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Corporate Income Taxation in Estonia. Is It Time to Abandon Dividend Taxation?

Listed author(s):
  • Karsten Staehr

    (Tallinn University of Technology Eesti Pank)

Estonia introduced a new corporate income tax system in 2000, under which corporate profit is taxed only when it is paid out as dividends to shareholders. The switch to distributed profit or dividend taxation was billed as a means to attract investment, support enterprises and increase employment. This Research Brief summarises the experiences and compares with developments in Latvia and Lithuania. The reforms improved liquidity and reduced the debt financing in Estonian companies and may also have given rise to increased investment and productivity at the firm level. The results are, however, less encouraging at the macroeconomic level. The tax revenue as a percentage of GDP has been very low since the introduction of dividend taxation, even during the pre-crisis boom in 2004-2007, and there are no immediate effects on labour productivity and GDP growth. The conclusion is that the switch to distributed profit taxation has not improved the overall macroeconomic performance in Estonia despite the easing of financing conditions and lower corporate income tax revenue. Abstract in Estonian:Ettevõtete tulumaksustamine Eestis: Kas on aeg loobuda dividendide maksustamise süsteemist?Karsten StaehrEestis on alates 2000.a kehtinud ettevõtte tulumaksu süsteem, mille raames maksustatakse ettevõtete kasumit alles siis, kui see makstakse dividendidena välja omanikele. Jaotatud kasumi maksustamisele ülemineku eesmärgiks oli investeeringute muutmine atraktiivsemaks, ettevõtluse toetamine ning töökohtade loomine. Käesolev kirjutis annab ülevaate senistest kogemustest ning võrdluse arengutega Lätis ja Leedus. Maksureformi tulemusel paranes Eestis ettevõtete likviidsus ning vähenes võõrfinantseerimise kasutamine ning see võib olla kaasa toonud ka investeeringute ja tootlikkuse suurenemist ettevõtte tasandil. Samas on makromajanduslikud tulemused tagasihoidlikumad. Maksutulud protsendina SKTst on olnud alates tulumaksusüsteemi muutmisest väga madalal tasemel, kaasa arvatud kriisieelse buumi aastatel 2004-2007, ning maksureformi mõju tööjõu tootlikkusele ning SKT kasvule ei ole märgata. Võib järeldada, et üleminek jaotatud kasumi maksustamisele ei ole Eesti üldistele makromajanduslikele tulemustele kaasa aidanud vaatamata sellele, et ettevõtete finantseerimistingimused on leevenenud ning riigi tulud ettevõtte tulumaksust on vähenenud. Artikkel on PDF versioonis eesti keeles: vaatamiseks vali link Full Text: PDF

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Paper provided by Department of Finance and Economics, Tallinn University of Technology in its series TUT Economic Research Series with number 9.

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Date of creation: 17 Jan 2014
Handle: RePEc:ttu:tuteco:9
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  1. Aaro Hazak, 2009. "Companies' Financial Decisions Under the Distributed Profit Taxation Regime of Estonia," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 45(4), pages 4-12, July.
  2. Michael Funke, 2002. "Determining the Taxation and Investment Impacts of Estonia´s 2000 Income Tax Reform," Quantitative Macroeconomics Working Papers 20204, Hamburg University, Department of Economics.
  3. Jaan Masso & Jaanika Meriküll, 2011. "Macroeconomic effects of zero corporate income tax on retained earnings," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 11(2), pages 81-99, December.
  4. Michael Funke, 2002. "Determining Taxation and Investment Impacts of Estonia's 2000 Income Tax Reform," Finnish Economic Papers, Finnish Economic Association, vol. 15(2), pages 102-109, Autumn.
  5. European Commission, 2010. "Taxation trends in the European Union: 2010 edition," Taxation trends 2010, Directorate General Taxation and Customs Union, European Commission.
  6. Masso, Jaan & Meriküll, Jaanika & Vahter, Priit, 2013. "Shift from gross profit taxation to distributed profit taxation: Are there effects on firms?," Journal of Comparative Economics, Elsevier, vol. 41(4), pages 1092-1105.
  7. Merike Kukk & Karsten Staehr, 2014. "Identification of Income Underreporting by the Self-Employed: Employment Status or Reported Business Income?," TUT Economic Research Series 8, Department of Finance and Economics, Tallinn University of Technology.
  8. European Commission, 2013. "Taxation trends in the European Union: 2013 edition," Taxation trends 2013, Directorate General Taxation and Customs Union, European Commission.
  9. Merike Kukk & Karsten Staehr, 2014. "Income underreporting by households with business income: evidence from Estonia," Post-Communist Economies, Taylor & Francis Journals, vol. 26(2), pages 257-276, June.
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