ESTONIAN CIT

- the solution to high taxes -

WHY CHOOSE ESTONIAN CIT

CIT ONLY ON PAYMENT

the company will pay tax only on the distribution of profits

REDUCED TAX

reduce the amount of tax on dividends

NO SOLIDARITY SURCHARGE OR HEALTH CONTRIBUTION

income from companies taxed with Estonian CIT is not subject to solidarity surcharge and health contribution

WHAT WE WILL DO FOR YOU

LET'S CHECK THE CONDITIONS

we will check if your company meets the conditions of Estonian CIT and how much it can save on it

CALCULATION

we will make the relevant calculations

THE PROCESS OF CHANGE

we will guide your company through the process of changing tax to Estonian CIT

WE WILL PROVIDE YOU WITH INVALUABLE ADVICE

we will advise you on how to account for Estonian CIT on an ongoing basis

WHO MAY BENEFIT FROM OUR SERVICES

Lump sum tax on corporate income (“Estonian CIT”) is a new alternative form of taxation for limited liability companies, joint stock companies, limited partnerships and limited joint-stock partnerships. By choosing this form, the tax payment is postponed until the profit is actually distributed to shareholders. In other words, the company does not pay income tax on profits left in the company, used, for example, for investments or loan repayment.

The Estonian CIT is an ideal form of taxation for companies needing large amounts of money to invest in fixed assets, goods, or increase employment, as well as for companies generating a large amount of income that is not intended to be paid out in full.

The flat rate on corporate income in its current form has not received many supporters, and as a result, the Ministry of Finance has decided to introduce significant simplifications, including reductions in the Estonian CIT tax rate. According to the rules, which have been in effect since 2022, the obligation to make any capital expenditures has been abolished. In addition, the choice of Estonian CIT in companies that are already operating is greatly facilitated by the possibility of not paying tax on the mandatory pre-Estonian CIT transition from tax result to accounting result (tax is waived if the company remains in the system for 4 years).

The benefits of the Estonian CIT in the new edition are clear:

  • No tax on income that has not been paid to shareholders,
  • No solidarity tribute,
  • No health and Social Security contributions for partners (not applicable to limited partnerships),
  • Lower taxation of dividends.

The effective level of taxation of a company remaining under the general rules is much higher than in the Estonian CIT. For example, under ordinary circumstances, taxation is 34.39% (26.29% for small taxpayers) – the company pays 19% CIT on its income, and an additional 19% PIT is paid at the shareholder level when dividends are paid (9% and 19% for small taxpayers, respectively).

Under the Estonian option, the company will first pay a lump sum of 10% of profit for small taxpayers (20% for other taxpayers), but the PIT payable on dividends can be reduced by 90% of the lump sum due for small taxpayers or 70% of the lump sum due for other taxpayers – resulting in a much lower level of total company taxation.

Estonian CIT is available to taxpayers who meet the following conditions, among others:

  • as a limited liability company, joint-stock company, limited partnership or limited joint-stock partnership, their partners or shareholders are exclusively natural persons, and the company itself does not hold shares in other entities;
  • at least 50% of their revenue come from operating activities (other than from receivables, interest, sureties and guarantees, copyrights, disposal and execution of financial instruments, etc.);
  • they employ at least 3 FTEs who are not shareholders of the company.

The decision to change to Estonian CIT should not be delayed – taxpayers are allowed to do so until the end of the first month of the tax year, so that if the tax year coincides with the calendar year – until the end of January.

Taxpayers can also opt for Estonian CIT during the tax year – which involves accounting for classical CIT, closing the books and preparing financial statements.

WHY US

WE ARE A REPUTABLE LAW FIRM

we are a reputable law firm

WE HAVE BIG EXPERIENCE

we have extensive experience in tax consulting

WE ARE EXPERTS

we are well prepared in terms of content

WE APPROACH EACH CASE INDIVIDUALLY

we will handle your case individually and professionally.

FAQ

Estonian CIT, also known as the Estonian tax, is a new form of corporate taxation in which payment of the tax is deferred until the actual distribution of profits. The company does not pay income tax on profits retained within the company, and these retained profits can be used for investments, hiring new employees, or debt repayment. Estonian CIT is gaining popularity in Poland. One advantage of Estonian CIT is the lower overall taxation (at the company and shareholder levels) in case of dividend payouts. The effective taxation rate for company profits is approximately 20% for small taxpayers and 25% for large taxpayers (in comparison, under the general rules, these rates are approximately 26% and 34%, respectively). The effective rate may be even lower if not all of the company’s profits are distributed.

C

The following types of companies can choose Estonian CIT: limited liability companies, joint-stock companies, simple joint-stock companies, limited partnerships, and joint-stock limited partnerships. Only individuals can be shareholders in these companies, and the company itself cannot hold any shares in other entities. Additionally, a condition of employing at least 3 people on an employment contract (excluding shareholders and stockholders) must be met, and in the case of people employed on a mandate contract, the requirement is also to incur expenses for remuneration equal to at least three times the average salary. The employment conditions are relaxed for companies that qualify as small taxpayers and start their business (the latter has no obligation to employ workers in the first year).

A company subject to Estonian CIT is required to keep accounting books and prepare financial statements based on accounting regulations. The company does not have to keep separate tax books because the basis for taxation is generally the distributed accounting profit. However, choosing Estonian CIT requires a recalculation of existing differences between accounting and tax values through a so-called initial correction, except for companies starting their business. Established differences resulting from different accounting and tax settlements in the period preceding taxation by flat tax may be subject to taxation, but only if the company exits Estonian CIT within a four-year period.

The distributed profits of a company subject to Estonian CIT are taxed at a rate of 10% for small taxpayers and newly established companies, or 20% for other companies. In addition, the tax paid by the shareholder will be reduced by:

  • 90% of the tax paid by the company for small taxpayers and newly established companies,
  • 70% of the tax paid by the company for other companies.

The effective taxation of company profits is approximately 20% for small taxpayers and 25% for large taxpayers (for comparison, under general rules, these rates are approximately 26% and 34%, respectively). The effective rate may be even lower if not all of the company’s profits are distributed as dividends.

MEET OUR TEEM

TOMASZ MADEJCZYK
LEGAL ADVISOR

Graduate of the Faculty of Law and Administration of the University of Lodz

MIKOŁAJ DUDA
Tax Advisor

A graduale of the Law and Administration Faculty of the University of Łódź.

DAWID ĆWIKLAK
Legal Counsel

Graduate of the Law Faculty of the University of Łódź.

Blog

Wraca minimalny podatek dochodowy CIT

he minimum Corporate Income Tax (CIT) is being reinstated

The minimum Corporate Income Tax (CIT) was introduced in 2022 as part of the ‘Polish Deal,’ but its implementation was…

Czy od świadczeń na rzecz beneficjentów jest PIT?

It is worthwhile to request an opinion on the application of withholding tax preferences

Starting from 2022, payments of interest, licensing fees, and dividends for foreign related entities exceeding PLN 2 million in a…

EXPERT ADVICE