Estonian CIT – Why is it worth it?
A lump sum tax on company income (so-called Estonian CIT) is becoming an increasingly popular form of business taxation in our country. It is worth emphasizing several important advantages of this taxation model:
It is not the company’s income that is taxed, but its “consumption”. Thanks to this, as long as the company’s profits are not distributed to its partners, the company will not pay tax, which will bring real benefits in terms of financial liquidity and profitability of the company;
The subject of taxation is the net profit determined on the basis of the Accounting Act (and not the Income Tax Act as in the case of classic CIT), which is allocated in the resolution to be paid to partners;
The paid dividend is subject to a lower tax burden for the partner than in the case of classic CIT, thanks to the mechanism provided for in the Personal Income Tax Act of deducting part of the tax paid by the company from the partner’s tax.
Who may be subject to Estonian CIT
The following companies can benefit from the lump sum tax on company income:
joint-stock company,
simple joint stock company,
limited liability company,
partnership Limited by shares,
limited partnership
Please remember that not all entities can benefit from these forms of taxation. A taxpayer whose income comes from less than 50% of income from:
From receivables,
From interest and profits on all types of loans,
From the interest part of the leasing installment,
Sureties and guarantees,
Copyright or industrial property rights, including the sale of these rights,
From the sale and exercise of rights from financial instruments,
Additionally, lump-sum taxation may be chosen by a taxpayer who:
Employs at least 3 natural persons, other than partners, under an employment contract
Incurs monthly expenses in the amount of at least three times the average monthly remuneration in the enterprise sector, for the payment of remuneration to 3 natural persons, other than partners, employed under contracts other than an employment contract.
Tax rates
Estonian CIT tax rates are 10% CIT for small taxpayers and new companies, and 20% CIT for other entities.
Other main differences from classic CIT
In the case of Estonian CIT, donations and tax reliefs are not deducted from the company’s income. The tax base is also not adjusted to include relief for bad debts, which may be both a favorable and unfavorable solution for the taxpayer under certain conditions. A taxpayer who chooses a lump sum tax on company income is also not subject to the provisions of the tax on income from buildings or the provisions on the minimum income tax. However, he cannot deduct losses from previous years.
If you are looking for a way to legally reduce the tax burden in your company, you have a problem with settling your tax, you do not know what form of taxation will be more favorable for you, call and ask ASK.
