Companies (taxpayers of corporate income tax), which incur a loss or have low margins on their operating activities, will be required to pay an additional #minimum tax starting from January 1, 2024. This is a tax on losses or low income.
The first payment of this tax will be required by the end of March 2025, if the company’s fiscal year aligns with the calendar year.
Who is not required to pay the minimum tax:
✅It should be checked whether the company has been exempted from the regulations regarding the minimum tax. The provisions on minimum tax do not apply to:
- small taxpayers (with revenues below 2 million euros annually),
- companies taxed under Estonian CIT;
- newly commencing companies and in the subsequent two years of operation;
- companies that have generated revenues at least 30% lower compared to the revenues generated in the previous year;
- companies with a simple structure, i.e., where the shareholders or partners are exclusively natural persons, and the taxpayer (company) does not directly or indirectly own more than 5% of shares (stocks) in the capital of another company or the entirety of rights and obligations in a company that is not a legal entity or other property rights of a trustee nature;
- companies forming part of a group of at least two companies, where one company holds directly or indirectly at least 75% of the share capital of the other companies forming part of that group for the entire fiscal year, and the combined income of the companies in their total revenues exceeds 2%;
- entities subject to personal income tax..
How to calculate the company’s result?
✅If the company does not meet the exclusion conditions, we verify the company’s results. The minimum tax applies to companies that incurred losses in the given tax year or whose share of revenues did not exceed 2%. This result is calculated according to specific rules specified in the regulations regarding the minimum tax.
✅The minimum tax rate is 10% of the taxable base. This base is calculated as 3% of the company’s revenues or 1.5% of revenues considering debt and intangible financing.
Lack of profitability of the capital group
✅Even if the company is not subject to the minimum tax, if it sells services to a related entity, it should report income within the corporate income tax. Usually, in such a situation, the business risk of the company is limited (e.g., the company provides low-risk or low-value-added services). Consequently, the company should not incur losses according to transfer pricing regulations, even in the absence of profitability of the capital group.
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