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Yes.

With the following countries, territories and jurisdictions:

• Public limited company (aktsiaselts, AS)
• Private limited company (osaühing, OÜ)

• Minimum share capital of a public limited liability company is EUR 25,000
• Minimum share capital of a private limited liability company is EUR 2,500

A legal person is a resident if it is established pursuant to Estonian law. Resident companies are taxed on their worldwide income when distributed (not taxable as long as it is retained in the company), and non-resident companies are taxed on Estonian source business income when distributed.

Taxable amount must be reported monthly whenever profits are distributed or payments treated as profit distribution/taxable expenses are made. Form TSD (a combined tax return for corporate income tax (CIT) and payroll taxes) with Annexes and Form INF1 should be filed by the 10^th day of the month following the month in which the payment occurred.

Corporate income tax is not levied when profit is earned but when it is distributed. Before 2018, the income tax rate for all dividends was 20 percent (calculated as 20/80 of the amount distributed as the net dividend). In January 2018, a lower tax rate of 14 percent (calculated as 14/86 of the net distribution) was introduced for regularly paid dividends.

No withholding tax (WHT).

No (WHT).

A rate of 0 percent is applied if royalties are at arm's length and between affiliated companies established in the EU, under certain conditions. In all other cases: 10 percent unless a Double Tax Treaty (DTT) provides a more favorable rate.

No, but WHT is applicable on payments to a non-resident for services provided in Estonia (tax rate can be reduced under DTT).

20 percent on payments to a legal person located in a non-cooperative jurisdiction for tax purposes for services provided to an Estonian resident.

Companies which distribute profit regularly and pay 14 percent CIT on it are additionally obliged to withhold income tax of 7 percent from dividends paid to resident and non-resident natural persons. Tax treaties may provide lower WHT rates.

No WHT.

CIT is not applied on redistributed dividends if the recipient is a company holding 10 percent or more of the share capital of the company distributing the dividends, and either the latter is resident in Estonia, the EEA or Switzerland, or the underlying profit  has been subject to foreign tax, or the dividend received has been subject to foreign WHT. If the holding rules are not fulfilled, the credit method is generally applied.

Capital gains are exempt until a distribution is made.

No.

No.

Minimal.

Minimal

Minimal.

Minimal stamp duties.

The only property tax imposed in Estonia is a land tax.

In general, if an Estonian entity has at least a 50 percent holding in a controlled foreign company (CFC) or its foreign branch, which does not carry on business activities of substance, the Estonian CFC rules must be applied. An exception might apply if certain thresholds in terms of the amount of annual profit and financial income earned by the CFC are not exceeded.

Yes.

Yes.

The deduction of borrowing costs from the taxable base is limited if the borrowing costs are deemed excessive (and are not subject to any exceptions). Borrowing costs are considered excessive if they exceed 30 percent of earnings before, interest, tax depreciation and amortization (EBITDA) and the borrowing costs exceed EUR 3 million in a single financial year.

The limitation of borrowing costs deduction is not applicable, if:

1. a resident company is not part of a consolidated group for the purposes of financial reporting and has no affiliated company or permanent establishment, or
2. the loan is used to finance long-term public sector infrastructure projects and the project developer, borrowing costs, assets and income are all within the European Union, or
3. a resident company that is a member of a consolidated group for financial reporting purposes opts to not have its excessive borrowing costs taxed (has to comply with certain conditions).

Yes.

An anti-avoidance rule on hidden profit distributions was introduced into Estonian law as of January 1, 2018. Companies resident in Estonia must pay income tax on loans issued to shareholders, to other companies located on the higher level in the group structure and to shareholders' other subsidiaries (sister companies), if the circumstances of the transaction indicate that it might be a hidden profit distribution. Circumstances that demonstrate that the loan is a hidden profit distribution are, for example, the absence of an intention or the ability to repay the loan. If the repayment term is longer than 48 months, the taxpayer has to prove that it intends and is able to repay the loan. This amendment applies to qualifying loans granted as of July 1, 2017.

The anti-hybrid rules are effective mainly from January 1, 2020.

Yes.

No.

No.

The standard rate is 20 percent, and the reduced rates is 9 percent.
 

No.

^{Source: Estonian tax law and local tax administration guidelines, updated 2021.}

For country specific information and updates on the EU Mandatory Disclosure Rules please visit KPMG’s EU Tax Centre’s MDR Updates page.

Joel Zernask 

KPMG in Estonia

T: +372 6 268 791

E: jzernask@kpmg.com