The government is working on a plan to lower the tax rate on redistributed corporate profits from currently 20% to 14%. With this step, the government is hoping to increase Estonia’s competitiveness in comparison with the other Baltic countries, and to increase its tax revenue.
Estonia’s 14% income tax rate on dividends of so-called mature companies is likely to take effect in 2018. The state will calculate the rate based on the distributed profits of the previous three years, while a private persons have to pay the additional income tax themselves.
Finance Minister Sven Sester (IRL) is to introduce a plan to the government that calls for a lower tax on redistributed profits of so-called mature companies from currently 20% to 14%. The aim of the measure is to change companies’ behaviour, and to pay out more of their profits as dividends.
Estonia’s taxation system was set up in a time when Estonia’s economy was young, and growing at a fast pace. The decision to tax dividends paid out at 26% was made in a time when the main objective was to get businesses to reinvest their profits, the plan states.
Today, even mature companies still behave like they were at the developmental stage. Setting a lower tax rate, the government hopes to encourage a change of behavior that will eventually help increase tax revenue on dividends, as companies would be encouraged to pay out more money.
The 14% rate composed will be small enough to have this effect, and make the Estonian environment competitive in the Baltic context, the government hopes. Latvia and Lithuania currently tax dividends at 15%.
The plan, which Sester is to propose on Thursday this week, would likely be implemented effective Jan. 1, 2018. The expected windfall amounts to some €107m more in tax revenues in 2018, €76m more in 2019, and €46m more in 2020, the government has said.
Editor: Editor: Dario Cavegn