Amendment to the Corporate Income Tax Act a revolution in taxes from 2027

The bill proposes a change to the popular practice of optimizing liabilities through retroactive changes to depreciation rates. Once the new regulations come into force:

• the possibility of increasing or decreasing rates after the deadline for submitting the annual tax return will be blocked,
• an exclusion of goodwill amortization in leasing will be introduced,
• the rules for depreciation in so-called real estate companies will be clarified.

The Ministry is revisiting the concept of limiting tax-deductible costs for services provided by partners. If a partner provides advisory, legal, or management services to their company, they must consider the risk of these being considered a so-called hidden dividend.

The amendment to the Corporate Income Tax Act excludes from tax-deductible costs expenses for intangible services purchased from related individuals (holding at least 5% of the shares or rights), including through tax-transparent companies. The condition for this exclusion is that the recipient of this income is subject to a lump sum taxation on recorded income.

The limitation will not apply to so-called qualified benefits that meet one of the following conditions:

• the contractor's revenues are subject to taxation pursuant to Article 12 or Article 13, point 7 or 9 of the Personal Income Tax Act.
• the subject of the service is re-invoiced (resold) by the taxpayer or is necessary for the production of taxpayer`s goods/services, assuming that no subcontractors were used in their implementation.

Estonian Corporate Income Tax amnesty is good news for many companies. This will apply to entities that were late in signing their financial statements but met the remaining formal requirements. On the other hand, from 2027, it will no longer be possible to opt for Estonian Corporate Income Tax before the end of the company's tax year.

Recognition of financial statements signed after the deadline

The new project introduces a beneficial solution for taxpayers who chose the lump sum tax on corporate income (so-called Estonian CIT) in the period from 1 January 2022 to 1 December 2026.

According to the new regulation, the requirement to prepare financial statements in accordance with accounting regulations will be deemed to be met even if the document was signed after the statutory deadline.

New rules for taxation of payments after the end of Estonian CIT taxation

The 2026 draft, compared to the 2025 draft, clarifies the timing and source of taxation for funds withdrawn after exiting the lump sum tax system. A presumption standard has been introduced, according to which any distribution of profits made after the loss or renunciation of the Estonian CIT entitlement is deemed to originate from profits earned during the lump sum taxation period.

The bill also modifies the rules for the Corporate Income Tax (CIT). The simplified tax base will be changed, and the profitability testing period (which determines tax exemption) will be shortened from three to two years.

The new draft largely maintains the previous assumptions from 2025 but introduces a significant addition regarding the energy sector. Compared to the original assumptions, the new draft expands the exemption from the minimum corporate income tax regulations. This preference will also apply to the sale of electricity, heat, and gas.

Key modifications to exclusions and rates:

• the taxpayer will be able to benefit from the exemption from minimum CIT if in the 2 tax years preceding the settlement year, the taxpayer achieved profitability of at least 2%.
• a division of taxpayers according to the income threshold (excluding capital gains) is to be introduced:
• large taxpayers (over EUR 50 million in revenue) - the tax base is 5% of revenue.
• other taxpayers - the tax base is 3% of revenues.
• taxpayers who generate most of their revenue from the sale of electricity, heat or gas are to be excluded from the minimum tax.

Although the draft amendment is currently still in the review phase, its assumptions are clear. The tax authorities are striving to tighten the system and limit optimization. Our tax advisors will help analyse how the new regulations will impact your organization's cost structure and financial security.