Estonia is one of the most prolific economies of the European Union thanks to the recent innovations enabled by the government, such as the e-residency program, which enables foreign investors to open companies here without coming to the country. The taxation in such cases will apply to the company registered here, while the business owner will be entitled to repatriate the profits earned in Estonia to his or her home country. However, there are a few rules to respect when remitting profits from Estonia to another country.
Our company formation specialists in Estonia can provide assistance related to the taxation of companies and foreign citizens doing business here and can also advise on the repatriation of profits. We can also help those interested in setting up businesses in Estonia.
When can a company remit profits from Estonia to another country?
In order to be allowed to repatriate profits, the foreign owners of an Estonian company must first ensure that the whole capital of the business was deposited and that the Companies Register has taken evidence of the deposit. It should be noted that both foreign companies and citizens are allowed to remit profits earned in Estonia
In order to be allowed to distribute these profits, the company must first file the tax returns with the Tax Office in Estonia.
What are the ways of repatriation of profits from Estonia?
Estonia has a one-of-a-kind taxation system, especially when it comes to remitting profits from here to another country. This system implies for the taxes imposed on the taxpayer to be levied at the moment of the distribution of the profits instead of the moment when the tax is imposed.
Foreign investors and companies seeking to remit the profits earned in Estonia to their home countries will be able to do that by distributing the dividends earned from the company or by distributing donations, gifts and other money generated by the company.
Our Estonian company formation agents can offer more information on the taxation system applicable in this country and most of all, the taxation of companies. They can also assist you if you want to open a company in Estonia.
Remitting profits from dividend payments from Estonia
One of the most common ways of repatriating profits from Estonia is through dividend payments. This implies:
- – paying the corporate income tax on the distribution of dividends at a flat tax of 20%;
- – the taxation of dividend payments will be imposed on foreign citizens, but also Estonian branches of foreign companies;
- – starting with 2019, the distribution of dividends will be imposed a lower tax rate of 14%;
- – in the case of natural persons, no matter if foreign or Estonian citizens, an additional 7% tax rate will apply upon the distribution of dividends;
- – the distribution of profits under the form of dividend payments are linked to the double taxation treaties signed by Estonia.
Capital gains and interests can also be repatriated as profits to another country. In this case, capital gains will be subject to the same corporate tax rate of 14% starting with 2019. When it comes to interest payments, these will be taxed only if they are remitted by investment funds created as contractual funds in Estonia. The tax rate, in this case, will be 10%. Estonia does not levy and branch remittance tax.
Filing tax returns when repatriating profits from Estonia
In order to be able to repatriate their profits legally, both natural persons and companies from abroad are required to submit the following financial documents with the tax authorities in Estonia:
- – the personal income tax return in the case of natural persons must be filed;
- – companies remitting profits must file the corporate tax returns with the Estonian Tax Office;
- – in the case of subsidiaries and branch offices, the parent companies must also submit audited annual balance sheets;
- – after the distribution of the profits, the company must file the corporate tax return by the 10th of the following month after the remittance.
We mentioned earlier that under Estonia’s double tax treaties certain payments can benefit from various tax deductions or exemptions. This also applies when foreign companies or citizens remit income earned in Estonia. In most cases, the tax paid in their home country can be deducted from the taxable income which was registered as a profit in Estonia. Also, any tax which has no correspondent in Estonia will not attract any additional income tax here.
The remittance of profits from Estonia can be quite complicated which is why we invite you to contact our local consultants for professional accounting services. We remind that you can also count on us for personalized company registration services in Estonia.