CORPORATE TAXES
SIGNIFICANT DEVELOPMENTS
The scope of regional tax incentives has been extended, and the
carryforward of losses incurred thereby is allowed for up to the seven following tax years.
TAXES ON CORPORATE INCOME
Taxable income is subject to tax at a flat rate of 26%.
CORPORATE RESIDENCE
A corporation is resident in Estonia for tax purposes if it is
incorporated in Estonia according to Estonian
laws. A branch of a foreign corporation is considered resident in respect of Estonian-source income.
Permanent establishment/Irrespective of the fact that a nonresident has not established a subsidiary or a barnch in Estonia, it still may be deemed to have a permanent establishment in Estonia. A permanent establishment is a fixed place of business through which the business of a
nonresident is wholly or partly carried on in Estonia.
The income of a nonresident taxpayerreceived through a permanent establishment is calculated as the income that it might be expected to make if it were a distince and separate taxpayer engaged in the same or similar activities under the same or similar conditions.
OTHER TAXES
Value-added tax/Supply of goods and services and import of goods are subject to VAT at the rate of 18%. The VAT rate on the export of goods and certain services (e. g., international transport) is 0%. Some supplies are exempt, such as medicines and medical services, banking and insurance, and the treatment of dangerous wastes.
Goods include movables, animals, strewables, liquids, gases, and electric and thermal energy. Immovables, money and securities are not treated as goods.
If the taxable turnover of a newly established corporation exceeds EEK250,000 in a year, it is required to apply for VAT liability at the National Tax Board. The taxation period as fixed in the VAT Law is a calendar month, and the VAT is to be declared and paid on the 20th day of the following month.
Excise tax/Excise taxes are levied on tobacco, alcohol, packages, motor fuel, and vehicles.
Local taxes/Mounicipalities are authorized to introduce local taxes, most motably advertising tax, motor vehicle tax and sales tax.
BRANCH INCOME
A branch of a foreign company is taxed on pfofits attributable to Estonian-source income. Tax rates on branch profits are the same as on corporate profits. No tax is withheld on transfers of profits to the head office.
INCOME DETERMINATION
Inventory valuation/Inventories are valued at acquisition cost or net realizable value, whichever is lower. The FIFO and weighted-average cost methods are permitted.
Capital gains/Capital gains are taxed as ordinary income; there is no separate capital gains tax. Loss on the sale of noncurrent assets (long-term financial investments, land) is allowed only as an offset to capital gains on simialar assets of the following tax years, as they arise and without time limit.
Intercompany dividends/Dividends are subject to income tax at the gross-up rate of 26/74 of the amount of the dividends, paid by the corporation distributing the dividends. The prepaid corporate income tax is deductible from the tax payable. Dividends received by a resident recipient are tax
exempt.
Foreign income/Resident corporations are taxed on their worldwide income. According to the Law on Income Tax it is possible to get a credit for the foreign tax up to the local tax rate (26%). If the taxpayer receives income from several foreign countries, income tax will be calculated separately on income received in each country. Double taxation is avoided
either by treaties or by unilateral relief. In Estonia the principal method of avoiding double taxation under tax treaties is the credit method; in the case of dividends, a credit may also be granted for the underlying corporate tax.
DEDUCTIONS
Depreciation and depletion/The cost of fixed asset acquisition (except for land) and expenses on improvements of fixed assets are deducted from income by depreciation. The acceptable tax depreciation method is the reducing-balance method with maximum depreciation rates fixed in the Law on Income Tax. This is done on an accrual basis. Conformity between book and tax depreciation is not required.
Depreciable fixed assets are divided into two groups.
1.Group 1 comprises buildings and related components. A taxpayer can itself establish the depreciation rate, not exceeding 8% from the tax base of a fixed asset per year. Depreciation should be calculated separately for every asset in this group.
2.Group 2 comprises all other fixed assets. Depreciation should be calculated for the whole group (pool basis). The maximum depreciation rate
in the second group may be up to 40% from the tax base of the assets per y
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