What is the Estonian CIT?
Estonian CIT is an alternative taxation system to “classic” CIT, which has been in the Polish legal system since January 1, 2021. It has separate accounting rules, tax rates or exemptions. In order to take full advantage of the opportunities it offers, it is necessary to know its key assumptions, which we present in our compendium of Estonian CIT.
The essence and main assumptions of Estonian CIT
The main concept of Estonian CIT is, in principle, taxation only at the time of profit distribution, such as dividend payments, for example. Profits are not taxed if they remain in the company or are reinvested. However, this general rule is a major oversimplification, as as many as 6 types of income, such as income from hidden profits, are taxable under the CIT Act.
In Estonian CIT, settlements are made according to accounting principles, and as a result, taxpayers do not have obligations related to, among other things, conversion of accounting result into tax result or calculation of deferred tax. Regulations on building income tax or minimum corporate income tax do not apply to entities taxed under this system.
Advantages that have been discovered in the course of applying the regulations
In addition to the above-mentioned advantages, the Estonian CIT also carries the following advantages, which were “discovered” in the course of taxpayers’ application and the Director of National Tax Information’s interpretation of the various regulations:
Estonian CIT taxpayers are not required to prepare and publish information on their tax strategy. The prohibition on depreciation of buildings and dwellings does not apply to entities using lump sums on corporate income.
Taxpayers can prove that personal cars are used exclusively for business purposes, even if they do not keep mileage records.
Implementation decision
Before taking advantage of Estonian CIT taxation, it is important to assess whether it will be a favorable decision for the taxpayer. Among other things, you should consider whether the company takes advantage of tax benefits, whether it enters into transactions with related parties, whether it makes expenditures that could potentially be taxed under Estonian CIT, or whether it continuously reinvests its profits. If you are considering taking advantage of this alternative taxation system, feel free to contact us – we will help you make the right decision.
