Estonian CIT (tax advice for businesses)

Estonian CIT is an attractive alternative to the classic corporate taxation model. Our law firm offers comprehensive legal and tax advice on the implementation of the lump sum tax on corporate income – both for new entities and those already operating under general rules. We analyze the profitability of choosing Estonian CIT, taking into account the shareholding structure, salary levels, and planned profit distributions.

We prepare a notification of the choice of lump sum taxation and assist in submitting forms to the National Revenue Administration. We help adjust the payment policy, employment structure, and method of settlement with related entities. We also advise on the ongoing obligations of companies subject to Estonian CIT, including the timing of tax payments, the obligation to make preliminary adjustments, advance payments on dividends, and the settlement of mixed expenses (e.g., the use of passenger cars). We also support entrepreneurs transforming into companies eligible for the lump sum tax, ensuring that deadlines are met and taking into account the tax consequences of such a process.

Since the introduction of Estonian CIT, we have been supporting entrepreneurs in analyzing its application possibilities and implementing tailored tax strategies. We have assisted both small limited liability companies and larger groups of companies, including limited partnerships and simple joint-stock companies.

We have also advised taxpayers planning to reinvest their profits, as well as partners interested in receiving funds in the form of dividends, advances or remuneration for their functions. We have represented clients before the National Revenue Administration (KAS) and advised on the interpretation of regulations concerning revenue limits, preliminary adjustments and obligations related to payments to shareholders. Thanks to our experience, we are able to adapt the Estonian CIT model to the specific nature of a given entity’s business, regardless of its industry or ownership structure.

Estonian CIT is primarily an opportunity to legally defer income tax payments until profits are distributed from the company. This gives taxpayers a real liquidity advantage, allowing them to freely reinvest funds without having to make advance tax payments. In addition, the entire settlement system is simplified – taxpayers do not have to calculate monthly or quarterly advance payments or keep traditional tax accounts. From the perspective of a partner, especially if they are natural persons, Estonian CIT can bring significant savings when paying remuneration or dividends.

The advantage of working with KWKR is the certainty that the form of taxation has been chosen correctly and that the company operates in accordance with the regulations and current interpretations of the tax authorities. We advise in a way that allows you not only to take advantage of Estonian CIT, but also to maintain it in the long term – without the risk of unintentionally violating statutory conditions.

Estonian CIT, or flat-rate tax on corporate income, is a form of taxation available to capital companies whose shareholders are exclusively natural persons. To benefit from this form of taxation, a company must meet certain conditions, including limiting transactions with related entities, maintaining an appropriate level of employment, and not holding shares in other companies. Only profits paid to shareholders are subject to taxation – as dividends, advance payments on profits or other forms of transfer of funds. The income tax rate in the Estonian model is 10% or 20%, depending on the size of the taxpayer and its ownership structure.

Importantly, from 2023, the legislator has standardized the moment when the tax obligation arises for advance payments – the lump sum is paid only at the end of the third month of the year following the distribution of profits. The amendment also dispelled many interpretative doubts, including those concerning the employment of students and persons exempt from PIT or social security contributions. The choice of Estonian CIT requires the submission of a relevant notification on the ZAW-RD form, usually by the end of the first month of the tax year. Therefore, a smooth transition to Estonian CIT requires the support of experienced advisors who will comprehensively guide you through the entire process.