From 1 January 2024, the standard rate of VAT in Estonia is 22% instead of the current 20%. In connection with this amendment, the VAT Act contains two transitional provisions.
As of 1 January 2024, the concept of a tax scheme has been specified (subsection 19 of § 546 of the Income Tax Act).
A tax scheme is a transaction or chain of transactions which presupposes the existence of a tax mismatch or which is designed to create a tax mismatch. A transaction or chain of transactions which fulfils these conditions shall not be regarded as a tax scheme if it is reasonable to assume that the parties to the transactions did not have to be aware of the inconsistency and did not receive a tax advantage resulting from the tax inconsistency.
The wording ‘transaction chain’ in the current Income Tax Act indicates that the tax scheme consists of several transactions. The wording of the ATAD2 Directive may also constitute a tax scheme for a single transaction.
As of 1 January 2024, the wording of subsection 1 of § 548 of the Income Tax Act has been specified.
A trust fund or the fund manager thereof shall pay income tax on income which would have been attributed to a partner of the trust fund in proportion to its share in the trust fund if such income is not subject to taxation pursuant to subsection 11 or 12 of § 29 or legislation of another jurisdiction and if at least one partner of the trust fund is a non-resident related company who directly or indirectly owns at least 50% of the holding of the trust fund and who is located in a jurisdiction which considers the trust fund to be liable to income tax.
The amendment clarifies that 50% of the trust fund’s shareholding should be held by all related undertakings in total in accordance with Article 9a(1) of Directive 2016/1164 as inserted under Article 1(5) of the ATAD2 Directive. According to the current wording of the Income Tax Act, 50% of the trust fund's shareholding should be held by a single affiliated company.
As of 1 January 2024, a natural person will no longer have the right to deduct from his or her taxable income:
This means that in the income tax return of a natural person:
The right to deduct from taxable income the following will remain:
limited to 1200 euros in total and to no more than 50 per cent of the taxpayer’s income taxable in Estonia (subsection 1 of § 282 of the Income Tax Act).
The right to deduct contributions to supplementary funded pension (third pillar) in the amount of up to 15 per cent of the taxable income but not more than 6000 euros per year from taxable income also remains.
As of 1 January 2024, persons who have joined the II pillar will have the opportunity to increase their 2% funded pension contribution rate to 4% or 6% if they wish. For this purpose, a corresponding application must be submitted to the registrar of the pension register or to the account administrator (from 1 January 2024 until 30 November 2024), and the new contribution rate will be applied from 1 January 2025.
2022, No. 3-20-2325
The member of the board was given a liability decision in connection with the tax debt of the company he managed. The tax debt arose from the operation of the company and the declared tax liability.
Lessons:
2023, No. 3-19-2244
The dispute concerned the price of equity contribution in a situation where equity contribution was made with equipment purchased two months ago, but it was worth eight times more than the purchase price of the equipment.
Lessons:
European Commission has issued a transfer pricing directive proposal which integrates key transfer pricing principles into the EU law with the aim of putting forward certain common approaches for Member States.
The rationale of the proposal derives from the fact that almost all Member States are also members of the OECD and therefore committed to follow the OECD principles and recommendations. However, despite the political commitment by the majority of Member States, the status and role of the OECD Transfer Pricing Guidelines currently differs from Member State to Member State.
For example, domestic legislation of Member States shows differences in the definition of ‘associated enterprises’ and in particular, on the notion of ‘control’ which is normally the precondition to apply transfer pricing. Certain Member States apply a threshold of 25% while others apply a threshold of 50% shareholding when it comes to determining whether the control criterion is met. It translates into businesses facing tax uncertainty, high compliance costs as well as frequent, time-consuming legal disputes leading, amongst others, to considerable amounts of legal fees and creating barriers to cross-border operations and high risks of double and/or over-taxation.
The proposal aims at simplifying tax rules through increasing tax certainty for businesses in the EU, thereby reducing the risk of litigation and double taxation and the corresponding compliance costs and thus improve competitiveness and efficiency of the single market. The proposal would provide a gradual development of common and consistent approaches among Member States’ tax authorities to the interpretation and application of transfer pricing rules through the incorporation of the arm’s length principle into Union law and the clarification of the role and status of the OECD Transfer Pricing Guidelines. Furthermore, the prospect for establishing common binding rules for Member States on specific transactions within the framework of the OECD Transfer Pricing Guidelines should improve businesses’ resilience in the Union, reduce distortions and contribute towards a level playing field in the single market.
In the future, Estonian entrepreneurs will have to annually assess whether their holding companies have sufficient economic substance and, if not, inform the tax authority about it. Namely, in January of this year, the European Parliament approved and sent the new tax directive (ATAD III) to the Council of Europe for approval and enforcement, which stipulates the requirements for the economic substance of companies. In the fight against tax evasion, the main purpose of the directive is to identify those shell companies that do not engage in real economic activity, but whose purpose is to create tax advantages and to deny them tax benefits resulting from directives and tax treaties.
In March 2020, the Parliament of Estonia passed the Commercial Code Amendment Act, with the purpose to simplify the sale of shares in a private limited company (OÜ) and to eliminate unnecessary restrictions and formal requirements.
On 15 April 2020 Estonian Parliament approved Supplementary Budget Act that stipulates measures to mitigate the effect of the spreading of corona virus COVID-19.
This month's Tax Alert provides an overview of tax and payroll measures implemented by Estonian Government to alleviate companies' financial situation during the state of emergency declared in Estonia on 12th of March
An overview about Supreme Court decision nr 3-18-1740 made on 4th March 2020 concerning a tax assessment made by the Estonian Tax and Customs Board in 2018
The scope of the EU Foreign Subsidies Regulation (EUFSR) makes compliance reporting hard, e.g. transactions, types of subsidy and the look-back period.
Introducing Global Tax Talk, a new PwC on-demand video series that quickly delivers global tax policy news, accessible on the go.
The EU Foreign Subsidies Regulation (FSR) means businesses operating in the EU, including non-EU based multinationals, may be denied approval for various transactions.
Our emerging leaders tax series looks at the evolving international tax landscape and the impact of new regulations on private capital and investment funds.
Our major tax policy communications with supranational organisations and other stakeholders, such as written responses to consultations, requests to appear before public hearings, etc.
Environmental Taxes for a Greener Tomorrow. Global and Domestic green tax measures are growing resulting in companies being more accountable.
Policymakers globally are seeking changes to the international tax framework to reflect the impact that globalisation and digitalisation have had on their tax bases.
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The EU Council Directive 2011/16 in relation to cross-border tax arrangements, known as DAC6, has been in force since 25 June 2018. DAC6 aims for transparency.
