Fourth, minority shareholders with a qualified minority may request the court to recall and appoint the liquidators. 4. Foreign Investment, Thin Capitalization, Residency and Material Visa Restrictions 4.1 Related parties' transactions If the price of a transaction concluded between a resident legal person and a person associated with the resident legal person differs from the market value of the above transaction, income tax is imposed on the amount which the taxpayer would have received as income or the amount which the taxpayer would not have incurred as expenses if the transfer price had conformed to the market value of the transaction. The difference is taxed with CIT as if it was a distribution of profit. All transactions with associated persons must be duly documented by the Estonian company and in case the associated person is: 1) a resident credit institution, an insurance company and a company listed on the stock exchange; or 2) the person (incl. permanent establishment) who has 250 or more employees, including related parties, or whose turnover in the financial year before the transaction together with related parties was 50 million euros or more, or whose balance sheet total with related parties was 43 million euros or more; or 3) from the list approved by “Council conclusions on the EU list of non - cooperative jurisdictions for tax purposes” (an offshore entity) there are additional requirements to such documentation. 4.2 Permanent establishment Permanent establishment means a business entity through which the permanent economic activity of a non-resident is carried out in Estonia. A permanent

establishment is created because of economic activity which is geographically enclosed or has mobile nature, or because of economic activity conducted in Estonia through a representative authorised to enter into contracts on behalf of the non- resident. When a non-resident carries on business in Estonia through a permanent establishment situated in Estonia, the income which the permanent establishment might be expected to derive if it were a distinct and separate taxpayer engaged in the same or similar activities under the same or similar conditions and dealing wholly independently of the non-resident of which it is a permanent establishment is attributed to the permanent establishment. 4.3 Withholding taxes Withholding tax is applied to certain types of income earned by Estonian tax residents and by tax non-residents. The income tax withheld is 20% or a lower rate of 10% or 7% for some types of income. For example, income tax is withheld from salaries, wages, and other remuneration subject to income tax paid to a resident natural person and remuneration paid to members of the management and controlling bodies of a legal person. Generally, there are no withholding taxes on dividends. The income tax at a rate of 7% is withheld from the regularly paid dividends (see section 4.5) which are to be distributed to natural persons (both residents and non-residents). Applicable tax treaties may stipulate a lower tax rate. 4.4 Further corporate tax exemptions There are tax exemptions available for resident legal persons and non-resident legal persons acting through their permanent establishment in Estonia. If the

ILN Corporate Group – Establishing a Business Entity Series

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