▪ the timber felled on an immovable located in Estonia was transferred; ▪ the transferred real right or the right of claim is related to an Estonian immovable; ▪ the holding is transferred or returned by a person who at the time of the transfer or return owned at least a 10% holding in a company, contractual investment fund or other pool of assets, whose property directly or indirectly comprised at least 50% Estonian immovables, as of the transfer or during a certain period within two years immediately preceding the transfer or return; ▪ gains were derived upon liquidation of a contractual investment fund or other pool of assets if the abovementioned condition regarding Estonian immovables is met. • Permanent establishments of non- residents are subject to corporate income tax on the same grounds as resident corporations (i.e., only profit distributions, granted fringe benefits, gifts, and donations, etc., are subject to income tax). Applicable Avoidance of Double Taxation Agreements (tax treaties) must be considered. Estonia currently has 62 tax treaties in force (the list may be found at: agreements). 4.7 Harmonization with EU tax legislation Estonia joined the European Union on May 1, 2004. In relation to that, EU Directives concerning taxation were incorporated into the Income Tax Act.

conditions in the Income Tax Act are fulfilled, the income tax is not charged on dividends or on payments upon a reduction in share capital or contributions, redemption of shares or liquidation of a legal person. 4.5 Corporate income tax Resident companies and permanent establishments of foreign entities (including branches) are subject to income tax only in respect of distributed profits (both actual and deemed), including dividends, liquidation proceeds, fringe benefits, gifts and donations, non-business expenses, etc. As of 2019, a lower tax rate was applied to dividends that are paid out regularly. The tax rate on regular dividends is 14/86 of the net amount (14% of the gross amount). 4.6 Taxation of non-residents Non-resident taxpayers are only liable for income tax regarding specific categories of Estonian-sourced income. Such taxable income includes business income, income derived from commercial leases and royalties, interest received from contractual investment funds and other pool of assets whose main asset consists of Estonian immovables (exceptions apply), etc. No additional tax is levied on dividends received from Estonian companies (except withholding tax on regular dividends at a rate of 7% distributed to natural persons, see section 4.3). Income tax is charged on gains derived by a non-resident from the transfer of property if: ▪ the sold or exchanged immovable is located in Estonia; ▪ the movable was subject to entry in an Estonian register prior to the transfer;

ILN Corporate Group – Establishing a Business Entity Series

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