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6.5. Deductions

As Estonia levies a corporate income tax only on corporate profits that are distributed, no concept of tax deductions is known under Estonian corporate tax law. It can also be said that under the Estonian corporate income tax system the tax object is reversed. Normally, corporate income tax is imposed on corporate net income and tax legislation disallows the deduction of certain expenditure. Under the Estonian system, however, corporate income tax is imposed on such “non-deductible” expenses. Thus, the profits retained within the Estonian entity effectively remain tax-exempt. Corporate income tax in Estonia is imposed on any profit distributions (e.g., dividends) or “deemed” profit distributions, including fringe benefits, gifts and donations, transfer pricing adjustments and other non-business-related payments (see Sec. 6.1. above).