Estonia Corporate Tax: to pay or not to pay?

[Revoltec]

Interpretation of an interpretation via a Google translation can be misleading. It's not "related parties" but correct is "associated enterprises"

Here is the relevant provision from the law:
View attachment 8022

Thank you for the reference. But why is the CFC law not applicable to a US LLC? I am confused

 

[Don]

Thank you for the reference. But why is the CFC law not applicable to a US LLC? I am confused

Im just assuming that the US LLC disregarded for tax purposes is controlled by an individual (it doesn't have parent entity that is a Estonian company).

 

[Revoltec]

Im just assuming that the US LLC disregarded for tax purposes is controlled by an individual (it doesn't have parent entity that is a Estonian company).

You are completely right! Thanks!

I also read this:
"In Estonia, resident companies are taxed on profits distributed from their worldwide income, while PEs of non-residents are taxed only on profits distributed from income derived from Estonian sources."

Is it really true that PEs are never taxed on their foreign sourced income in Estonia?

 

[Don]

Is it really true that PEs are never taxed on their foreign sourced income in Estonia?

Yes, the very meaning of PE is that only locally sourced profits might be taxed.

Having a registered PE of a foreign company could lead to following scenarios:
1) PE is registered but not treated as a PE for tax purposes. This can be the case when PE registration is done only because for example when you a hire an assistant, who doesn't do sales. No Corporate taxes apply, only payroll taxes are withheld because hiring the person in Estonia.
2) PE is registered and treated as a PE. CIT applies, but its only paid when the profits are withdrawn from the PE. Not for example when profits are reinvested to Gold plates and kept safely in the Estonian office.
3) a foreign entities PE can also be registered if the foreign entity is purely passive in Estonia, for example as a passive partner/investor of an unincorporated partnership, managed by a 3rd party. In such case the unincorporated partnership obtains a tax number in Estonia, which technically is a PE. Estonia only taxes the local profits of the partnership, while this partnership might operate in other jurisdictions too.

 

[Revoltec]

Yes, the very meaning of PE is that only locally sourced profits might be taxed.

Having a registered PE of a foreign company could lead to following scenarios:
1) PE is registered but not treated as a PE for tax purposes. This can be the case when PE registration is done only because for example when you a hire an assistant, who doesn't do sales. No Corporate taxes apply, only payroll taxes are withheld because hiring the person in Estonia.
2) PE is registered and treated as a PE. CIT applies, but its only paid when the profits are withdrawn from the PE. Not for example when profits are reinvested to Gold plates and kept safely in the Estonian office.
3) a foreign entities PE can also be registered if the foreign entity is purely passive in Estonia, for example as a passive partner/investor of an unincorporated partnership, managed by a 3rd party. In such case the unincorporated partnership obtains a tax number in Estonia, which technically is a PE. Estonia only taxes the local profits of the partnership, while this partnership might operate in other jurisdictions too.

So will an US LLC that I control be taxed on distributed profits? I will trade stocks through the LLC

 

[Revoltec]

Im just assuming that the US LLC disregarded for tax purposes is controlled by an individual (it doesn't have parent entity that is a Estonian company).

However, to the point 2) of the law you sent, in Estonia even a PE is considered to be a CFC. Does that mean that a US LLC is a PE and therefore a CFC and pays tax on all profits regardless if distributed or not?

 

[Don]

However, to the point 2) of the law you sent, in Estonia even a PE is considered to be a CFC. Does that mean that a US LLC is a PE and therefore a CFC and pays tax on all profits regardless if distributed or not?

It refers to foreign PE of an Estonian company

 

[JustAnotherNomad]

Yes, the very meaning of PE is that only locally sourced profits might be taxed.

But if you trade foreign shares from Estonia, obviously such profits would be locally sourced.

 

[Don]

But if you trade foreign shares from Estonia, obviously such profits would be locally sourced.

Yes

 

[Nw1]

Why would all CFC undistributed profits be taxed at PIT rates? Shouldn't a CFC have the same treatment as an Estonian company, that is, tax free undistributed profits?

In 2026 this will no longer be tax free undistributed profits instead 2% charged on yearly undistributed profits temporarily it seems till 2028 but it may continue permanently too

 

[Revoltec]

In 2026 this will no longer be tax free undistributed profits instead 2% charged on yearly undistributed profits temporarily it seems till 2028 but it may continue permanently too

Yeah I do not see much point in this anyways as I would still just trade and nothing else. It is hard to argue that is a corporation

 

[JustAnotherNomad]

Yeah I do not see much point in this anyways as I would still just trade and nothing else. It is hard to argue that is a corporation

???

 

[Revoltec]

???

I only invest in crypto/ stocks. I wouldn't have enough of substance to set up a corporation and benefit from this tax scheme

 

[daniels27]

I only invest in crypto/ stocks. I wouldn't have enough of substance to set up a corporation and benefit from this tax scheme

If you only have passive income / capital gains, there are enough choices where you don't post to much tax.

 

[JustAnotherNomad]

I only invest in crypto/ stocks. I wouldn't have enough of substance to set up a corporation and benefit from this tax scheme

Where do you live?