Who cannot benefit from the Estonian CIT?

Estonian CIT, also known as a lump sum on corporate income, is an attractive taxation model, but not every entrepreneur can take advantage of it. Below are the most important exclusions and limitations that may prevent its use.

Basic employment conditions

One of the key requirements to qualify for Estonian CIT, is to meet certain employment conditions. The regulations require a company to have at least three full-time employees for at least 300 days in a tax year. Some relief applies for small taxpayers and start-up companies, but a gradual increase in employment is still required.

Exclusions by form of employment

Employees who count toward the required employment limit cannot be partners or shareholders of the company. In addition, although family members of partners can be counted toward the limit, payments to them may be subject to additional taxation as hidden profits. Companies that employ people on civil law contracts must meet other financial requirements, which can be an additional burden.

Companies ineligible for Estonian CIT

Estonian CIT cannot be used by companies that:

  1. Do not meet the employment requirement – If a company is unable to employ a sufficient number of employees on labor contracts or on civil law contracts at an appropriate rate, it cannot use the system.
  2. They employ partners as employees – As mentioned, partners and shareholders cannot be counted towards the employment limit.
  3. They operate in specific industries – Certain industries are excluded from benefiting from Estonian CIT, although the rules may change and it is worth consulting current regulations.
  4. Are converted companies – Converted companies may not be considered new business entities, which eliminates them from being eligible for the new company benefits.

Estonian CIT – Challenges.

Meeting the terms of the Estonian CIT can be difficult for small companies with unstable employment levels. In addition, restrictive regulations on hiring family members and financial requirements for hiring under civil law contracts can present additional obstacles.

Estonian CIT – expert support

Before deciding to switch to Estonian CIT, it is worthwhile to carefully analyze your situation and check whether your company meets all the requirements. If you have any doubts or need support in implementing Estonian CIT, it is worth consulting a tax advisor who can help you understand and meet all legal requirements.

If you have questions about Estonian CIT or need support in this area, contact our law firm Martini Tax. We will be happy to help guide you through the process of adapting to the new regulations and ensure that your business can take advantage of available tax benefits in a safe and legal manner.