Estonia corporate tax - guide for international expansion

Are you considering expanding your business to Estonia? Understanding the country's unique corporate tax system is essential for making informed decisions about your international operations.

Estonia stands out in the European Union with its distinctive deferred corporate income tax model, offering significant advantages for reinvested profits. Whether you're planning to establish a subsidiary, acquire a local company, or simply explore new markets, grasping Estonia's tax framework is crucial for your business strategy.

With Wise Business, you can streamline your Estonian operations from day one, managing local payments and maintaining EUR accounts to support your expansion seamlessly.

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This publication is provided for general information purposes and does not constitute legal, tax, or other professional advice from Wise Payments Limited, its subsidiaries or affiliates, and it is not intended as a substitute for obtaining business advice from a tax advisor or any other professional.

Estonia Corporate Tax Rate in 2025

Estonia's corporate income tax system is distinctive in that it applies a standard rate of 22% only to distributed profits, not to retained earnings. This deferred taxation model means that companies pay no corporate income tax on reinvested profits, making Estonia particularly attractive for businesses focused on growth and expansion.¹

The 22% rate, effective from 2025, applies to profit distributions including dividends, fringe benefits, gifts, donations, and expenses not related to business activities.¹ Additionally, a transitional rule applies a 7% withholding tax on dividends paid to natural person shareholders from profits that were previously taxed at the old 14% rate before 2025.²

This system effectively means that as long as profits remain within the company and are used for business development, expansion, or other qualifying activities, no corporate income tax is due.¹

Read more about Corporate Tax Planning best practices

How to Pay Corporate Tax in Estonia

Estonia's corporate income tax system requires companies to file returns and make payments through the Estonian Tax and Customs Board's electronic system, called e-MTA. All tax-related communications and payments must be conducted electronically, making digital compliance mandatory for businesses operating in Estonia.³

Corporate income tax returns must be filed by the 10th day of the month following the month in which the taxable event occurred.³ For example, if dividends are distributed in March, the tax return and payment are due by April 10th. This differs significantly from traditional annual corporate tax systems used in most countries.⁴

The Estonian Tax and Customs Board charges interest on late payments at a rate of 0.06% per day, which translates to approximately 21.9% annually.⁵

Let's consider a practical example: if your Estonian subsidiary has annual profits of €1.5 million and decides to distribute €300,000 as dividends, the corporate income tax calculation would be:

• Distributed amount: €300,000

• Tax rate: 22% from 2025

• Tax due: €300,000 × 22% = €66,000

If this payment is made 30 days late, the interest charge would be:

€66,000 × 30 days × 0.06% = €1,188 in addition.

• Total tax due + interest: €67,188

When expanding your business to Estonia, the right financial tools will make the process smoother. Using a platform like Wise Business makes it easy to expand internationally with local EUR account details. A multi-currency account allows businesses to pay for incorporation costs, registration fees, and government taxes in local currency without paying high exchange rate fees.

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Tax Compliance in Estonia

Companies must meet several legal and reporting obligations to stay compliant with Estonian tax obligations:⁶

• Appoint a contact person and legal address: If your company’s management board is located abroad, you must designate a licensed contact person in Estonia. This ensures proper communication with local authorities and compliance with the Commercial Code.
• Annual reporting: All companies must submit their annual report within six months after the financial year-end, typically by June 30 for businesses following the calendar year. Penalties for delays start from €200 and may reach €3,200.
• Corporate income tax return: Estonia’s corporate tax system is unique, as profits are only taxed upon distribution. From January 1, 2025, distributed profits will be subject to a 22% corporate tax. Returns must be filed electronically using the TSD form through the e-Tax system, with deadlines on the 10th day of the month following profit distribution. This model is particularly relevant in the global minimum corporate tax rate discussions, as Estonia continues to balance competitiveness with compliance with international frameworks.
• Accounting standards: Companies can report under Estonian GAAP, IFRS as adopted by the EU, or full IFRS (mandatory for banks, insurers, and public interest entities).
• Payroll and VAT obligations: Employers must file monthly TSD forms by the 10th of the following month. VAT returns are due on the 20th day of the following month. Late filings may result in penalties of up to €2,000, while incorrect returns can be fined up to €3,200.⁶

By following these rules and filing deadlines, companies can avoid penalties and maintain good standing in Estonia’s transparent tax environment.

International Expansion to Estonia

Estonia has earned global recognition for its forward-thinking tax system. It is one of the most attractive destinations for international businesses seeking efficient and transparent corporate taxation. According to the World Bank, the country ranks 12th globally for ease of doing business. It offers a simple and transparent framework that makes it easier for international companies to establish operations.⁷

Furthermore, Estonia’s location on the Baltic Sea gives it strategic access to Nordic countries, Germany, and Eastern Europe.⁷ As the EU and Eurozone member, it provides direct entry to a market of more than 500 million consumers. Businesses expanding to Estonia benefit from an open economy where exports account for a significant share of GDP, and foreign ownership is both common and encouraged. International giants in manufacturing and technology, such as ABB and Ericsson, already operate from Estonia, while homegrown digital solutions are used in over 130 countries.⁸

One of Estonia’s strongest advantages is its corporate tax regime. The Estonian corporate tax rate applies only to distributed profits, as retained and reinvested earnings are exempt. This 0% tax on undistributed profits has positioned Estonia among the lowest corporate tax rate systems in the world.⁷ It provides companies with a flexible approach to capital allocation, aligning with international corporate tax law while supporting growth and reinvestment.

The steps to establish a business in Estonia are:⁹

1. Conduct market and competitor analysis to refine your business model.
2. Choose a company name and structure.
3. Appoint a licensed contact person if the management team is based outside Estonia.
4. Register your company using the e-Business Register.
5. Open a bank account and arrange tax registration.
6. Maintain robust bookkeeping systems to stay compliant.

International entrepreneurs can apply for the Estonia Startup Visa, enabling them to establish and operate their business there. Supported by a digital-first infrastructure, a transparent tax system, and direct access to the EU market, Estonia serves as the perfect launchpad for global expansion.

Discover the top 5 best Corporate Tax softwares

Incorporation of Business in Estonia

Foreign and local entrepreneurs can incorporate a company in Estonia using a simple, digital-first process. Applications are handled through the official e-Business Register, enabling company formation online. Non-EU citizens must first apply for an e-Residency card, which serves as both an identification tool and a digital signature.

When setting up a company, you need to:¹⁰

1. Select and reserve a company name using the e-Business Register.
2. Provide a business address in Estonia (a business service provider can supply this if you do not have a local address).
3. Submit the application online, pay the state fee of €265, and declare share capital (which can be deferred).
4. Prepare the memorandum and articles of association; the e-Business Register provides standard articles to simplify the process.
5. Register employees with the Tax and Customs Board once hiring begins.
6. Apply for activity licenses if your sector is regulated.
7. Register for VAT if your operations require it.

Business Entities in Estonia

According to the Commercial Code, there are five primary forms of business entities:¹¹

• Private Limited Company (OÜ): The most common entity, requiring a minimum share capital of just €0.01 per shareholder. Shareholders are not personally liable for company obligations. An audit is mandatory only above certain turnover thresholds, assets, or employee numbers.
• Public Limited Company (AS): Suited for larger ventures, with a minimum share capital of €25,000. Shares must be registered in the Estonian Central Register of Securities.
• Limited Partnership: Formed by at least two persons, where one partner carries unlimited liability and the other’s liability is limited to their contribution.
• General Partnership: Involves two or more partners who are jointly liable for the company’s obligations with all their assets.

Estonia’s incorporation framework is closely tied to its corporate tax planning advantages. It brings corporate tax incentives such as a 0% rate on retained and reinvested profits.¹² Tax payment is required only when profits are distributed, giving companies greater flexibility in capital allocation.

This approach aligns with modern corporate tax law and planning strategies that support reinvestment and sustainable growth. When combined, these factors make Estonia highly attractive for international entrepreneurs.

International Corporate Tax Best Practices

Managing corporate tax obligations across multiple jurisdictions requires strategic planning and adherence to international standards. Companies should prioritise compliance with both local Estonian regulations and global frameworks such as the OECD's Base Erosion and Profit Shifting (BEPS) initiatives.

Estonia's membership in the European Union provides access to numerous double taxation treaties, with agreements in place with over 60 countries. These treaties help prevent double taxation on the same income and can significantly reduce withholding taxes on cross-border payments. Understanding and leveraging these agreements is essential for optimising your international tax position.

Maintaining comprehensive and transparent financial records is crucial for Estonian operations. The country's electronic tax system requires detailed documentation of all transactions, and the unique profit distribution model demands careful tracking of retained versus distributed earnings. Regular reconciliation between your accounting systems and tax calculations helps ensure accuracy and compliance.

Consider implementing transfer pricing documentation that aligns with OECD guidelines, particularly if your Estonian entity engages in intercompany transactions. Estonia follows EU state aid rules and transfer pricing regulations, making proper documentation essential for defending your tax positions during potential audits.

Take the complexity out of international expansion with Wise Business

Researching corporate tax is a crucial step when expanding your business into a new country. The next step is setting up the financial infrastructure to handle the complexities of operating across borders, from managing multi-currency cash flow to mitigating FX risk.

The Wise Business account provides the financial tools to make your international expansion to Estonia efficient and simple. It's the one account for managing your money globally.

With a Wise Business account, you can:

• Pay suppliers and initial fees: Pay suppliers, global payroll, and one-off incorporation costs in the local currency.

• Get paid like a local: Use local account details for 8+ major currencies to easily receive payments from customers or investors.

• Manage your money across borders: Hold and exchange 40+ currencies in one account, always with the mid-market exchange rate and low, transparent fees.

• Streamline your accounting: Integrate with tools like Xero or QuickBooks to simplify tracking your company's international finances.

• Empower your team: Provide multi-user access for your finance team and issue expense cards for international spending.

Wise is designed to support every step of your journey, from paying your first registration fee to receiving international payments and managing your global treasury.

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FAQs - Corporate Tax in Estonia

Who is liable for corporate tax in Estonia?

Estonian resident companies are liable for corporate income tax on distributed profits, including dividends, benefits provided to shareholders, and certain other distributions. Non-resident companies are subject to Estonian corporate income tax only on profits distributed from Estonian sources, typically through withholding tax mechanisms.

Companies are considered Estonian tax residents if they are incorporated in Estonia or have their place of effective management in Estonia. Foreign companies with permanent establishments in Estonia may also have corporate tax obligations on profits attributable to their Estonian operations.

Are there any tax incentives for businesses in Estonia?

Estonia offers several significant tax incentives, with the most notable being the 0% corporate income tax on reinvested profits. This system allows companies to defer taxation indefinitely as long as profits remain within the business for operational purposes.

Additional incentives include research and development tax credits, accelerated depreciation for certain assets, and special regimes for holding companies. Estonia also participates in various EU state aid schemes that can provide additional benefits for qualifying businesses and investments.

What is the tax treatment of dividends in Estonia?

Dividends paid by Estonian companies are subject to 22% corporate income tax. However, dividends received from EU subsidiaries may qualify for reduced rates or exemptions under the EU Parent-Subsidiary Directive. For individual shareholders, dividends are generally subject to personal income tax, though rates and exemptions vary depending on the recipient's tax residency and the applicable double taxation treaty provisions.

What is the process for registering for corporate tax in Estonia?

Companies must register with the Estonian Tax and Customs Board within three days of incorporation or commencing business activities in Estonia. Registration is completed electronically through the e-MTA system, which requires digital authentication using Estonian e-Residency or other approved digital identity methods.

The registration process involves providing company details, business activities, expected turnover, and contact information. Once registered, companies receive access to the electronic tax system for filing returns and making payments.

What are the common pitfalls to avoid regarding corporate tax in Estonia?

The most common mistake is misunderstanding Estonia's deferred tax system and incorrectly calculating tax obligations on profit distributions. Many businesses accustomed to traditional corporate tax systems struggle with the timing and calculation of Estonian corporate income tax.

Another frequent pitfall is inadequate record-keeping for the distinction between retained and distributed profits. Estonia's system requires precise tracking of all profit movements, and poor documentation can lead to compliance issues and penalties.

Failing to use the mandatory electronic systems for tax filing and payments is also problematic, as Estonia requires all corporate tax matters to be handled digitally. Companies should ensure they have proper digital authentication and system access before commencing operations.

Sources used in this article:

1. PwC Tax Summaries: Estonia Corporate Income Taxes
2. Estonian Tax and Customs Board (EMTA): Tax Declarations for Companies
3. EMTA: Submission of Declaration Form TSD
4. PwC Tax Summaries: Estonia Tax Administration
5. EMTA: Payment of Interest on Arrears
6. Commenda: Annual Compliance for Businesses
7. HLB Global: Reasons to Invest in Estonia
8. Invest in Estonia: Official Website
9. e-Residency: Start a Company
10. Invest in Estonia: Company Establishment Process
11. Invest in Estonia: Legal Forms of Business
12. Incorporate.ee: Estonia's Corporate Income Tax

Sources last checked 22/09/2025