Tax base in Estonian CIT
Different regulations apply to taxpayers who have elected to be taxed under Estonian CIT than under classic CIT, regarding the determination of the tax base. Income from hidden profits or income from changes in the value of assets are new categories subject to taxation under Estonian CIT.
Object of taxation under Estonian CIT
Thus, the following categories of income are subject to taxation under Estonian CIT:
- income from distributed profit or profit allocated to cover balance sheet losses,
- income from hidden profits,
- income from non-business expenses,
- income from changes in the value of assets,
- income from net profit earned in each year of application of Estonian CIT (in the event of no profit distribution and termination of application of this form of taxation)
- income from undisclosed business operations.
Individual categories of income
Income from distributed profit represents the amount of net profit earned during the period of Estonian CIT taxation in the part in which the profit is allocated for distribution to shareholders. Income from profit allocated to cover losses corresponds to the amount of net profit earned during the period of Estonian CIT taxation in the part in which it is allocated to cover losses arising in the period prior to the period of Estonian CIT taxation.
Income from a change in the value of assets is equal to the excess of the market value of the components of the acquired or contributed assets over the tax value of these components, and arises in situations of mergers, demergers, conversions of entities or contributions in kind of an enterprise or an organized part thereof.
Net profit income is determined for a taxpayer who has terminated lump-sum taxation. It is equal to the sum of net profits earned during the period of taxation under Estonian CIT to the extent that they were not distributed profits or were not allocated to cover losses.
Income from undisclosed business operations represents the value of income and expenses that are subject – in accordance with accounting regulations – to be recorded and included in net profit (loss), but are not included in it. The tax liability on this account – as indicated in the Guide to Lump Sum Income of Companies – arises in the tax year in which these revenues or expenses should have been recorded.