Companies that opted for lump-sum taxation on corporate income in 2022 are approaching the end of the four-year period. This is significant because opting out of Estonian CIT after the four-year period allows them to return to taxation under general rules without having to pay the initial correction tax.
Continuation of Estonian CIT
Companies that have successfully implemented this taxation method and do not have any events within the next four years that could exclude them from the Estonian Corporate Income Tax (CIT) system can continue to apply. No further action is required. They do not need to re-submit a ZAW-RD application or prepare a report specifically for this purpose. The company also does not pay tax on the Estonian Corporate Income Tax (CIT). After the four-year period ends, the company will begin another such period.
When to opt out of Estonian CIT?
However, if a company is no longer profitable, its costs are rising, and its revenues are decreasing, it's worth considering opting out of the Estonian corporate income tax (CIT). This taxation model has the advantage that the tax liability arises regardless of whether the company generates revenue or not. In the case of hidden profits, a company in excellent condition will pay the same tax as one that is unprofitable. Switching to the general rules will allow you to avoid paying tax when the company generates a loss.
Moreover, after the four-year period, it is worth opting out of the Estonian CIT model if something might happen in the near future that would exclude our company from this model, such as the entry of a non-individual investor or a decline in employment. This will be particularly beneficial for companies that, if opting out of the Estonian CIT model at a different time, would be forced to pay the initial correction tax.
Entry into Estonian CIT
The beginning of the year is also a good time to begin lump-sum taxation on corporate income. This is possible any month of the year. However, entering the Estonian Corporate Income Tax (CIT) system during the year requires additional bookkeeping and reporting. Changing the taxation method from the beginning of the year avoids these additional steps. However, in each case, a ZAW-RD application must be submitted. This must be submitted by the end of the month in which the company begins taxation under the Estonian Corporate Income Tax (CIT). If this period is to begin in January, the application must be submitted by the end of January.
Prospects for the lump sum
Since its inception in Poland in 2021, the Estonian Corporate Income Tax (CIT) has raised numerous doubts and controversies, as evidenced by the thousands of tax rulings issued. Over time, a certain line of case law has emerged, for example, regarding hidden profits. The possibilities for taxpayers' economic actions are limitless, so new rulings are constantly emerging, although not in such large numbers. However, new challenges are emerging, such as the exit from the Estonian Corporate Income Tax (CIT) and draft laws amending the regulations governing the Estonian Corporate Income Tax (CIT).
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If you would like to consult whether implementing Estonian CIT would be appropriate for your company, please contact us.
This article is for informational purposes only and does not constitute legal advice.
The law is current as of December 8, 2025.
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