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

[Boxer]

From 1st January 2026 new 2% "Defence tax" will be imposed to all Estonian-registered entities, it will also apply to "non-disturbed" profits that previously were tax-free.

What are you thought, from that time Estonia will be less valuable than Cyprus? Or still better in some cases?

 

[JohnnyDoe]

Until the last Estonian, for Ukraine

 

[Martin Everson]

What are you thought, from that time Estonia will be less valuable than Cyprus? Or still better in some cases?

Close your Estonia company folks.

They claim it is a temporary tax until 2028...lol. Spain said something similar when it introduced wealth tax as a temporary measure and it still exists today under different name. You didn't mention also that companies will be forced to make an advance tax payment also. I am so glad I closed my Estonia company. An Estonia company seems to now be a bureaucratic nightmare to run and will no doubt drive up running costs.

--- quote start

Advance tax payments​

Companies will be required to make an advance defense tax payment to the Tax and Customs Board’s bank account by the 10th day of the third month of each quarter. It is calculated as follows:

• on one-fourth of the pre-tax profit earned in the previous financial year, if the deadline for making the advance tax payment is after 1 July;
• on one-fourth of the pre-tax profit earned in the financial year before the previous one if the deadline for making the advance tax payment is before 1 July, unless the annual report for the previous financial year has been submitted;
• on one-fourth of the pre-tax profit earned in the previous financial year if the deadline for making the advance tax payment is before 1 July and the annual report for the previous financial year has been submitted.

Thus, the advance tax payments must be paid by 10 September, 10 December, 10 March and 10 June.

--- quote end


I have added link below to GT so people can read the full details and how it will all work...

https://www.grantthornton.ee/en/ins...-profits-preparations-should-begin-this-year/

P.S If Estonia is not defending your resident country then why would you want to pay so called "defense taxes" to them? Seems a waste. I'm gonna bin my Estonia e-residency card or cancel it as Estonia is done for me.

 

[daniels27]

I'm gonna bin my Estonia e-residency card or cancel it as Estonia is done for me.

They can still be used for NGOs relatively cheap. I heard.

 

[JohnnyDoe]

Latvian banks: gone
Estonian companies: gone
Lithuanian EMIs: gone

RIP so called Baltic countries (or what was left of them)

 

[hlepic211]

If someone is thinking about relocating or opening up a company in Estonia you guys have to visit first and see how depressive and ultra-expensive everything has become. New taxes are being introduced from 2025 and onwards, all are ridiculous. The government budget is in huge deficit - starting from 2025 they'll rape the hell out of normies.

All Estonians are living in Marbella now.

 

[Martin Everson]

New taxes are being introduced from 2025 and onwards, all are ridiculous. The government budget is in huge deficit - starting from 2025 they'll rape the hell out of normies.

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

 

[JohnnyDoe]

Keep in mind e-residency card holders will likely be squeezed also I can imagine with costs going up for renewals etc.

Fees are already increasing starting from 2025.
I will test the mighty power of Estonia to enforce taxes from e-residents

 

[Marzio]

What are you thought

AFAIK those taxes impact natural persons and companies to the extent that their income is taxable in Estonia so Estonia can still be used as holding location (if you don't plan to sell your company)

 

[Martin Everson]

Are foreign investments in Estonia experiencing an ice age?​

https://news.err.ee/1609552576/are-foreign-investments-in-estonia-experiencing-an-ice-age

--- quote start

Swedish electronics manufacturer Ericsson announced this week that it is abandoning plans for a major investment in Estonia, citing a challenging market and economic environment. "Aktuaalne kaamera. Nädal" investigated whether Estonia has lost its appeal and competitiveness in the eyes of investors.

Both the minister, EIS and the Chamber of Commerce and Industry pointed to the Ukraine war as a key factor negatively influencing foreign investment decisions.

"Russia is our direct neighbor, and we are seen as a frontline state. Understandably, investors are hesitant to make large investments in a frontline state, as worse-case scenarios could result in a complete write-off of their investment," explained Väärtnõu.

---- quote end

I can see why they need to increase taxes to pay for defence. Geopolitics can be costly when you don't get on with your neighbors. However taxes will have to increase further if things heat up and it could be costly financially and physically.

P.S I think if it also not a good time to become a citizen of Estonia either

https://kra.ee/en/national-defence-obligation/have-you-recently-become-an-estonian-citizen/

 

[JohnnyDoe]

​

"Russia is our direct neighbor, and we are seen as a frontline state.

Of course it’s again Russia’s fault

 

[Martin Everson]

Economist: Electricity cable failure to affect GDP less than tax rises​

https://news.err.ee/1609561385/economist-electricity-cable-failure-to-affect-gdp-less-than-tax-rises

So they admit that the tax hikes are likely to affect Estonia's GDP more than the increase in electricity prices due to repair of the undersea Estlink 2 undersea power cable...yikes

Textbook 101 on how to destroy an economy and impoverish your population authored by Olaf Scholz. Good luck to Estonia and its trajectory.

 

[JustAnotherNomad]

@Don What are your thoughts on this?

For those who use Estonian companies with accumulated profits: What's the best way to close the company, incurring as little tax as possible? A cross-border merger before 2026?

 

[ChadMuska]

Geopolitics can be costly when you don't get on with your neighbors.

That's a decision they made themselves, so no reason to pity them. Gorbachev wanted to start afresh and get along with the rest of Europe, but with cheap Russian resources, Europe would be a direct competition to the US, (financially speaking), so Uncle Sam acted the way he usually does, and here we are. The Baltics, and the rest of Europe would be better off by having good relationships with Russia but when you have a bunch of spineless pussies in the office, there isn't much you can do except to get fucked.

Honestly, I'm not sure if I'm buying that they're increasing taxes because of the eastern boogeyman that is to blame for every problem known to man. Governments are greedy, and most of them will raise their taxes over time, which we've seen with other jurisdictions. They probably saw this as an opportunity you can not go to waste, similar to 9/11, covid etc.

 

[Alonzo]

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.

All the baltic countries are increasing their taxes:
Latvia
Lithuania

 

[Don]

@Don What are your thoughts on this?

Not much to add to what has already been said. No doubt its a stupid policy.
Estonia certainly loses its main benefit as an offshore jurisdiction.
Dividends from subsidiaries or foreign PE-s are still not going to be taxed though.

For those who use Estonian companies with accumulated profits: What's the best way to close the company, incurring as little tax as possible? A cross-border merger before 2026?

Merging or closing company wont really help to save on tax.
However, stripping company from assets/profits would probably be a better choice.
The main benefit of the tax system was and still is anyway to acquire leverage against your undistributed profits to boost capital growth.

On the bright side, the biggest corporate bank is moving Baltic HQ from Lithuania to Estonia now:
https://www.lrt.lt/en/news-in-engli...eadquarters-to-tallinn-in-a-blow-to-lithuania

 

[JustAnotherNomad]

Merging or closing company wont really help to save on tax.

Hm? Why not? Certainly a company that is closed down in 2025 won't have to pay tax in 2026?

However, stripping company from assets/profits would probably be a better choice.

How?

 

[bizman]

The END of Estonia as an offshore jurisdiction and the continued melt down of tax loopholes inside Europe.

 

[Don]

Hm? Why not? Certainly a company that is closed down in 2025 won't have to pay tax in 2026?

The tax is based on profit.
If there is no profit then no tax.

How?

Depends on your activities. Development costs for example are normally not capitalized.

 

[JustAnotherNomad]

The tax is based on profit.
If there is no profit then no tax.

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?