Accounting for companies whose tax is a lump sum on the company’s income (the so called Estonian CIT)

In the 1990s, the US government recommended to Estonia that the most modern and investment‑friendly business taxation regime might be effected by replacing the classic CIT with taxation of the distribution of profits. Estonia followed the recommendation with hugely positive results to its economy. In Poland nowadays, it is also possible to settle company’s taxes with a similar manner. Due to its likeness to the Estonian solution, this mechanism is commonly known as a lump‑sum tax on company’s income, or the Estonian CIT.

When a company settles is taxes as a lump-sum on its income (the Estonian CIT method), the rules for keeping its accounting books are very much the same as for companies which are taxed with the classic corporate income tax (the classic CIT).

However, it should be borne in mind that the lump-sum tax on company’s income (the Estonian CIT) assumes taxation at the level of the balance sheet result, which means that any mistakes in accounting books may result in serious consequences and translate into the company’s tax risk. Moreover, despite apparent advantages of this solution (e.g. simplified settlements, improved financial liquidity and savings), it may not prove cost-effective for every company.

Running accounting services for companies which apply the principles of lump-sum taxation on the company’s income

At MDDP Outsourcing, we know that for entities which apply the mechanism of lump-sum taxation on their income (i.e. the Estonian CIT), it is important to keep appropriate accounting records, as well as to keep ongoing monitoring of the conditions which enable them to use this taxation regime. In our company, we place the focus of our attention especially on these aspects, so that our verification mechanisms always enable effective control of being eligible to benefit from the lump-sum taxation. We keep our clients regularly informed about the parameters which allow them to remain in the Estonian CIT regime, so that they can react in advance and make appropriate decisions.

Furthermore, we keep up to date with all changes related to the settlement of lump sum tax on company’s income, which guarantees that tax settlements prepared by us are top quality.

Our experience in providing services to companies which apply the lump-sum taxation (the Estonian CIT)

Our highest priority is providing comprehensive accounting services for companies which use a lump‑sum taxation regime on their company income. We take care of all aspects of bookkeeping, such as preparation of financial statements and compliance with tax regulations. We are equipped with the right tools, and our specialists can create (or modify) the chart of accounts in such a way so as to meet all obligations imposed by specific taxation rules.

How can we be of help?

• We prepare a preliminary correction in relation with choosing the Estonian CIT taxation method;
• We prepare a report on the last day of the year preceding the first year of the Estonian CIT taxation regime;
• We help you comply with the requirements related to switching to the Estonian CIT regime;
• We prepare a calculation of tax liabilities for when the company is taxed with Estonian CIT;
• We audit the company’s expenses in terms of the need to tax them as hidden profits or expenses unrelated to business activities.

Applying the Estonian CIT taxation regime certainly increases the attractiveness of lump-sum taxation. However, in order for it to really bring about tax efficiencies, it is worth outsourcing accounting services to a proven and trustworthy company which is aware of all the potential risks and has experience in conducting lump-sum tax settlements of companies’ income.

Why not choose a reliable business partner – place your trust with MDDP Outsourcing experts who operate from their accounting offices in Katowice and Warsaw. Send a request for a quote now.