Estonian CIT: no more mid-year entry, greater focus required on exit
The proposed amendments to the Polish Estonian CIT regime would significantly formalise the rules governing both entry into and exit from this tax framework. The planned changes reduce the flexibility currently available to taxpayers and increase the importance of properly prepared corporate and accounting documentation.
Under the draft legislation, taxpayers would no longer be able to opt into the Estonian CIT regime during the tax year. Instead, the election would only be possible at the beginning of a tax year. This is a material change for companies that have so far considered implementing the regime in response to changing business or tax circumstances.
The draft also introduces a presumption that any profit distribution made after the company exits the Estonian CIT regime should, as a rule, be treated as a distribution of profits generated during the period in which the company was subject to Estonian CIT. A different treatment would only be possible if the profit distribution resolution clearly states that the payment relates to profits generated before the company entered the regime.
In practice, this means less flexibility when planning the timing of entry into Estonian CIT, as well as greater importance of profit allocation resolutions, equity records and the proper separation of profits generated before entering the regime from those earned during its application.
As noted by Duszan Wolczyński, Manager in the CIT team:
“These changes move the system towards greater formalisation and predictability. Estonian CIT is increasingly ceasing to be an ad hoc solution and is becoming a regime that requires advance planning.”
Companies considering entering into or exiting from the Estonian CIT regime should review their corporate and accounting documentation well in advance and assess how the proposed changes may affect their dividend policy and equity structure.