There may be no tax either before or after four years

In doing so, they refer to the interpretation of the Director of the National Tax Information of 22 August 2022 (ref. 0111-KDIB1-1.4010.112.2022.1.BS).
Łukasz Kupryjańczyk, tax adviser, partner at Thedy & Partners asked by the editors to comment on it, points out that the described interpretation confirms an important thing, namely the fact that the preference of income taxation according to the Estonian system can be used while being in it not necessarily for four years. Four years is, in a way, the basic assumption for the functioning of entities in the Estonian system, however, there may be situations when this period is shorter. In such a case, the profit generated during the period of taxation with the ‘Estonian tax’ will enjoy the preference of single taxation even if the distribution of profit is made later. This is the conclusion that can be drawn from the interpretation. It may prove beneficial, for example, for project companies or those that expect significant income, projects in specific years. Let us assume, for example, a property development company running a particular project, the implementation of which is foreseen for a period of 3 years, e.g. 2022-2024. During this period, it is known that it will meet the employment requirements for qualification to the Estonian system, as it will need a team to carry out the tasks. In turn, it is known that after this period it will no longer need any employees and hence will abandon the Estonian model taxation system. In this case, assuming that the profit is generated in 2024, the company will not pay tax until it is distributed. It will therefore gain a deferral of taxation of the expected profit. Moreover, the shareholders of such a company will be able to decide whether to first distribute the profit generated from the period of being in the Estonian tax (taxed at an effective rate of 20 per cent or 25 per cent) or that generated later under the general rules (at a rate of 19 per cent).
Another practical example of when the conclusions of an interpretation may prove beneficial are start-ups that expect significant income in the near future and, at the same time, are considering a subsequent change in ownership (the arrival of an institutional investor). As is known, such an ownership change may preclude the possibility of remaining in the Estonian system. In such a case, shareholders who have not been in the system for a full four years and resign from it precisely because of ownership changes should retain the right to tax profits generated during the period of being in the Estonian system at an effective rate of 20% or 25%.
The entire article was published in Dziennik Gazeta Prawna of 5 September 2022, page B2