An Update from the AmCham Taxation Committee

Declaring equity balance becomes mandatory for businesses as from February 2015

As you probably know, Estonian tax law allows for non-taxable payments to shareholders in the amount equal to the historical payments that shareholders have made into the company’s equity. Until now, the tax authority has not required payments into equity to be declared on tax returns.

Recently amended section 61 subsection 44 of the Income Tax Act, however, requires all companies to declare their historical equity contribution and payment balance by 10 February 2015. All monetary and non-monetary contributions, share capital increases and the related profit gained before 2000, and income from the sale of the company itself, as from the initial establishment until 31 December 2014 should be declared.

The necessary calculation could be complicated, especially, if the company has historically gone through mergers and demergers.

If you have any questions regarding the new obligation, please contact us. We will also be willing to help you with the calculations necessary for the new declaration.

KPMG’s contact person is Elvira Tulvik, Attorney-at-Law, ee.la1653564324gelgm1653564324pk@ki1653564324vlut.1653564324arivl1653564324e1653564324, +372 6 676 805.

 Taxation of non-resident directors

The amendment concerns non-resident directors and board members who are employed and remunerated by a group’s company or head office located in a foreign country, and fulfil part of their obligations for the benefit of a company or branch in Estonia.

This means that starting from January 2015, non-resident directors and board members are liable for income and social tax in Estonia, regardless of which country’s entity actually remunerates them for the work done here.

If the social tax obligation may be avoided for most European residents due to the possibility of acquiring form A1 from their home social security authority, then for employers located in a country not covered by the Social Security Directive or bilateral agreements it may become necessary to register as a non-resident employer in Estonia. In order to declare and pay income tax, the directors and board members will need to submit personal income tax returns in Estonia.

Based on the above, non-resident directors and board members will have to annually declare with the Tax and Customs Board their remuneration received for their activities in Estonia regardless of whether the payment was made by an Estonian or foreign company.

If you have any questions regarding the change in taxation, please contact us. We would also be ready to help you with calculating and filing the relevant directors’ income.

KPMG’s contact person is Elvira Tulvik, Attorney-at-Law, ee.la1653564324gelgm1653564324pk@ki1653564324vlut.1653564324arivl1653564324e1653564324, +372 6 676 805.