Lump-sum tax on corporate income, or the so-called Estonian CIT regime, is a new form of taxation effective from 2021. It allows CIT taxpayers to defer payment of income tax (CIT) for 4 or more years, until the distribution of profits (dividends).
It is not the company’s profit, but its income that forms the basis of taxation with the Estonian CIT
For whom?
- The Estonian CIT regime may be applied to:
- joint stock companies,
- limited liability companies,
- limited partnerships,
- limited joint-stock partnerships,
- simple joint-stock companies,
with natural persons as shareholders or partners thereof.
- The company/partnership (taxpayer) cannot hold shares in the equity of other companies.
- The entrepreneur must employ at least 3 full-time employees.
- The application of the Estonian CIT regime is not dependent on the industry the company operates in or the revenues it generates.
Benefits
One of the main benefits of this taxation model is the low rate of combined CIT and PIT, which, since the provisions of the Polish Deal [Polski Ład] have entered into force, is 20% for small enterprises and taxpayers starting a business and 25% for other companies and partnerships. The PIT deduction amounts to:
- – 90 per cent of the CIT paid – in the case of a company’s distribution of profit which was taxed at a rate of 10 per cent, or
- – 70 per cent of the CIT paid – in the case of a company’s distribution of profit which was taxed at a rate of 20 per cent.
Savings
One of the main benefits of this taxation model is the low rate of combined CIT and PIT, which, since the provisions of the Polish Deal [Polski Ład] have entered into force, is 20% for small enterprises and taxpayers starting a business and 25% for other companies and partnerships.
The PIT deduction amounts to:
- - 90 per cent of the CIT paid - in the case of a company's distribution of profit which was taxed at a rate of 10 per cent, or
- - 70 per cent of the CIT paid - in the case of a company's distribution of profit which was taxed at a rate of 20 per cent.
Improved financial liquidity
The Estonian CIT regime allows the taxpayer to defer the moment of tax payment by 4 years or more. This means that the company itself decides when and how much of its profit will be distributed to shareholders.
Simplified settlements
Accounting settlement is mandatory for taxation under the Estonian CIT regime. This means that there is no obligation for tax accounting (including the determination of tax-deductible expenses and the calculation of tax depreciation allowances).
Possible application of quarterly VAT settlements (for some taxpayers)
How can we help you?
We will analyse your current situation in terms of the possibility to apply the Estonian CIT regime to existing companies and partnerships;
We will assist you in implementing the Estonian CIT regime in existing and newly established companies and partnerships;
We will prepare a numerical simulation based on actual financial data showing the comparison of the level of taxation with the currently applied form of settlement and the potential one in case of switching to the Estonian CIT regime;
We will provide you with ongoing support in the application of the CIT regime.
Contact
Tax team
Bartosz Głowacki
Partner | Tax adviser E: bartosz.glowacki@mddp.pl T: (+48) 603 980 382
Dariusz Fistek
Manager | Tax adviser E: dariusz.fistek@mddp.pl T: (+48) 696 273 865
Łukasz Kosonowski
Partner | Tax adviser | Attorney at Law | Head of Transaction Advisory Practice E: lukasz.kosonowski@mddp.pl T: (+48) (22) 322 68 88
Accounting
Agnieszka Piętak
Manager | MDDP Outsourcing E: agnieszka.pietak@mddp-outsourcing.pl T: (+48) 797 666 927