Estonian CIT – will it encourage entrepreneurs to reinvest their profits?
Estonian CIT is a solution which is intended to encourage entrepreneurs to focus on the development of companies. As long as they do not pay- out profit in form of dividend, they will not be forced to pay CIT. In other words, CIT for such enterprises will be zero.
Estonian CIT qualification questionnaire
An interesting and innovative approach of the Ministry of Finance to facilitate checking whether a given entity qualifies for the specific solution was introduced. On the plus side for the government we have to count that an entrepreneur can find an easy to fill questionnaire which give direct answers to each of the conditions. In this way, everyone can check individually whether his company will be entitled to use this solution. The entrepreneur does not have to go to an attorney or tax advisor to verify whether his entity can benefit from this solution. All he needs to do is fill in the questionnaire on the website and get a ready answer.
The qualification questionnaire can be found at the following link: https://www.podatki.gov.pl/estonski-cit/
Unfortunately, there are many conditions to be fulfilled, which significantly deviates from the original solution proposed by the Estonian government. According to the Ministry of Finance, the goal is to reinvest profits and encourage the development of Polish business.
Who is the Estonian CIT for?
As we read on the website of the Ministry of Finance, the solution is directed to:
- small and medium-sized capital companies (with limited liability and joint stock companies) with revenues not exceeding PLN 50 million.
- companies in which the shareholders are only natural persons.
The following companies will be able to use the Estonian CIT:
- which do not hold shares in other entities,
- which employ at least 3 employees – in addition to shareholders,
- whose passive revenues do not exceed revenues from operating activities,
- which show investment outlays.
All above criteria must be met simultaneously.
Not all entrepreneurs will benefit, which is a pity
Unfortunately, start-ups that obtained support financing from investment funds or the so-called Business Angels most likely will not be able to benefit from it, because usually such investors in return for help, require adequate participation in shares of the company. In Polish version of Estonian CIT, only natural persons can be shareholders of the beneficial company. Regrettably it seems that in order to be able to take advantage of this solution, you need to be a profitable, quite well-prospering company. This will not solve the problem of undercapitalization of many Polish entities from the SME sector, which is one of the main development barriers for Polish enterprises. It will also not attract foreign investments as it is rare for a foreign investor to be a natural person.
So the very idea and the form of its presentation are positive. Unfortunately, the implementation is not that much beneficial, but it is a step in the right direction.
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