The government has approved amendments pursuant to which Estonia will not apply the global minimum tax based on the Minimum Tax Directive of the European Union until the year 2030. Until that time the companies that fall within the scope of the tax will be subject to a reporting obligation.
From 2024, the minimum income tax for large groups with an annual turnover of more than €750 million entered into force in the EU and several third countries. Countries that have fewer than 12 ultimate parent companies of large groups can benefit from an exemption, according to which the minimum tax does not have to be applied for the first six years.
"This exception was added to the Minimum Tax Directive at the request of Estonia. We will also take this opportunity to postpone the creation of what would be a complex and expensive system for as long as possible. This will allow us to reduce the administrative burden of both the Tax Board and companies," Minister of Finance Mart Võrklaev said.
"The postponement will let us wait until all the rules regarding the minimum tax are put in place. Currently, their adoption in other countries has already raised a lot of questions, and the OECD is preparing relevant guidelines. Until then there is also a big risk that the new rules will have to be changed soon," Inga Klauson, adviser for the ministry's the tax policy department, explained.
The main requirement of the Minimum Tax Directive is that the effective tax rate for large groups must be at least 15 percent in every country where they operate. The Estonian exception does not exempt companies belonging to one group from the minimum tax obligation arising in other countries. However, it reduces the administrative burden of both companies and the Tax Board in Estonia. If Estonian companies become subject to the minimum tax obligation in other countries, another exception has been added to the minimum tax rules at the request of Estonia, which allows the minimum tax obligation to be postponed for four years. This exception makes it possible to maintain the attractiveness of the Estonian corporate income tax system to some extent.
"One of the advantages of the Estonian corporate tax system is postponement of the income tax obligation until distribution of profit. This way we encourage investment and innovation and can attract new foreign investments here – companies can focus on growth and do not need to worry about payment of income tax," Mart Võrklaev said.
According to the draft legislation, the Estonian headquarters of large groups will have to designate a specific subsidiary located in another country, which will submit the minimum tax declaration on behalf of the group. All other entities of the group will also have to provide this subsidiary with the information necessary for filling out the declaration.
The deadline for submission of the minimum tax declaration is June 30, 2026, so entities located in Estonia will have to fulfil the obligation to provide information for the first time in 2026.
In addition, the law implements amendments made to the EU Accounting Directive into Estonian law. It imposes on large groups of certain type the obligation to disclose income tax information. This change concerns multinational groups operating in Europe, the total revenue of which in two consecutive accounting years exceeds €750 million.
In Estonia such data is already being submitted by the relevant companies to the Tax and Customs Board. When the law enters into force, the Tax Board will start to publish this data on its website, and companies will not have an additional reporting burden.
Editor: Marcus Turovski