Choosing the Estonian CIT and the delayed signing of the financial statement – Ministry of Finance softens its approach

Change of taxation form to Estonian CIT

A company may opt for Estonian CIT taxation during the tax year, provided that it closes its accounting books and prepares financial statements in accordance with the Accounting Act on the last day of the month preceding the first month of lump-sum taxation.

In practice, the tax authorities have long challenged the possibility of applying the Estonian CIT during the tax year if the interim financial statements were not signed within the required time limit. As a result, taxpayers have been required to correct their settlements and pay income tax under the general rules.

Current position of the tax authorities

According to the tax authorities, the provisions of the Accounting Act specify the persons required to sign the financial statements (the person maintaining the accounting books and the entity’s management), and the signatures confirm that the statements have been prepared in accordance with the Act’s requirements.

The Director of the National Tax Information has stated that signing the report is an integral part of the financial statement preparation process. Consequently, a report that has not been signed on time by all of the required persons does not meet the requirements of the Accounting Act. This constitutes a violation of Article 28j(5) of the CIT Act, meaning a failure to effectively opt for lump-sum regime.

This position was also confirmed in the Minister of Finance’s response to a parliamentary question, which referred to the National Accounting Standard.

Proposed change of approach

On September 16, 2025, the Ministry of Finance published a draft amendment introducing several changes to the Corporate Income Tax Act, including those related to the Estonian CIT.

The Ministry proposes adding Article 38zb to the CIT Act, introducing an “amnesty” for taxpayers who opted for the Estonian CIT during the tax year but failed to complete all the required formalities.

Under the proposed provision, the choice of Estonian CIT would be recognized as effective despite the delayed signing of the financial statement by the head of the entity, provided that the statement was signed on time by the person maintaining the accounting books and all other obligations related to the choice of this taxation form were fulfilled.

The Ministry of Finance noted that taxpayers who did not obtain all the required signatures on the financial statements often remained convinced that their choice of the Estonian CIT was valid. It was considered that the loss of the right to apply the lump-sum regime in such cases was an excessively severe consequence. Therefore, a solution was proposed to allow the application of the lump-sum regime to be recognized as effective despite such formal deficiencies.

However, it should be emphasized that the proposed amendment would apply only to financial statements prepared by August 31, 2025, and the Ministry of Finance’s interpretation of Article 28j(5) of the CIT Act remains unchanged.

MDDP comment

The restrictive approach adopted by the tax authorities to date should be regarded as disproportionate, as a minor error on the part of taxpayers has led to severe consequences. The planned amendment may significantly mitigate these consequences for companies that opted for the Estonian CIT during the tax year and whose only formal violation was the failure of the entity’s management to sign the financial statements on time. In such cases, the choice of lump-sum taxation will remain valid, provided that all other requirements are fulfilled.

The proposed “amnesty” resolves the dispute between taxpayers and the tax authorities, albeit only for a limited period, reducing the risk of costly retroactive adjustments. However, taxpayers intending to switch to the Estonian CIT in the future must continue to meet all formal requirements, including obtaining all required signatures on the financial statements within the required deadline, as this remains a prerequisite for the effective application of this taxation form.

The new provision will also not apply in cases where the irregularities extend beyond the lack of the management’s signature, for example, when the report was not prepared in electronic form (XML) or the bookkeeper’s signature was missing or submitted after the deadline.

The introduced regulation should be assessed positively, although questions remain as to why it applies only to cases involving a delayed signature of the entity’s management and only to financial statements prepared until August 31, 2025.