Tax after leaving the Estonian CIT – how does the lump sum tax on company income work? New interpretation by the Director of the National Tax Information Service 2025

The departure of the Estonian CIT has led to a number of concerns being raised among entrepreneurs. Following the termination of the lump-sum tax on corporate income, what is the subsequent course of action for the tax? When does the tax obligation arise and how can costly mistakes be avoided? The answers are provided by the interpretation of the Director of the National Tax Information Service of 6 October 2025[1], which explains the rules for settlements after leaving the Estonian CIT.

In this article, we discuss the tax implications, practical examples, and tips on how to prepare for settlements.

What does the interpretation of the Director of the National Tax Information Service indicate?

The tax authorities have clearly stated that the termination of the Estonian CIT does not result in an immediate tax liability. The key moment is the distribution of profits accumulated during the period of taxation with a lump sum on company income. Provided the funds remain within the company, the tax authorities will be unable to claim tax on these profits.

This flexibility allows the timing of tax payments to be better aligned with the company’s financial situation and investment plans. Taxpayers have the option of paying tax proportionally, as payments are made. The interpretation therefore confirms that the taxpayer retains control over the timing of the tax liability and can strategically plan their settlements.

It is important to note that the interpretation also indicates that the tax rate depends on the taxpayer’s status in the last year of lump-sum taxation. Therefore, if the company was categorised as a small taxpayer during that period, a preferential rate of 10% will apply to any distribution of profits from the Estonian CIT period, irrespective of the date on which the distribution is made. This allows the taxpayer to benefit from lower taxation even after leaving the Estonian CIT system.

Example: taxation of a small taxpayer’s profit

For a better illustration, let us assume that a company that is a small taxpayer has accumulated PLN 500,000 in profits during the period of application of the Estonian CIT. In this situation, the one-off tax payment would amount to PLN 50,000. However, if the company distributes its profits gradually, the tax will be levied in proportion to the value of each payment.

Importantly, if the company decides not to distribute the profit at all, there will be no tax liability. An Estonian CIT taxpayer therefore has complete freedom to plan when and in what amount the profit will be paid out, and thus when the tax will be paid.

Accounting is crucial

In the Estonian CIT system, accounting records are not just a formality. Proper recording of profits, broken down by year, makes it possible to clearly show what portion of the profits earned during the period of application of Estonian CIT has already been paid out and taxed, and what portion remains in the company. It is worth noting that transferring profits to reserve capital does not give rise to a tax liability.

Summary: what does leaving the Estonian CIT regime really mean?

In an individual interpretation dated October 6, 2025, the Director of National Tax Information confirmed the favourable position for taxpayers regarding the termination of the Estonian CIT regime.

The interpretation clearly states that the mere termination of taxation under the Estonian CIT does not give rise to a tax liability. Consequently, the company is not subject to tax on profits generated during the period of application of the Estonian CIT, unless such profits are distributed to shareholders. As per the CIT Act, Article 28o, taxpayers are obligated to pay tax only on the distribution of profits. The tax rate applied is 10% or 20%, depending on the taxpayer’s status.

It should be noted that this issue is linked to the planned amendment of the Estonian CIT regulations, which may significantly change the way profit distributions are accounted for. Currently, companies can independently determine the sources of the profits being distributed, for example by indicating that the dividend is financed from profits generated before entering the Estonian CIT system. Following the implementation of these changes, the flexibility previously available may be withdrawn, as Estonian profits will be accorded priority. It should be noted that, with regard to each payment, the profits generated during the period of application of the Estonian CIT will be considered taxable first. This may result in an earlier tax liability in practice.

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[1] Ref. No. 0111-KDIB1-1.4010.452.2025.1.RH.