There is no corporate income tax on retained and reinvested profits.
This means that Estonian resident companies and the permanent establishments of foreign entities (including branches) are subject to 0% income tax in respect to all reinvested and retained profits and a 20% income tax only in respect to all distributed profits (both actual and deemed).
Distributed profits include:
- corporate profits distributed in the tax period
- gifts, donations and representation expenses
- expenses and payments not related to business
- transfer of the assets of the permanent establishment to its head office or to other companies
Starting from January 1, 2018 – the corporate income tax rate on regular profit distributions was lowered from 20% to 14%, but only in cases where dividends are paid to legal persons.
Fringe benefits are taxable at the level of the employer. The employer pays income tax and social tax on fringe benefits.
Dividends paid to non-residents are no longer subject to withholding tax, irrespective of participation in the share capital of the distributing Estonian company. However, various withholding taxes may still apply to other payments to non-residents if they do not have a permanent establishment in Estonia or unless the tax treaties otherwise provide.
As of 2019, the tax period for corporate entities is a month, income tax must be returned and paid monthly by the 10th day of the following month. You can read more about accounting requirements here.