Estonia: legislative amendments for the New Year

Changes to tax laws make Estonia even more attractive for entrepreneurs.

As a digital pioneer, Estonia is highly business-friendly; the same course will be maintained this year. This article summarizes the most significant changes to tax law, now in force since January 1, 2020. The main purpose behind the changes is solution of mismatches.

In terms of tax law, mismatches can be defined as divergences in the characterisation of financial instruments, payments and entities in different states or their allocation to different permanent establishments. Basically, the changes strengthen the principles behind avoidance of double taxation.

Taxation of hybrid mismatches
The legislative amendment also solves different tax mismatches, in relation to third countries. With that aim in mind, European Directive 2017/952 on hybrid mismatches between third countries has been transposed into Estonian law and so that double taxation can be avoided.

Estonia is still a country without corporation taxes
Only paid-out (i.e. distributed) profits are taxed, at a rate of up to 20 %. From now on, income tax is not raised on foreign dividends if income tax has previously been withheld abroad or if income tax has already been paid on the basis of those same dividends.

Law News: Income tax and “emigration”
Entrepreneurs who wish to relocate their Estonian permanent establishment to another country must pay income tax on the market value of their company. This situation was formerly unclear and caused problems when establishments were relocated.

VAT law changes
Tax regulations for cross-border supply of goods have been simplified. This applies to on-demand supply, i.e. goods which ‒ based on agreement with the buyer ‒ are stored in a warehouse in a different Member State until they are finally sold. According to the simplified procedure, a company has no tax or reporting obligations if an on-demand reserve is transferred to another Member State. Tax is only payable after the goods are sold to the buyer.

This overview only refers to the most essential changes to Estonian tax law which came into force at the beginning of 2020.


Source: Income Tax Act; Value Added Tax Act; State Gazette; Ministry of Finance


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