Contact:
Nerijus Nedzinskas, Senior Tax Consultant, PricewaterhouseCoopers, tel. +370 5 239 2300
Giedrius Čiupaila, Head of Marketing and Communications, PricewaterhouseCoopers, tel. +370 5 239 2300
19 May 2005
In May 2005, Estonia adopted amendments to its corporate profit tax law that create more favourable conditions to set up holding companies in this country. These amendments will be applied from 1 January 2005. Currently, corporate profits in Estonia are not taxed unless they are distributed as dividends. However, as from 1 January 2005, some profit distribution forms are no longer subject to corporate profit tax.
Due to these legislative amendments, Estonia becomes an attractive place to set up international tax planning schemes. Estonian companies may well be used to combine holdings, finance centres and other operations.
|
"While Lithuania considers alternatives of new taxes to compensate for the reduced personal income tax rate, Estonia makes good use of its tax system and competes not only with Latvia and Lithuania but also with "traditional" holding territories in Western Europe," says Nerijus Nedzinskas, Senior Tax Consultant at PricewaterhouseCoopers in Lithuania. |
Based on the amendments to the corporate profit tax law, dividends distributed by an Estonian holding company will not be subject to the Estonian profit tax if they are paid out:
- from dividends received from companies abroad (if the Estonian company holds no less than 20% of their shares) provided their profits or dividends were taxed at source in their country of origin;
- from profits generated from a permanent establishment abroad provided they were taxed in the country of the permanent establishment.
If a Lithuanian company pays out dividends to its parent company in Estonia, such dividends will be further paid out to shareholders of the Estonian company tax-free. Therefore, instead of the Estonian 24% tax rate, profits will be subject to the lower, Lithuanian, 15% rate. This may encourage Estonian parent companies to leave larger profits at their Lithuanian subsidiaries.
Even if the Estonian company receives dividends from low tax countries, such dividends may be distributed to its shareholders tax-free in Estonia.
Currently, dividends for distribution are subject to profit tax at the 24% rate in Estonia. The profit tax rate is expected to be reduced by 1% each year down to 20% in 2009.
Estonia does not apply any withholding tax on dividends distributed by the Estonian company to its shareholders-private individuals. Shareholders-corporate entities must hold at least 20% of shares in the company in order to enjoy the tax exemption on dividends. However, this exemption does not apply to shareholders based in offshore territories.
ENDS
„PricewaterhouseCoopers" (
www.pwc.com) provides industry-focused assurance, tax and advisory services for public and private clients. More than 120,000 people in 139 countries connect their thinking, experience and solutions to build public trust and enhance value for clients and their stakeholders.
PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
