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6.4. Reserves and Provisions

Distributable profits are determined by financial statements drawn up in accordance with Estonian GAAP or IAS/IFRS, and there is no adjustment of accounting profits for tax purposes. Corporate entities are not subject to tax reserves and provisions. Since Estonian corporate tax is levied on the cash-basis distributions only, the accounting has generally no significance for tax purposes. Estonian corporate tax legislation does not contain the concept of taxable income, but it is based on the concept of taxable distributions made. There is no requirement to create reserves and provisions for tax purposes as no taxation takes place as long as the profits are not distributed.