Loss of Estonian CIT eligibility
As a general rule, the period of taxation under Estonian CIT is 4 tax years, with the possibility of extension for another 4 tax years, but there are situations in which a taxpayer may lose the right to benefit from this taxation system despite the lack of expiration of this period.
Statutory prerequisitesA company loses the right to be subject to Estonian CIT in a given tax year if more than 50% of its business income comes from so-called passive income, or if it fails to meet the statutory conditions regarding the level of employment.
Retroactively (i.e., at the end of the year preceding the tax year in which the event occurred), a taxpayer loses the right to the alternative taxation system if:
- failed to meet the shareholding structure requirement (example: when the taxpayer acquires shares of another entity) and failed to meet the requirement not to prepare financial statements in accordance with IAS;
- did not keep tax books or the data from the books do not allow determining the net financial result;
- makes an acquisition of another entity through a merger or demerger of entities, or receives a contribution in kind in the form of an enterprise or an organized part thereof.
However, the right to Estonian CIT taxation will not be lost if the entity being acquired, divided or making a non-monetary contribution is subject to Estonian CIT, or if the entity being acquired, divided or making a non-monetary contribution closes its books, prepares its financial statements and makes appropriate settlements and arrangements for transactions remaining in connection with the assets being acquired.
- will be acquired by another entity through a merger or demerger of entities, including a demerger by spin-off, or a contribution in kind in the form of an enterprise or an organized part thereof.
The exception is when the acquiring entity benefits from Estonian CIT.
A taxpayer may also voluntarily file information on the waiver of Estonian CIT in the CIT-8E return filed for any tax year. In this case, the right to Estonian CIT taxation is lost at the end of the tax year for which the return is filed.
Temporary suspension of the right to elect Estonian CITIf a company has lost the right to be taxed under Estonian CIT, it may again choose this taxation system only after the expiration of 3 tax years, but not earlier than after the expiration of 36 months, following the year in which the right in question was lost.