Estonia - Income Tax Law Amendments Proposed
The proposal to implement the requirements of the EU Anti-Tax Avoidance Directive was approved by government on 26 September 2018. If adopted by the parliament, the amendments will enter into force on 1 January 2019. The following rules will be implemented:
Interest limitation rule
Deduction of interest expenses will be limited if the borrowing costs in a financial year exceed EUR 3 million and the borrowing costs exceed 30% of EBITDA.
If a resident company transfers assets from Estonia to its permanent establishment in another state, income tax will be charged on the amount which equals to the fair market value of the transferred asset. If a resident company transfers its tax residency away from Estonia, income tax will not be levied on capital repayments that are equal to capital contributions. If tax residency or assets are transferred within EEA Member States, the payment of exit tax may be deferred by way of payment in instalments over a period of 5 years.
General anti-abuse rule
Under the proposal, the existing general anti-avoidance rule will be replaced by new provisions. The original provision, which specifically prohibited the abuse of the exemption on dividend distributions, will be annulled. The new rule will broaden the scope of the GAAR and will be applicable to all types of income and transactions.
Controlled foreign company rules
CFC rules existed in Estonia before, but were applicable only to transactions conducted by individuals. According to the proposal, a CFC is defined as an enterprise in which the resident company alone or together with related parties holds more than 50% of the shares, profits or voting rights; or a permanent establishment.
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