Government agrees on 14-percent advance income tax for banks

Estonia continued at a current account surplus in May.
Estonia continued at a current account surplus in May. Source: (Lee Jae-Won/Reuters/Scanpix)

Following the aims set out in the coalition agreement, the government decided on Wednesday to amend the income tax system and move for a 14-percent advance income tax on credit institutions’ distributed profits.

According to Minister of Finance Sven Sester (IRL), the advance tax will increase the share of money coming from banks in the state’s revenue.

“The Ministry of Finance thoroughly considered different taxation options. We preferred the one we chose because it will make the tax revenue coming from the banks more stable, fits the business logic of the banking sector, and takes into account the need for financial stability as well,” Sester said.

According to the current law, banks pay income tax on distributed profits like any other company would. The change, also endorsed by the Estonian Banking Association, calls for an advance income tax in the amount of 14 percent.

Distributing profits and calculating taxes it has to pay, a bank can now include the advance tax payments already made. The measure will only affect financial enterprises that are operating at a profit.

The model based on advance payments was chosen after looking at the experiences of other countries as well as repeated talks with the banking association. The ministry found that the chosen model was the one that brought the least risk.

How much the change will affect tax revenue will depend on the dividends banks decide to pay out, but the ministry expects revenue to increase by €20 to 30 million annually.

There are currently nine Estonian credit institutions as well as seven branches of parent companies located abroad.

Editor: Dario Cavegn

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