a permanent establishment in Estonia.
Tax incentive for shipping. The Tonnage Tax scheme is effective from 1 July 2020 and is available for resident shipping companies engaged in the international carriage of goods or passengers, and listed ancillary activities carried out with the eligible vessels.
Activities by tugboats and dredgers outside ports and Estonian territorial waters are eligible for the Tonnage Tax regime under certain conditions. Ship managers may also benefit from the Tonnage Tax scheme with respect to income derived from ship management activities.
Capital gains. Capital gains derived by resident companies and permanent establishments of nonresident companies are exempt from tax until they are distributed.
Nonresident companies without a permanent establishment in Estonia are taxed at a rate of 20% on their capital gains derived from Estonian sources.
Capital gains derived from sales of shares and securities by nonresidents are exempt from tax. However, if the shares of a company, contractual investment fund or other pool of assets are sold by a nonresident with at least a 10% holding and if at the time of the sale or at any other time during the two preceding years, real estate and buildings directly or indirectly accounted for 50% or more of the assets of the company, capital gains derived from the sale of the shares are taxable.
If a resident company is deleted from the Estonian commercial register without liquidation and its economic activities are ended, the holding of a nonresident in the company is taxed as a capital gain, which is equal to the market value of the holding less the acquisition cost. The taxation is postponed if economic activities are continued through another resident company or a permanent establishment remains in Estonia.
Administration. The tax period is a calendar month. Tax returns must be filed and income tax must be paid by the 10th day of the following month.
Advance rulings. Taxable persons may apply for advance rulings from the tax authorities. Advance rulings may relate only to actual planned transactions, as opposed to theoretical questions. The advance ruling is binding on the tax authorities and recommended for the taxable person. The taxable person must inform the tax authorities of the execution of the transaction described in the advance ruling. A time limit for the binding nature of the ruling is set based on the taxpayer’s evaluation of the time needed for the execution of the transaction.
The processing of the advance ruling may be suspended if a similar transaction is simultaneously being reviewed in challenge proceedings (administrative proceedings involving a dispute between the taxpayer and the tax authorities) or court proceedings and if the expected decision in such proceedings is crucial for the determination of the tax consequences. Advance rulings may not be issued with respect to the determination of transfer prices (determination of value of transactions between related parties).
For the advance ruling to be binding, the taxpayer must present detailed and accurate information before the beginning of the relevant transactions. If the tax laws are amended after the advance ruling has been issued but before the transaction is carried out, the advance ruling is no longer binding. The deadline for issuing an advance ruling is 60 calendar days beginning with the date of acceptance of the application. By a motivated decision (a decision that includes arguments supporting the decision) in writing, the deadline may be extended for an additional 30 calendar days. A state fee is payable for the processing of the advance-ruling application.
E. Miscellaneous matters
Foreign-exchange controls. The official currency in Estonia is the euro (EUR).
Enterprises registered in Estonia may maintain bank accounts abroad without any restrictions.
Debt-to-equity rules. In certain cases, exceeding borrowing costs of resident companies and permanent establishments of nonresidents are subject to corporate income tax. See Corporate income tax in Section B.
Anti-avoidance legislation. Under the Taxation Act, if it is evident from the content of a transaction or act that the transaction or act is performed for the purposes of tax evasion, the actual economic substance of the transaction applies for tax purposes. If a fictitious transaction is entered into in order to conceal another transaction, the provisions of the concealed transaction apply for tax purposes. Also, see Foreign tax relief in Section B.
Under the general anti-avoidance rule contained in the Income Tax Act, a transaction (or chain of transactions) is not considered for income tax purposes if the main purpose or one of the main purposes of the transaction is obtaining a tax advantage that is contrary to the purpose of the tax law or an international agreement and that is fictitious. A transaction (or chain of transactions) is considered to be fictitious if it is not done for actual vital or business purposes that reflect the economic substance of the transaction.
Exit tax. An exit charge at the rate of 20% is imposed on the unrealized capital gains created in Estonia arising from transferring assets to a foreign permanent establishment or moving the tax residency of the company out of Estonia. The exit tax base is calculated as the difference between the fair-market value and the book value of the respective assets. The following assets are excluded from exit tax:
• Assets in regard to the financing of securities
• Collateral assets
• Assets moved to meet prudential requirements or manage liquidity
• Assets that are reverted to Estonia within 12 months
Hybrid mismatches. The rules against hybrid mismatches cover double non-taxation caused by differences in the characterization of financial instruments, payments and entities for tax purposes in different jurisdictions, or the allocation of payments between the head office and permanent establishments. To eliminate double non-taxation or deduction without inclusion into taxable income, income tax is imposed on the relevant payment or cost, or exemption is denied for income that has been deducted or exempted in another jurisdiction. From 1 January 2024, amendments to the tax law have been implemented allowing certain hybrid mismatch situations in the case of dual inclusion income.
An Estonian tax transparent trust fund (or its manager) pays income tax on the income that would have been attributed to a
shareholder of the trust in proportion to its share in the trust if at least one of the following conditions is met:
• At least one shareholder is a nonresident affiliated undertaking that directly or indirectly owns at least 50% of the shares in a trust.
• The shareholder is located in a jurisdiction that treats the trust as a taxable person and the income of the shareholder is not taxable according to tax legislation of Estonia or other jurisdictions.
Retroactively from 1 January 2023, the exemption from the reverse hybrid mismatch rule was introduced for a collectiveinvestment vehicle.
Transfer pricing. Under a transfer-pricing measure in the income tax law, pricing between resident and nonresident associated companies should be at arm’s length. The tax authorities may adjust to an arm’s-length amount the profit of a company engaging in transactions with nonresident associated persons. Persons are considered associated if they have a common economic interest or if one person has a prevalent influence over another person. The transfer-pricing measure also covers transactions between nonresident legal entities and their permanent establishments in Estonia. Transfer-pricing documentation is required for the following entities:
• Entities with more than 250 employees (together with related parties)
• Entities operating in certain industries
• Entities that had turnover, including the turnover of related parties, of at least EUR50 million in the preceding financial year
• Entities that had consolidated net assets of at least EUR43 million in the preceding financial year
• Parties to a transaction if one of the parties is a resident of a low-tax jurisdiction
Country-by-Country Reporting. Estonia has implemented legislation requiring the parent undertakings of multinational enterprises (MNEs) with a consolidated turnover of at least EUR750 million to submit to the tax authorities’ annual groupwide reports for each entity and jurisdiction in which the MNE group operates (Country-by-Country Reporting). The report is due on 31 December of the year following the end of the financial year. Notification about the MNE group and the reporting entity is required to be submitted within six months after the end of a financial year.
Interest on tax arrears. The tax authorities suspended the calculation of default interest on tax arrears for the COVID-19-related emergency period with retroactive effect from 1 March 2020 until the end of the emergency period on 17 May 2020. After the emergency period, the default interest rate was lowered from the usual 0.06% per day to 0.03% per day until 31 December 2021. From 1 January 2022, the interest is calculated again at a rate of 0.06% per day.
Mandatory Disclosure Regime. Automatic exchange of information on cross-border schemes imposes an obligation on tax advisors and taxpayers to inform the tax authorities of cross-border
(b) Interest is not subject to withholding tax under Estonian domestic law except for interest paid in certain circumstances to nonresidents as a result of ownership in foreign contractual investment funds (see Section B).
(c) Royalties paid to a company resident in another EU country or Switzerland are not subject to withholding tax if the provisions of the EU Interest-Royalty Directive are satisfied.
(d) The lower rate applies to royalties paid for the use of industrial, commercial or scientific equipment.
(e) The lower rate applies to royalties paid for the use of, or the right to use, copyrights of literary, artistic or scientific works, including cinematographic films, but excluding software payments.
(f) The 20% rate applies to rental payments to nonresidents. The 10% rate applies to royalties, including royalties paid for the use of industrial, commercial or scientific equipment.
(g) Withholding tax at a rate of 7% is imposed on certain profit distribution to individuals (for further details, see Section B). This withholding tax rate is reduced to 5% (Bulgaria, Israel and North Macedonia) and to 0% (Bahrain, Isle of Man, Jersey, Mexico and the United Arab Emirates).
(h) The lower rate applies to royalties paid for technical services; that is, for managerial, technical or consultancy services, including the provision of services by technical or other personnel.