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
- 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.
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.