Since February 21, 2023, Russia has been added to the list of countries with which the European Union does not have tax cooperation agreements.
What does this mean for Estonian entrepreneurs?
Firstly, it means that the concept of “avoiding double taxation” does not apply to transactions with Russia. Therefore, income tax must be withheld in Estonia on payments made to Russian legal entities (at a rate of 20/80).
When an Estonian company makes a payment for services received from a Russian legal entity (for example, for advertising or training), income tax will be withheld from this payment, even if the service was provided outside Estonia and before February 21. The payment will amount to 80% of the invoice total, and the withheld 20% must be declared in the Estonian tax declaration (TSD, Annex 2, code 181).
The tax does not need to be withheld only if the Russian company has a permanent establishment registered in Estonia.
Prepayment to a Russian company’s account (for both services and goods) is subject to income tax at a rate of 20/80. The amount of the prepayment must be entered in the Estonian TSD declaration (Annex 6, code 6080). If the prepayment was made for goods, after receiving the goods, the Estonian company is entitled to recalculate the income tax based on documents proving the import of the goods into the European Union.
If an Estonian company receives dividends from a Russian company or from its subsidiary that has registered a permanent establishment in Russia, the amount of dividends is NOT exempt from taxation in Estonia, and income tax must be paid both in Russia and Estonia.
Other transactions that will also require the payment of income tax and should be entered in the TSD declaration (Annex 6, code 6080):
Purchase of securities issued by Russian companies.
Purchase of shares/ownership interest in a Russian company.
Payment of penalties, fines, or other compensation to a Russian legal entity.
Providing a loan to a Russian company.
Acquisition of any other claims against a Russian legal entity.
Changes also apply to individuals:
An Estonian resident must include in their personal declaration for 2023 the income from the Russian company in which they hold shares, regardless of whether the profit was distributed (i.e., whether the Estonian resident received dividends from this Russian company).
Please note: The tax requirements listed apply not only to Russia but also to a number of other countries with which the European Union does not cooperate on taxation. The list of these countries can be found on the website of the Council of the European Union.
For more information, please refer to the pages of the Tax and Customs Board.
