Estonian CIT versus the decision on support in the Polish Investment Zone – the latest interpretation by the Director of the National Tax Information Service and its significance for entrepreneurs

For many entrepreneurs, Estonian CIT means an opportunity for simplified settlements and greater financial liquidity, but at the same time – a number of conditions to be met. One of them is the prohibition of combining Estonian CIT with the privileges resulting from the decision on support within the Polish Investment Zone (PSI). The latest interpretation by the Director of the National Tax Information Service of 1 August 2025[1] reconfirms this important principle.

Change from PSI to Estonian CIT

What was the issue? The applicant was a company implementing an investment under the Polish Investment Zone. The company received a 10-year support decision and benefited from a tax exemption.

The issue came to light when the company predicted that it would reach its public aid limit for the current calendar year. The company’s intention was to transition to Estonian CIT before the end of the year. The applicant contended that, given the limit would be reached, the company would no longer generate exempt income. Therefore, there would be no impediment to benefitting from the new tax regime.

Common sense of the taxpayer

The company pointed out that a literal interpretation of Article 28k(1)(3) of the CIT Act does not exclude it from Estonian CIT after the aid limit has been used up. Moreover, it referred to earlier interpretations in which the tax authorities allowed for the possibility of entering into a lump sum after the exemption had been ‘exhausted’, even if the decision on support was still formally in force. The argument was logical: no zone exemption = no exemption from Estonian CIT.

Formalism over pragmatism

However, the tax authority did not agree with the company’s position. The primary argument was that the exemption under Article 17(1)(34a) of the CIT Act is only available on the date of filing the annual tax return. In summary, the process of verifying whether the taxpayer has reached the public aid limit takes place on an annual basis, at the conclusion of March of the following year.

According to the Director of the National Tax Information Service, companies are unable to determine during the year that they have already ‘finished’ using the exemption. As the decision on support is still in force, the taxpayer is not included in the group of those eligible for Estonian CIT until the end of the year. Following the formal settlement of the tax year and subsequent confirmation in the annual return that the limit has been reached, a lump sum arrangement can be entered into. This arrangement cannot be made earlier than from the next tax year.

MDDP comment

The latest interpretation by the Director of the National Tax Information Service (KIS) is a result of the restrictive approach of the tax authorities to the interpretation of the Estonian CIT regulations. It also demonstrates that, despite previous rulings being favourable to taxpayers, the tax authorities are now adopting a strict interpretation of the regulations. From the entrepreneur’s perspective, this inconsistent approach undermines the sense of legal certainty, and in this particular case, also reduces the scope of benefits offered by the Estonian CIT model.

It is therefore advisable for entrepreneurs to carefully plan not only the timing but also the entire process of transitioning to Estonian CIT. Otherwise, they risk falling into the traps set by imprecise regulations and the changing approach of the tax authorities.

***

[1] Individual interpretation of 1 August 2025, ref. no. 0111-KDIB1-3.4010.373.2025.1.PC.