Estonian company
Estonia has a country strategy that favors tech companies grow and internationalize fast, effective internationalization to the markets of Eastern Europe and the Nordic region as well as offers an excellent corporate, entrepreneurial and taxation environment.
Please view below a few tables with some of main features of Estonia:
- Civil law system
- Member of EU from 2004
- EURO is adopted as currency from 2011
- Excellent banking services with internet facilities
- Excellent financial infrastructure
- Excellent internet based environment for
communicating with state authorities (including the Tax and Customs Board)
- Low operating costs
- Estonian is the official language but English and
Russian are widely spoken
- World ranking is 6th (of a total of 183)
countries in “Economic Freedom Index” (The Heritage foundation)
- World ranking is 12th in “Ease of Doing
Business” (World Bank Report 2017)
- World ranking is 17th in “Trading Across
Borders” (World Bank Report 2017)
Main features of the Estonian Corporate and Tax System
- No corporate income tax (until the distribution of
profit)
- Full participation exemption for dividend income for
qualifying holdings
- Participation exemption - holding threshold is 10
per cent (avoidance of double taxation as of 2009)
- For smaller, or otherwise non-qualifying holdings,
the credit method applies
- Exemption and credit method
extended to liquidation proceeds and payments upon the reduction of capital (avoidance
of double taxation as of 2009)
- No withholding tax on outbound dividends paid to
non-residents
- No withholding tax on outbound interests
- 0-10 per cent withholding tax on royalties,
depending on circumstances
- Estonian companies may have EU-compliant VAT
numbers, which can be used for trading within the EU
- No exchange control regulations and business may be
conducted freely in any currency
- No thin capitalisation rules (aka debt-to-equity
ratios)
- Shelf companies are available
- Flat income tax rate is 20 per cent
- Flat tax rate system in place since 1994
- The same 20 per cent tax rate applies for individuals
and legal persons on distributed profit
- Annual audit required only under certain
circumstances
- Annual Returns must be filed with the Central
Commercial Register
- EU Parent- Subsidiary Directive applies
- Extensive tax treaty network (57 treaties) further
enhanced by EU membership
- Advance tax rulings available but not binding
Corporate Taxation of Estonian Companies:
- Tax on corporate profits earned: 0 per cent
- Income tax rate on corporate profit distributions: 20 per cent (20/80 on the net amount) (in certain cases 14% for legal persons on regularly distributed profits)
- The system applies to: Estonian resident companies, permanent establishments (PE) of non-resident companies
- Tax base: corporate profits distributed in the tax period; taxable gifts, donations and representation costs, expenses and payments unrelated to business
- Period of taxation: a calendar month
- Losses: Taken into account; the Commercial Code does not allow to distribute profit if a company has losses from previous years
- Withholding tax rate on outbound dividends: 0 per cent
- Withholding tax rate on outbound interests: 0 per cent
- Withholding tax on license fees and royalties: 0- 10 per cent
- Ordinary tax base: worldwide income
- Tax treaties in force: currently with 57 countries
- Value Added Tax standard rate: 20 per cent
- VAT compliance: when a taxable supply (excluding sales generated overseas) exceeds EUR 40,000 within a calendar year, a company must register for VAT
- Voluntary VAT compliance available: for anyone who carries out economic activities within Estonia
- Filing of Annual Returns: within 6 months by June 30 for the previous fiscal year