Estonia has long been recognized as one of the most attractive jurisdictions for business due to its transparent and progressive fiscal framework. A key feature of this system is CIT (Corporate Income Tax) – a levy on corporate profits that is only applied to distributed earnings. This structure allows businesses to reinvest profits without facing additional financial burdens, promoting growth and development within Estonia.
Corporate Income Tax Rate in Estonia – CIT in 2025
Starting from January 1, 2025, the CIT rate in Estonia on distributed earnings will be 22%. CIT is calculated as 22/78 of the net value of distributed profits. This makes Estonia’s fiscal regime one of the most appealing for international entrepreneurs.
- Reinvestment: CIT offers a significant advantage for companies looking to reinvest their earnings. They do not face levies until profits are distributed, fostering long-term business expansion.
- Ease of Administration: The e-MTA electronic reporting system simplifies the process for companies to submit their reports and make payments online, significantly easing business operations in Estonia.
- Transparency and Stability: Estonia maintains a reliable framework that complies with global standards, enhancing its attractiveness to investors.
How CIT works in Estonia in practice
Let’s break it down with an example: A company generates €1,000 in profit. If the company decides to distribute the profits, it will pay 22% on this amount, i.e., €220. After the deduction, the remaining balance will be €780 — the net distributed earnings.
What other changes should be considered in 2025?
- Abolition of the preferential rate: Previously, businesses that regularly distributed profits could apply a reduced rate of 14%. From 2025 onwards, this benefit is discontinued, and a unified rate of 22% will apply to all distributed earnings.
- New 2% rate starting from 2026: As of January 1, 2026, a new 2% levy on profits will be implemented for Estonian companies. This will apply to all businesses, even those that do not distribute their earnings.
Changes to the fiscal regime, including the removal of preferential rates and the introduction of the new levy in 2026, could affect the financial strategies of certain companies. However, the advantages of the CIT system, especially the absence of charges on undistributed profits and streamlined administration, remain in place, making Estonia an ideal location for entrepreneurs seeking long-term growth and reinvestment.
Choosing a fiscal system for a business involves more than just considering rates; it also entails assessing development strategies and operational convenience. Finevolution has been offering expert assistance to entrepreneurs in selecting the best business solutions for over 7 years.
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