KPMG InfoCourier July 2017 | KPMG | EE

KPMG InfoCourier July 2017

KPMG InfoCourier July 2017

InfoCourier is a monthly newsletter which gives an overview of the latest changes in legislation.

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KPMG InfoCourier July 2017

An overview of the latest changes in legislation

This InfoCourier introduces amendments to the Income Tax Act arising from the Act to Amend the Income Tax Act and Make Consequential Amendments to Other Acts adopted by the Estonian Parliament. The main amendments include the following: income tax on regularly paid dividends will be reduced, credit institutions will be obliged to make advance payments of corporate income tax, notification obligation will be established regarding intra-group loans, the bases for the taxation of car-related benefits will be changed, the tax regulation for employee share options will be supplemented and other changes to the taxation of fringe benefits will be made.

In addition, we provide a short overview of the Act to Amend the Value-Added Tax Act and the National Defence Act that took effect at the beginning of July, and, as usual, we discuss some significant court decisions.

Please feel free to contact KPMG’s tax advisers with any queries you may have. We hope you are enjoying reading it!

 

 

Act to amend the Income Tax Act

On 19 June 2017, the Estonian Parliament adopted an act to amend the Income Tax Act and make consequential amendments to other acts which by now has been approved by the President. Most of the amendments take effect on 1 January 2018.

•  Regularly paid dividends

Under the regulation that takes effect from 1 January 2018, from 2019 a profit distribution that is smaller than or equal to the past three years’ average profit distribution which was taxed in Estonia will be subject to income tax of 14% (calculated as 14/86 of the net distribution). The act includes certain transitional provisions and additional provisions applying to individuals. 

•  Income tax on hidden profit distributions (loans)

Although the widely discussed income tax on intra-group loans was not included in the act, the law was complemented by a mechanism for identifying and determining hidden profit distributions which imposes additional obligations on companies providing intra-group loans.

•  Car-related benefits

From 2018, the price of the fringe benefit of using an employer’s car for both work and personal purposes will be based on the car’s engine power. According to the act, the tax base will be 1.96 €/kW and 1.47 €/kW for cars which are more than five years old. In addition, where a company’s car is not used for personal purposes, a relevant record will be made in the Traffic Register. The act also specifies the taxation of the use of vans for personal purposes.

•  Share option programs

If an employee acquired the underlying asset of a share option earlier than three years after the grant of the share option then according to previous legislation this had to be treated as a fringe benefit. The amendment gives an opportunity to realise share options exempt from tax also during the three-year period. What is important is that the option agreement has to be made for at least three years.

•  Advance payments by credit institutions

According to the act, banks and the branches of foreign banks operating in Estonia will be obliged to make advance payments of income tax on the profit earned during the previous quarter by the tenth day of the third month of the current quarter. The tax rate will be 14% and credit institutions can take the advance income tax payments into account when distributing profit and calculating the accompanying income tax liability.

Act to amend the Value-Added Tax Act and the National Defence Act

In connection with the implementation of the defence cooperation agreement between the Government of the Republic of Estonia and the Government of the United States of America, the Estonian Parliament has adopted amendments to the Value-Added Tax Act that complement the list of persons to whom applies tax exemption on the import of goods necessary for personal purposes and the refund of value added tax on the acquisition of goods or services in Estonia if this is foreseen by an international agreement. The amendments concern subsections (2), (3) and (6) of section 39 of the Value-Added Tax Act.

The amendments to the Value-Added Tax Act became effective on 1 July 2017.

The act in Estonian is available here.

A detailed overview in Estonian is available here 

For further information, please contact Einar Rosin, tax adviser, erosin@kpmg.com

Court decisions

Use of registered immovables in the ownership of a limited company and taxation of relevant transactions

On 9 June 2017, the Supreme Court made a decision on administrative matter 3-3-1-78-16 concerning the use of registered immovables in the ownership of a limited company by a member of the management board.

The limited company owned two registered immovables with a holiday house and office rooms. The company deducted the input value added tax on the amount intended for the construction of the buildings. In the Tax and Customs Board’s opinion, the company should not have deducted the input value added tax on the expenses related to the immovables because the immovables were not used for business purposes. The Tax and Customs Board also took the position that the expenses incurred on the acquisition of the immovables should be treated as dividend payments which are subject to income tax. Although the Supreme Court agreed that the input value added tax on the expenses related to the immovables cannot be deducted, it took the position that the transaction did not constitute a dividend payment because the immovables belonged to the company and there was no proof that any monetary or non-monetary distributions had been made to the shareholders.

The court decision in Estonian is available here.

A detailed overview in Estonian is available here 

For further information, please contact Einar Rosin, tax adviser, erosin@kpmg.com

© 2017 KPMG Baltics OÜ, an Estonian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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