The tax base for tax resident entities is represented by their worldwide income. However, according to the specific characteristics of the Estonian tax system, only distributed corporate profits are taxable. Retained earnings are effectively tax exempt.
The taxable base for corporate tax encompasses the following components, i.e., ‘deemed distributions’:
- Dividends (other than stock dividends) and other profit distributions such as share buy-backs, capital reductions or liquidation proceeds;
- Fringe benefits;
- Gifts, donations and entertainment expenses;
- Transfer pricing adjustments; and
- Non-business related expenses.