The new 2% tax in Estonia even for not distributed profits (No more 0%?)

[daniels27]

Yes, obviously. That's how it works everywhere.
But why would a company that is closed or merged with company in another country in 2025 have to pay tax in Estonia in 2026?

I think it depends on how you merge etc. In the worst case, your company is merged and then resident in Estonia. And in the better case, you will then pay more tax than you would pay in Estonia elsewhere.

I think that's why @Don does not recommend doing this. Better to off-ramp now.

 

[Don]

Yes, obviously. That's how it works everywhere.
But why would a company that is closed or merged with company in another country in 2025 have to pay tax in Estonia in 2026?

If as a result of the merger or redomiciliation the assets remain in the PE of Estonia then no tax is paid on the merger.

However, the foreign company PE in Estonia pays tax on its profits (the 2% defence tax on Estonian sourced profits).

Estonian PE-s of foreign companies don't have to follow Estonian accounting rules.
The assets can also be taken out of the PE temporarily (for up to 1 year) without triggering tax.

I imagine the defence tax paid in Estonia can potentially be used as tax credit in some other jurisdictions to reduce CIT.
With that in mind on a group level the net effect might be zero extra tax.
(Yet to be confirmed as the law is not implemented.)

 

[JustAnotherNomad]

What I meant is you set up a new company in e.g. Cyprus, then merge the Estonian company into the Cyprus company, nothing remains in Estonia.
As far as I have understood, this should not trigger tax in Estonia.

 

[Don]

What I meant is you set up a new company in e.g. Cyprus, then merge the Estonian company into the Cyprus company, nothing remains in Estonia.
As far as I have understood, this should not trigger tax in Estonia.

It will. If only it was so simple.
Otherwise noone would pay dividends and everyone would "withdraw profits" by just relocating the company.

However the cool thing about it is that you can defer paying the exit income tax over 5 years in certain cases.

 

[lacomaco]

It will. If only it was so simple.
Otherwise noone would pay dividends and everyone would "withdraw profits" by just relocating the company.

However the cool thing about it is that you can defer paying the exit income tax over 5 years in certain cases.

Hi Don, would using an SE help? IIRC in such a case national goverments have no right to tax the SE if the other party is registered, managed and controlled by the other EU merging company

 

[Martin Everson]

Guys please stick to topic. I don't want to have to keep zapping posts....thx.


P.S Happy new year to everyone

 

[Don]

Hi Don, would using an SE help? IIRC in such a case national goverments have no right to tax the SE if the other party is registered, managed and controlled by the other EU merging company

Once you have merged the company or relocated to another (EU) jurisdiction, then only the local PE can be taxed, doesn't matter if SE or not.

 

[churumbelo]

Yes they increased VAT from 22 to 24%. Then corporate tax from 20 to 22%. Personal income tax from 20 to 22%. Now introduce this 2% defense tax on undistributed corporate profit. Not to mention the bureaucracy of doing VAT returns and paying tax multiple times a year. And they say its all temporary measures....lol. Did I forget e-invoice are coming also? I think it is gonna get a lot worse as Estonia has a tiny population and they are trying to squeeze the population financially across the board. Keep in mind e-residency card holders will likely be squeezed also I can imagine with costs going up for renewals etc.

I can understand why things become expensive when the full extent of the tax rises get passed on the the population. It's not like Estonia is a rich country either.

https://www.stat.ee/en/find-statist...osts/average-monthly-gross-wages-and-salaries

Exactly! New taxes or tax increases are never temporary. There might be some exceptions, but it is rare.

 

[lacomaco]

Once you have merged the company or relocated to another (EU) jurisdiction, then only the local PE can be taxed, doesn't matter if SE or not.

After becoming an SE, why would there be a PE in Estonia? Especially if you will do in the non-Estonian registered new SE

 

[Don]

After becoming an SE, why would there be a PE in Estonia? Especially if you will do in the non-Estonian registered new SE

It depends on the situation. Changing the legal form and headquarters only might not bring about any tax events.
Its more important what happens in substance than form.