Tax on Corporate Profits or Corporate Income Tax (CIT) is one of the most significant indicators characterizing the attractiveness of a particular jurisdiction for foreign business and attracting foreign investment.
Estonia’s Open Tax Policy – The Key to Your Business Success!
Studies by the World Bank and other international organizations have shown that countries with a simpler and more understandable taxation system have higher rates of economic development and attract more foreign investment into their economy than countries with a more complex and convoluted tax system.
ESTONIAN TAX SYSTEM
# 1 in the International Tax Competitiveness Index
Estonia is one of the most comfortable and efficient jurisdictions in Europe for establishing a company and developing your business, as its taxation system is distinguished by its simplicity and transparency.
Estonia has the most Attractive Tax Climate in the World!
For the past 10 years, Estonia has confidently led the OECD’s International Tax Competitiveness Index (1st place, International Tax Competitiveness Index). Such a high position is primarily due to the fact that Estonia applies a 20% tax rate on corporate income, which only applies to distributed profits.
Benefits of the Tax System in Estonia
In addition, Estonia has a fixed 20% income tax on individuals, which does not apply to personal income in the form of dividends. Moreover, the property tax exists only in the form of a land tax, which is calculated based on the cadastral value of the land plot, not on the actual value of the real estate object. Finally, Estonia operates a territorial tax system that completely exempts profits earned by companies registered in Estonia in foreign jurisdictions from domestic taxation.
CORPORATE TAX IN ESTONIA – 0%
There is no corporate income tax on undistributed profits in Estonia
Estonia completely lacks corporate income tax on undistributed or reinvested profits. Profits earned in the course of business activities that have not been distributed among the founders as dividends are not subject to corporate income tax.
The main advantage of the business environment and tax policy in Estonia is the country’s corporate tax rate on undistributed profits, which is 0%.
This means that all income that a company has accumulated in its accounts as savings or reinvested in one form or another (purchasing equipment, developing software, investing in securities or other financial instruments, etc.) are tax-free.
Corporate income tax when making payments to founders
The obligation to pay corporate tax arises for Estonian companies only at the time of dividend distribution or other payments not related to commercial activities to the benefit of founders or other third parties.
Dividend Tax in Estonia
When distributing profits of a company registered in Estonia among its founders, a 20% rate is applied (20/80 of the gross payment amount), and in the case of regular dividend payments, it is possible to apply an income tax rate of 14% (14/86 of the gross payment amount).
If you wish to register a company in Estonia or have any questions regarding corporate income tax or the taxation of corporate profits of Estonian companies, feel free to contact our consultants and accountants.
Our specialists have 10+ years of experience in the field of tax accounting and corporate law. Together with you, we will find an efficient solution for building an optimal corporate structure with the goal of minimizing the tax burden of your enterprise.