Estonian CIT – Amount and due date of tax payment
Estonian CIT as an alternative taxation system to “classical” CIT – has its own rules, regarding the rates and calculation of the tax due. The deadlines for its payment are also different and depend on the type of income subject to taxation.
Tax rates
Tax rates in Estonian CIT depend on the category of taxpayers. For a small taxpayer, i.e. an entity for which the value of sales revenue (including the amount of VAT due did not exceed the equivalent of EUR 2,000,000 in the previous tax year) and a taxpayer starting a business, a rate of 10% of the tax base is stipulated.
In individual interpretations issued[1], the preferential rate is also allowed by tax authorities to be applied by companies that become CIT taxpayers as of the date of transformation (e.g., transformation of a civil partnership into a limited liability company), as they consider such companies to be start-up entities. Entities that do not fall into the above categories apply a 20% CIT rate.
Tax payment deadlines
The deadline for paying tax in the Estonian CIT system depends on the type of income. In the case of tax on income from distributed profit and income from profit distributed to cover losses, it must be paid by the end of the third month of the tax year following the year in which the resolution to distribute or cover the net profit was made.
If a taxpayer makes a distribution of net profit income, the tax due will have to be paid by the end of the third month of the tax year following the year in which all or part of that income was distributed or distributed. The Estonian CIT on income from undisclosed business operations is payable by the end of the third month of the tax year following the year in which income or expenses should be recorded.
Tax on income from hidden profits and income from non-business expenses must be paid by the 20th day of the month following the month in which the disbursement, expense or performance was made, and tax on income from changes in the value of assets must be paid by the 20th day of the month following the month of acquisition, conversion or contribution in kind.
Deduction mechanism in PIT
Shareholders of companies taxed under Estonian CIT may deduct the tax due on distributions of distributed profits of such a company by the corresponding portion of the product of their share of the entity’s profit and the Estonian CIT due on it. For shareholders of companies that are small taxpayers and start-up taxpayers, the deduction is 90% of the product, and for other persons it is 70%. This mechanism has the effect of reducing the effective tax rate on taxpayers’ income in the Estonian CIT system. For small taxpayers, the effective rate (CIT and PIT combined) will be 20%, while for other taxpayers the effective rate (CIT and PIT combined) will be 25%.
[1] among others, the individual interpretations of 0111-KDIB1-1.4010.614.2022.1.MF dated November 29, 2022, 0111-KDIB1-1.4010.365.2022.2.ŚS dated September 8, 2022, and 0111-KDIB1-3.4010.138.2022.1.MBD dated August 24, 2022.
