Estonian CIT to change. Most will lose, but there will be abolition
Proposals for the Estonian CIT sealing result from the draft amendment to PIT and CIT published on Monday evening (UD116). We would like to remind you that basically Estonian CIT allows you to postpone the payment of tax until the company is paid, and its current income is not taxable. In addition, when the company has already paid a profit, it pays a lower tax than companies traditionally taxed by CIT. Of course, to use your preferences, you need to meet many requirements. If the company does not meet any of them while using the Estonian CIT, it may lose the company's status on the Estonian CIT, which causes the need to correct taxes and subsidies.
The project soothes, among others The requirement to sign financial statements, but – as Dominika Jaszczyk, a tax advisor at Pragmatiq says – he is sharper than it resulted from earlier assumptions.
We explain what changes provide for the project in the field of Estonian CIT and what the effects (mostly negative) for companies will be.
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Will there be a change in the principles of Estonian CIT during the game?
Dominika Jaszczyk points out that Taxpayers choose Estonian CIT for a period of 4 years. According to the expert The proposed changes are so important that if they were to cover all taxpayers taxed in the New Estonian CIT, it will be “a change in the rules during the current 4-year-old”.
According to Dominika Jaszczyk, changes in the regulations should therefore only apply to:
– entities that have been chosen by Estonian CIT since 2026 and
-Those who will start another “4-year-old” in 2026-and thus decide on “new rules” in the new Estonian CIT.
-They should not apply to entities that the Estonian CIT currently chosen and are during the 4-year period-says the expert.
Will the later signature on the financial statements deprive the Estonian CIT companies?
The ministry proposes a kind of abolition for companies that wanted to go to the Estonian CIT during the year. Companies that submitted a report have a problem, but it was not signed or the report was submitted after the deadline.
– The decision to enter the CIT Estonian system has serious effects – the selection is made for a period of at least four years and requires, among others, closing the books and preparing the financial statements (within three months – ed.). This also applies when the company goes to the Estonian CIT during the financial/tax year – reminds Wojciech Majkowski, legal advisor, tax advisor and partner at the Corporate Income Tax Team at KPMG in Poland.
Unfortunately, the expert adds, In practice, a very unfavorable jurisprudence of tax authorities has developed, according to which every lateness with the preparation of the financial statements, including the lack of its timely signing by authorized persons, excludes the company from the Estonian CIT with retrospective power – which may have dramatic tax and liquidity effects.
Basically (Article 52 of the Accounting Act), the financial statement should be signed within three months from the balance sheet date by the person responsible for keeping accounting books and by the head of the entity. In the event that the unit's manager is a multi -person body, the report should be signed by all members of this body or – under certain conditions – by at least one person.
The project assumes that submitting the financial statements after the deadline or no signature will not have negative effects. “The lack of signatures of members of the company's management board on the report does not matter for the choice of taxation in a lump sum – the selection will be effective” – predicts the project. However, as Dominika Jaszczyk notes, however, However, the project assumes limiting this “concession”. Only companies will be able to use it to which a three -month deadline for the preparation and signing of the financial statements is until August 31, 2025. (i.e. applies to entities that entered the Estonian CIT at the latest on June 1 this year).
– Companies that entered the Estonian CIT from July 1, 2025 must have a financial statement signed by everyone, according to the current burden of regulations – comments Dominika Jaszczyk. The ministry in the justification of the project explicitly indicates that the provisions in this respect will not change, and only introduces a concession to specific entities.
– Such a project means that the companies that have entered the Estonian CIT during the year and do not have a signed financial statement, unsuccessfully entered the Estonian CIT, with all the negative effects – comments Dominika Jaszczyk.
Is the so -called Hidden profits paid from the company to the Estonian CIT will change?
The project also provides for the extension of the catalog of examples of hidden profits. It is about payments, which the act requires taxes like the payment of profit from the company on the Estonian CIT.
Hidden profits will be:
1) all kinds of fees and receivables:
- resulting from the lease, lease or other similar agreement,
- for the exercise or the right to exercise the rights or values referred to in art. 16b para. 1 points 4-7 of the CIT Act,
- for advisory and accounting services, market research, legal services, advertising services, mediation, management and control, data processing, employee recruitment services and staff acquiring, guarantees and sureties, as well as benefits of a similar nature, and
2) remuneration paid to a partner for repetitive non -monetary benefits.
– This is an important exacerbation of the rules, the change is definitely unfavorable. In practice, more services will be treated by the authorities as a hidden profit – comments Dominika Jaszczyk. For example, real estate rental from a partner to company will be a hidden profit.
The change will also matter with loans granted between related entities. – Taxpayers are currently undermining the qualification of a loan transaction with related entities, as hidden profits, indicating that these are market transactions and not related to the right to participation in profit. The elimination of this fragment of the provision will realistically cause The possibility of qualifying this transaction as a hidden profit, regardless of the market nature of this transaction between related entities. The proposal also has its good side – this change will mean that so far a large loan -based loan should be considered for taxpayers – believes Dominika Jaszczyk.
Each payment of profit after leaving the Estonian CIT will be taxed
Another change concerns taxation of the payment from the profit after the company left the Estonian CIT. The tax must be paid only when the profit is paid, which can be postponed for a very long time.
The ministry also wants to introduce the principle that each distribution (i.e. payment) of profit after resigning from the Estonian CIT or losing the right to Estonian CIT will cause the need to pay tax, regardless of whether the profit paid or distributed was actually achieved during the tax -lump sum of the company's income.
As Dominika Jaszczyk explains, The project in this regard is sharper than previous assumptions to it, and the change is definitely unfavorable for taxpayers. -it does not leave the possibility of choosing the payment of profits detained in a company, e.g. from before entering the Estonian CIT from periods of transparency or those that were generated on general principles (where the payment of these amounts would be taxed with a 19 % PIT, if the company had previously paid CIT on a regular basis, not 20/25 percent at the Estonian CIT-Red) – comments the expert.
Which expenses will be considered unrelated to business?
The Ministry of Finance also proposes to define what expenses not related to business activities are. Basically, today such expenses are the subject of Estonian CIT taxation, just like hidden profits, but no provision of the CIT Act defines what specific expenses it is about.
Ministry I suggest that they be These are expenses that:
– are not related to achieving revenues or security or maintaining a source of income, as well as
– Due to their nature, they should not reduce the tax base, i.e. penalties, fines or interest on the late regulation of the tax liability.
– I assess the change positively. Most of the doubts related to the topic of expenses not related to economic activities concern their interpretation. This can be particularly important for taxpayers who currently tax contractual penalties – comments Dominika Jaszczyk.
Author: Łukasz Zalewski, journalist of the Business Insider Polska Law Department
